Hill & Smith Holdings PLC Annual Report and Accounts for the year ended 31 December 2009

Transcription

1 2009 Annua Report and Accounts for the year ended 31 December 2009

2 Stock Code HILS Hi & Smith Hodings PLC Hi & Smith Hodings PLC is an internationa group with eading positions in the design, manufacture and suppy of infrastructure products, gavanizing services and buiding and construction products to goba markets. It serves its customers from faciities principay in the UK, France, USA, Thaiand and China. Contents Overview 01 Key Financia Highights 02 Chairman s Statement Business Review 04 Chief Executive s Review 10 Our Divisions / Management 14 Financia Review 16 Key Performance Indicators 17 Principa Risks and Uncertainties 18 Corporate Socia Responsibiity Review Governance 22 Board of Directors 24 Directors Report 28 Corporate Governance Report 34 Directors Remuneration Report 42 Statement of Directors Responsibiities Financia Statements 43 Independent Auditor s Report 44 Group Financia Statements 86 Company Financia Statements 94 Five Year Summary and Financia Caendar Information 95 Sharehoder Information 96 Principa Group Businesses 98 Contacts and Professiona Advisers Maatite ighting coumns and anterns suppied for New Crossgate rai maintenance faciity. These coumns are hinged for safe maintenance. Front Cover in descending order Varey & Guiver VGAN 300 parapet instaed for the Formua 1 racing event in Abu Dhabi, UAE. Techspan s AMI s used on the M1 junctions 6a-10 Managed Motorway project. Preston Viage North Shieds food aeviation scheme for Northumbrian Water using Asset Internationa s Wehoite pastic piping. Cautionary Statement This Annua Report contains forward ooking statements which are made in good faith based on the information avaiabe at the time of its approva. It is beieved that the expectations refected in these statements are reasonabe but they may be affected by a number of risks and uncertainities that are inherent in any forward ooking statement which coud cause actua resuts to differ from those currenty anticipated.

3 Key Financia Highights Hi & Smith Hodings PLC Stock Code HILS09 Record profit before taxation and earnings per share Underying earnings per share ( *) up by 18.9% Dividends per share up by 15.0% Net debt substantiay reduced by 58.6m Free cash fow increased significanty to 46.6m (2008: 9.4m) Change Revenue 389.7m 419.8m -7.2% Underying operating profit ( *) 47.0m 47.4m -0.8% Underying profit before tax ( *) 42.2m 38.9m +8.5% Underying earnings per share ( *) 38.3p 32.2p +18.9% Basic earnings per share 36.3p 30.0p +21.0% Dividend per share 11.5p 10.0p +15.0% Net debt 87.6m 146.2m m Overview Business Review Revenue 389.7m -7.2% 217.9m 234.6m 329.6m 419.8m 389.7m Underying earnings per share ( *) 38.3p +18.9% 17.9p 21.3p 26.1p 32.2p 38.3p Dividend per share 11.5p +15.0% 6.0p 7.2p 8.7p 10.0p 11.5p Governance Financia Statements Information (*) Non-Underying items represent business reorganisation costs, property items, amortisation of acquistion intangibes, impairments, gains on disposa of avaiabe for sae financia assets, change in the vaue of financia instruments and net financing return on pension obigations. 01

4 Stock Code HILS Chairman s Statement The achievement of record underying (*) profit before tax and earnings per share for 2009 has once again demonstrated the strength of the management teams across the Group. Bi Whiteey Chairman Introduction Firsty, I am deighted to be joining the Company as your new Chairman, foowing the retirement of David Grove on 31 December On behaf of the Board I woud ike to thank David for his considerabe contribution to the deveopment of the Group and the vaue he has added for sharehoders over the ast ten years, formery as Chief Executive and more recenty as Chairman. David s achievement in creating a successfu internationa group is much appreciated by his coeagues and Sharehoders. Together with my feow Directors I ook forward to continuing the successfu deveopment of the Group. Overview The achievement of record underying ( *) profit before tax and earnings per share for 2009 has once again demonstrated the strength of the management teams across the Group, the internationa spread and resiience of its core markets and the eading positions it has in those markets. During the year we reacted quicky to a number of market opportunities and managed costs in ine with changing demand patterns. Overa margins increased and through exceent cash management we achieved a substantia reduction in the eve of net debt. The year has not just been about the strong management of cost, margins and cash. We succeeded in maintaining our market positions, winning major contracts, extended our representation to China with a new operation for the pipe supports business and continued to refine the portfoio of businesses with strategic disposas. In addition we opened a new gavanizing pant in Deaware, USA. Resuts from continuing businesses Group revenue decreased by 7.2% to 389.7m (2008: 419.8m). Profit before taxation in the period increased by 13.1% to 39.7m (2008: 35.1m) and underying profit before taxation (*) increased by 8.5% to 42.2m (2008: 38.9m). Basic earnings per share increased by 21.0% to 36.3p (2008: 30.0p) whereas underying earnings per share (*), a more consistent and meaningfu measure of performance, was 18.9% ahead of ast year at 38.3p (2008: 32.2p). The underying earnings per share (*) has now grown by a compound average growth rate in excess of 21% over the past five years. Dividends The resuts for 2009, together with the Board s confidence in the Group s prospects, enabe the Directors to recommend to sharehoders a fina dividend of 6.8p (2008: 5.7p), making a tota dividend for the year of 11.5p (2008: 10.0p), an increase of 15.0%. The dividend for the year is covered 3.3 times by underying earnings per share (*). Our progressive dividend poicy has increased dividend payments by an average of 20% in each of the ast three years. The fina dividend, if approved, wi be paid on 9 Juy 2010 to those sharehoders on the register at cose of business on 4 June Group strategy The business cimate in 2009 dictated that the main focus was on deivery of earnings, cash generation and cost containment. However, investment continued to be made in deveoping products and operations for strategic markets in the road and utiities sectors. The deveopment of the Group s interest in overseas markets remains a key priority, and projects in the US, India and China were initiated or enhanced. The pursuit of organic and acquisition growth opportunities are a priority for the current year. Finance Cash generated from operations was again strong at 71.0m (2008: 54.2m) refecting both significanty ower eves of working capita and the cuture of cash management now embedded throughout the organisation. Reduced capita expenditure was in ine with expectations at 11.7m (2008: 22.5m) which represents a mutipe of depreciation and amortisation of 0.8 times (2008: 1.8 times). The Group continues to invest seectivey in avaiabe opportunities where returns are highest and which exceed interna benchmarks. The substantia cash generation during the year resuted in Group net debt at 31 December 2009 being 87.6m, a reduction of 58.6m compared to the previous year ( 146.2m). At the year end the Group had tota debt faciities avaiabe of 203.6m incuding committed term faciities of 177.0m. The faciities at its disposa provide significant headroom against its expected funding requirements. 02

5 Stock Code HILS09 Disposas The Group made two strategic divestments during the year. In June, the Group disposed of its utimate minority sharehoding in Neho BV, a Netherands based company with gavanizing operations across the Beneux region, for a net cash consideration of 5.7m ( 4.9m). Athough operating in the gavanizing sector this minority interest was not regarded as a ong term investment opportunity. The cash proceeds were used to reduce the Group s net debt and the disposa reaised a profit on sae of 1.0m. In December, the Group sod Ash & Lacy Perforators Limited, a UK company operating in the perforated meta sector, for a consideration of 3.1m (incuding cash baances disposed of 2.1m) resuting in a oss on disposa of 0.6m for this non-core business. Empoyees The Group has some 3,000 empoyees, a of whom underpin our performance. On behaf of the Board I woud ike to express our thanks for their hard work and enthusiasm and congratuate them on achieving another record performance. Board of Directors During the year Jock Lennox joined the Board, as an independent Non-Executive Director, foowing the retirement of Dick Richardson at the 2009 Annua Genera Meeting. In addition to being a former partner at Ernst & Young, Jock has considerabe experience across a wide range of industries and in internationa transactions and expansion. Jock aso succeeded Dick Richardson as Chairman of the Audit Committee. Howard Marsha, having competed over nine years of vauabe service to the Board, wi not, in ine with corporate governance practice, be standing for re-eection at the Annua Genera Meeting to be hed on 7 May During his time as a Non-Executive Director Howard has brought an independent, baanced and experienced view to the Board and has contributed significanty to the deveopment of the Group. Aong with his feow Directors and coeagues I thank Howard for a that he has done for the Company. The future The Board beieves that the Group wi continue to show resiience in its performance and good progress in the deivery of its strategy. We have strong positions in our markets, a good geographica spread, cash generative businesses and a baance sheet and financing faciity that enabe us to pursue further deveopment opportunities that may arise. Bi Whiteey Chairman 9 March 2010 (*) Non-Underying items represent business reorganisation costs, property items, amortisation of acquisition intangibes, impairments, gains on disposa of avaiabe for sae financia assets, change in the vaue of financia instruments and net financing return on pension obigations. Overview Business Review Governance Financia Statements Information 03

6 Stock Code HILS Business Review Chief Executive s Review We deivered robust trading around the word and our overseas operations now account for over fifty per cent of tota underying operating profit ( *). Derek Muir Group Chief Executive Performance Throughout 2009 we continued to demonstrate our abiity to innovate and adapt our product offering and to maximise opportunities in our core product range and geographica markets. We deivered robust trading around the word and our overseas operations now account for over fifty per cent of tota underying operating profit (*). The year aso invoved a more intense focus on the management and consoidation of our operations, as we adapted our cost base to the changes in demand and the economic environment. Strategic drivers Organic growth Geographic expansion Strategic acquisitions Legisative growth Net debt was significanty reduced with strong operating cash fows and eary action to reduce voume reated costs enabed us to deiver good operating resuts for 2009 in what was a difficut trading environment. Revenue decreased by 7.2% to 389.7m (2008: 419.8m) due to ower raw materia prices and voumes, especiay in the Gavanizing Services division. Acquisitions competed in 2008 contributed 8.4m additiona revenue and favourabe appreciation of the US$ and the Euro exchange rates added a further 19.4m. Underying operating profit (*) was maintained at 47.0m (2008: 47.4m) of which acquisitions made in 2008 accounted for 0.9m. Favourabe exchange rate movements contributed a further 3.4m of profit (7.2%), and the underying operating margin (*) improved by 0.8% to 12.1%. A review of each of the Group s three operating divisions of Infrastructure Products, Gavanizing Services and Buiding and Construction Products is given on page 5 to 9. Group Strategy The strategic objective is to deiver a consistent growth in earnings, dividend and sharehoder vaue. We aim to continue our track record of deivery of this objective through concentration on our core markets and a cear focus on four key strategic drivers. Strategic drivers Progress during 2009 Organic growth Competed major contract for Asia suppying our new Stronguard fencing product. Increased penetration in the energy/power markets. Achieved acceptance of Zoneguard in Canada in addition to the existing eight US States. Geographic expansion New pipe supports pant in China became fuy operationa. Undertook groundwork for estabishment of new representation in India for Pipe Supports and Hi & Smith infrastructure products. Continued USA gavanizing expansion programme with new pant in Deaware. Strategic acquisitions Continued to assess acquisition of suitabe businesses invoved in the road and utiities sectors. Increasing egisative requirements in our markets Maximised opportunities arising from committed Government spend. Undertook further product deveopment for the security sector. 04

7 Stock Code HILS09 These actions have continued the deveopment of our product offering and representation in generay resiient markets, where we see potentia for both domestic and internationa growth. Fundamenta to the continued deivery of our strategy is the retention and strengthening of our position as a preferred suppier in the chosen market segments. To achieve this we have experienced and entrepreneuria management teams in pace, capabe of deivering product deveopment and vaue based soutions. Infrastructure Products (IP) The IP division is focused on four main markets roads, rai, utiities and security and accounted for 52% of tota revenue for We have deveoped HS Roads, HS Rai, HS Utiities and HS Security to drive each business unit s growth of revenue and profitabiity in these sectors. The division s extensive range of products incude permanent and temporary road safety barriers, fencing, overhead sign gantries, street ighting coumns, bridge parapets, demountabe car parks, gass reinforced pastic (GRP) raiway patforms, variabe road messaging soutions, traffic data coection systems, pastic drainage pipes, pipe supports for the power and iquid natura gas (LNG) markets, energy grid components and security fencing. Revenue increased by 5.6% to 202.5m in 2009 (2008: 191.8m) which incuded a currency transation benefit of 6.9m. Underying operating profit (*) was improved by 5.6% to 24.5m (2008: 23.2m), incuding a currency transation benefit of 1.1m. In its first fu year since acquisition, Creative Putrusions contributed an additiona 8.4m revenue and 0.9m operating profit. HS Roads A strong performance was achieved in a number of the key business units suppying the UK roads sector, which benefitted from the UK stimuus spend focused on improving road safety and increasing the capacity of the road network. In 2009 the Highways Agency acceerated its managed motorway programme to provide hard shouder running at peak times on congested motorways, resuting in a record year for our variabe eectronic message signage business. We have a strong order book entering 2010 and the Highways Agency has now announced four contractors for the 2 biion programme, which runs through to This wi create further demand for our temporary and permanent barriers, new ightweight gantries, variabe eectronic message signage and ighting coumns. During the year renta of our Varioguard temporary barrier reached record utiisation eves and our renta feet was increased by 25km to 173km to accommodate the depoyment of 46km on the M25 widening project, which wi remain in pace unti the 2012 Oympics. Our permanent vehice restraint systems, Fexbeam, Brifen and VGAN, produced an exceent performance both in the UK and in the export markets of Scandinavia, USA and the Midde East. Aso our Varey & Guiver parapet was instaed on prestigious internationa projects such as the YAS Isand F1 Grand Prix Circuit and the Sheikh Zayed Bridge, both in Abu Dhabi. In the UK, financing for street ighting PFI s was reeased for a number of projects. Maatite, our UK street ighting operation, secured an 8m five year suppy contract for 72,000 ighting coumns in Surrey and a 10m contract, for the South East Coast PFI, for 100,000 ighting coumns; both contracts starting in the eary part of Our ighting coumn operation in France had a disappointing start to 2009 due to the poitica and financia impact of the oca eections athough the order intake improved in the second haf, as more funds were reeased for infrastructure expenditure. Overview Business Review Governance Financia Statements Information 05

8 Stock Code HILS Business Review Chief Executive s Review Instaation of our Top Deck demountabe car parking at Asda Bristo which provides an extra 280 parking spaces for the supermarket. The car park was constructed in ess than four weeks with minima disruption to Asda s operations and deivering rapid financia returns. 06

9 Stock Code HILS09 During the year renta of our Varioguard temporary barrier reached record utiisation eves and our renta feet was increased by 25km to 173km. In the year, TopDeck instaed a arge demountabe car park for a supermarket project in Bristo. Athough it was otherwise a disappointing period for this new product, as capita projects were impacted by the economic environment, funding for arge capita projects has become more readiy avaiabe and the eve of interest in the product has started to improve. We suppied our Zoneguard temporary vehice restraint system on twenty five projects covering eight US States. In January 2010 the first Zoneguard project in Canada was competed as part of our strategy to suppy into countries where the US Standard NCHRP350 is adopted. HS Rai The order intake in the Rai business was beow our initia expectations for We have, however, started 2010 on a positive note and have recenty been awarded a contract for our quick buid GRP raiway patform, with construction due to start in March on the first extension project. The framework of 14 contractors for the rai patform extension programme is now in pace and we expect increased activity over the next three years. HS Security Our anti-personne, high security systems for perimeter fencing were used on a number of strategic homeand security sites such as airports and miitary bases and aso cash coection depots. In the year we competed our argest order for the newy deveoped Stronguard fencing which was suppied to a godmining project in the Asia Pacific region. This substantia order demonstrates the strength of our product innovation and abiity to penetrate new geographica markets. HS Utiities We continued to grow our market share of energy expenditure around the word. Our pipe supports operation in Thaiand had an exceent first haf in 2009 on the back of a strong order book. The second haf order intake was sower due to the ack of funding for new projects but this has since improved and orders are now being paced. We anticipate 2010 to be the reverse of 2009 with a sower start but a stronger finish to the year. The new pipe supports manufacturing faciity in China is fuy operationa and we are encouraged by the eve of enquiries received. The water authorities in the UK are moving from AMP4 (Asset Management Programme) to AMP5 and the focus wi be on the improvement of storm water overfows and prevention of fooding. Our Wehoite arge diameter pastic pipe business had a steady year in 2009 and we are encouraged by the increase in enquiries for new storm water retention tanks from the major house buiders as the sector recovers. Our order book is now back to the eves seen in In the USA the V&S Utiities operation started the year we. However, the expected boost from the US stimuus package for nationa grid improvements has not yet materiaised with a number of projects being deayed. Enquiry eves have now improved and we anticipate that some benefits from the stimuus wi be seen in Gavanizing Services Our gavanizing operations provide zinc and other coatings for a wide range of products incuding fencing, ighting coumns, structura stee work, bridges, agricutura and other products for the infrastructure and construction sectors. For 2009 gavanizing services generated 29% of Group revenue. Due to the continued difficuties in the goba economy, revenues decined by 10.9% to 113.2m (2008: 127.1m) despite a currency transation benefit of 12.3m. Underying operating profit ( * ) of 21.4m, incuding currency transation benefits of 2.2m, was up 8.6% (2008: 19.7m) and operating margins improved to 18.9% (2008: 15.5%) as a resut of the swift action taken during the year to contro costs and adapt our working patterns to suit demand. In the first haf of 2009 we saw a 24.9% decine in gavanizing voumes, compared to the first haf of The second haf of the year saw a marked improvement in the trend with voume decine year on year for the second haf down to 12.1%, producing an overa decine for the fu year of 19.1%. Overview Business Review Governance Financia Statements Information 07

10 Stock Code HILS Business Review Chief Executive s Review Hot dip gavanizing of a spira staircase. 08

11 Stock Code HILS09 Our infrastructure markets in particuar have continued to be productive, providing the Group with opportunities both in the UK and internationay. Voumes in both the UK and France were better than expected in the second haf of the year, with France Gava in particuar producing a strong resut for 2009 that was further improved by currency transation benefits. In the US voumes from the anticipated stimuus spend did not materiaise athough the new pant in Deaware, had an exceent first year processing 7,200 tonnes and producing revenue of $4.3m. This continues to give us confidence to invest in the expansion of our US operations in readiness for the beneficia impact of the Government stimuus. Buiding and Construction Products This division suppies roofing systems, safety handrais and fooring, intes and residentia doors in stee and, increasingy, composite materia. These buiding and construction products are for a range of UK construction projects incuding housing, schoos and industria buidings. Revenue in 2009 for the division represented 19% of Group revenue. Revenues decined 26.7% to 74.0m (2008: 100.9m) refecting the severe downturn in the UK construction market. Consequenty, despite decisive action to reduce the cost base, underying operating profit (*) fe by 3.4m to 1.1m (2008: 4.5m). Voumes in our inte and residentia door business improved throughout the year, abeit from a ow base, and the signs are encouraging for the new year. The roofing division which suppies industria and commercia buids was aso affected by the economic cimate. We do not anticipate any upturn in voumes unti at east the second haf of 2010 when the recenty announced PFI Buiding Schoos for the Future programme wi commence. Industria fooring voumes for the smaer, high margin projects remain depressed whie the arger infrastructure projects, for which we suppy product, are ony now being reeased for the construction sector. Outook Our infrastructure markets in particuar have continued to be productive, providing the Group with opportunities both in the UK and internationay. In the UK we aim to maximise opportunities arising from committed spend on major infrastructure projects such as managed motorway programmes, rai patform extensions, food aeviation schemes and heath and safety on roads. In our overseas markets the increase in tendering and order pacement activity in 2010 for the oi, gas, iquid natura gas and power generation markets, indicates signs of recovery. Activity eves in our other markets continue to be impacted by the genera economic cimate and we do not anticipate any materia increase in voumes. Nevertheess, the cost reduction initiatives put into pace in 2009, together with continued focus on pricing discipine, wi further strengthen the resiience of our margins and earnings. Through its strong presence in generay robust markets, improved geographica spread and product diversity, the Group is we positioned for 2010 and beyond. Derek Muir Group Chief Executive 9 March 2010 (*) Non-Underying items represent business reorganisation costs, property items, amortisation of acquisition intangibes, impairments, gains on disposa of avaiabe for sae financia assets, change in the vaue of financia instruments and net financing return on pension obigations. Overview Business Review Governance Financia Statements Information 09

12 Stock Code HILS Business Review Our Divisions Infrastructure Products Focused on four main markets roads, rai, utiities and security suppying products and services such as permanent and temporary road safety barriers, fencing, overhead sign gantries, street ighting coumns, bridge parapets, demountabe car parks, gass reinforced pastic raiway patforms, variabe road messaging soutions, traffic data coection systems, pastic drainage pipes and pipe supports for the power and LNG markets, energy grid components and security fencing. Operating from subsidiaries in the UK, France, USA, Thaiand and China. Gavanizing Services Providing zinc and other coating services for a wide range of products incuding fencing, ighting coumns, structura steework, bridges, agricutura and other products for the infrastructure and construction markets. Services are deivered from a network of gavanizing operations in the UK, France and USA. Buiding and Construction Products Suppying in stee and composite materias products such as roofing systems, safety handrais and fooring, intes and doors, a with a range of uses incuding arge infrastructure projects invoving schoos and other pubic buidings. A pants are based in the UK. Group Business mix Revenue Infrastructure Products 202.5m Gavanizing Services 113.2m Buiding and Construction Products 74.0m Underying operating profit (*) Infrastructure Products 24.5m Gavanizing Services 21.4m Buiding and Construction Products 1.1m Revenue m Underying operating profit (*) m (*) Non-Underying items represent business reorganisation costs, property items, amortisation of acquistion intangibes, impairments, gains on disposa of avaiabe for sae financia assets, change in the vaue of financia instruments and net financing return on pension obigations. 10

13 Stock Code HILS09 Divisiona Management We have experienced and entrepreneuria management teams in pace, capabe of deivering product deveopment and vaue based soutions Mark Tonks UK. Managing Director Hi and Smith Ltd and Varey & Guiver Ltd Mark joined Hi & Smith Ltd in Apri 1997, becoming Saes and Marketing Director during 1998, before taking on his current roe. He has payed a significant part in eading product deveopment, marketing strategies and business improvement within Infrastructure Products. 2. Yves Deot France. President France Gava SA Yves started his career in the gavanizing business in 1972 and has been invoved in the manufacture of street ighting coumns since Brian Mier USA. President Voigt & Schweitzer, LLC. Brian has been with Voigt & Schweitzer, LLC. since 1993 when he started as the Finance Director. Appointed President in 2009, he was previousy empoyed by the accounting firms of Crowe Chizek and Company and Arthur Andersen. 4. Richard Jones Asia. President Pipe Supports Group Richard joined Pipe Supports in 1974, became a Director in 1982 and Managing Director in He is heaviy invoved in setting up overseas saes networks and estabishing manufacturing in ow cost countries Steven Hopkins UK. Managing Director Joseph Ash Gavanizing A quaified chartered accountant, Steven joined Hi & Smith Hodings PLC in 1988, initiay as acquisitions manager. He took over responsibiity for a new, state of the art gavanizing pant in 1997, taking on his current roe in He is currenty Chairman of the Gavanizers Association. 6. Peter Lombardi UK. Managing Director Industria Fooring Products Peter joined the Group in Prior to this he hed senior positions in internationa manufacturing companies incuding Genera Motors Components Group, Rockwe Internationa and Suter Pc. Overview Business Review Governance Financia Statements Information 11

14 Stock Code HILS Business Review Beow is the Varey & Guiver VGN 300 bridge parapet constructed on the ony bridge eading to the Yas Marine hote on the Abu Dhabi Formua 1 race circuit. VGN 300 parapet was chosen not ony for its functiona performance but aso its aesthetic quaities. 12

15 Stock Code HILS09 Overview Business Review Governance Financia Statements Information 13

16 Stock Code HILS Business Review Financia Review Cash generated from operations was again strong refecting the cuture of cash management now embedded throughout the organisation. Mark Peger Group Finance Director Overview From our continuing operations, we generated record eves of profitabiity despite ower revenues. Revenue decreased by 7.2% to 389.7m (2008: 419.8m). Underying operating profit (*) of 47.0m was in ine with the prior year of 47.4m resuting in underying operating profit margins (*) improving to 12.1% (2008: 11.3%). Lower financing costs contributed to underying profit before taxation (*) growing by 8.5% to 42.2m (2008: 38.9m) and underying earnings per share (*) were 18.9% higher at 38.3p (2008: 32.2p). Disposas The Group made two divestments of non-core businesses during the year. In June, the Group disposed of its utimate minority sharehoding in Neho BV, a Netherands based company with gavanizing operations across the Beneux region, for a net cash consideration of 5.7m ( 4.9m). The cash proceeds were used to reduce the Group s net debt and the disposa reaised a profit on sae of 1.0m. In December, the Group sod Ash & Lacy Perforators Limited, a UK company operating in the perforated meta sector for a consideration of 3.1m (incuding cash baances disposed of 2.1m) resuting in a oss on disposa of 0.6m. Exchange rates In common with other companies with internationa operations, revenue and underying operating profit (*) benefitted during 2009 from favourabe average exchange rates used to transate overseas earnings into Stering compared to those utiised in Retransating 2008 revenue and underying operating profit (*) using 2009 average exchange rates woud have increased the prior year resuts by 19.4m (5%) and 3.4m (7%) respectivey. The average and year end exchange rates used to transate the Group s overseas operations were as foows: Average Year end Stering Euro US $ Thai Baht Finance costs Notwithstanding the adverse impact of transation due to exchange rate movements, net financing costs fe by 3.1m to 5.2m, principay refecting ower eves of average net debt and continued ow interest rates. The net cost from pension fund financing under IAS19 was 0.5m (2008: 0.2m income) and given its non-cash nature continues to be treated as Non-Underying in the Consoidated Income Statement. The cash eement of net financing costs is 4.8m (2008: 8.0m). Underying operating profit (*) covered net cash interest 9.8 times (2008: 5.9 times). During the first quarter of 2009 the Group took advantage of the ower interest rate environment by entering into three year interest rate swap agreements covering approximatey haf of its committed term debt. The interest rate swaps wi contribute to protecting the Group against any adverse movements in future rates. Tax The Group s tax charge for the year was 12.2m (2008: 15.3m). The underying effective tax rate (*) for the continuing businesses was 31.3% compared to 37.5% for 2008 refecting improvements in the Group s ega structure foowing the acquisition of the remaining minority interest in Zinkinvent GmbH in The internationa nature of our operations does mean that the mix of profits in a particuar year can impact the rate of tax that we pay. Dividend The Group has a progressive dividend poicy of increasing the dividend paid to sharehoders broady in ine with earnings growth, after taking into account the investment needs of the business. Consistent with this poicy, the Board has recommended a fina dividend in respect of 2009 of 6.8 pence, making the fu year dividend 11.5 pence, an increase of 15.0% on the tota paid in respect of 2008 (10.0 pence). Underying dividend (*) cover was a heathy 3.3 times (2008: 3.2 times). Cash generation and financing Cash generated from operations was again strong at 71.0m (2008: 54.2m) refecting both significanty ower eves of working capita and the cuture of cash management now embedded throughout the organisation. Reduced capita expenditure was in ine with expectations at 11.7m (2008: 22.5m) which represents a mutipe of depreciation and amortisation of 0.8 times (2008: 1.8 times). The Group 14

17 Stock Code HILS09 (*) Non-Underying items represent business reorganisation costs, property items, amortisation of acquistion intangibes, impairments, gains on disposa of avaiabe for sae financia assets, change in the vaue of financia instruments and net financing return on pension obigations. continues to invest seectivey in avaiabe opportunities where returns are highest and which exceed interna benchmarks. The substantia cash generation during the year resuted in Group net debt at 31 December 2009 being 87.6m, a reduction of 58.6m against 31 December 2008 ( 146.2m). The Group s net debt remains principay denominated in Euros and US Doars which act as a hedge against the net asset investments in overseas businesses. Net debt decreased year on year by 11.7m due to exchange rate movements. Change in Net Debt m m Operating profit Depreciation and amortisation Working capita movement 11.8 (1.7) Pensions and provisions (1.2) (2.3) Other items Operating cash fow Tax paid (9.6) (16.0) Interest paid (net) (3.7) (7.0) Capita expenditure (11.7) (22.5) Sae of fixed assets Free cash fow Dividends (7.5) (6.6) Acquisitions and disposas 7.1 (4.3) Shares issues Change in net debt Continuing operations 46.9 (1.4) Discontinued operations Opening net debt (146.2) (117.8) Exchange 11.7 (32.6) Cosing net debt (87.6) (146.2) Incudes 0.9m (2008: 0.6m) in respect of acquisition intangibes. At the year end the Group had committed faciities avaiabe of 177.0m and a further 26.6m in overdrafts and other on demand faciities. The Group s principa debt faciity is a 150m muti currency faciity signed in June 2007 and which runs to June Funding avaiabe under this faciity at 31 December 2009 amounted to 146.0m. The faciity amortises throughout its existence with 16.9m and 21.5m faing due for repayment in 2010 and 2011 respectivey. The principa debt faciity is subject to covenants which are tested semi-annuay on 30 June and 31 December. The covenants require that the ratio of EBITDA (adjusted profit before interest, tax, depreciation and amortisation as defined in the faciity agreement) to net interest costs must exceed four times and require the ratio of net debt to EBITDA to be no more than three times. The resuts of the covenant cacuations at 31 December 2009 were: Actua Covenant Interest Cover 12.8 times 4.0 times Net debt to EBITDA 1.3 times 3.0 times Appropriate monitoring procedures are in pace to ensure continuing compiance with banking covenants and, based on our current estimates, we expect to compy with the covenants in the foreseeabe future. The faciities at the Group s disposa provide significant headroom against its expected funding requirements. Pensions The Hi & Smith Executive Pension Scheme and the Hi & Smith Pension Scheme (the Schemes ) remain the argest empoyee benefit obigations within the Group. In common with many other UK companies, the Schemes are mature having significanty more pensioners and deferred pensioners than active participating members. Subsequent to the year end the Group agreed the triennia vauation for the two UK defined benefit pension pans as at 5 Apri This vauation resuted in a funding deficit of 26.7m. A recovery pan has been agreed with the Trustees that requires deficit funding payments of 1.9m for three years, foowed by payments of 2.3m for a further seven years. The current eve of deficit funding amounts to 0.6m. The date of the next triennia review wi be 5 Apri The IAS19 deficit at 31 December 2009 for the Group s defined benefit pans was 16.7m, up from 11.8m in the prior year. The increase principay refects ower corporate bond yieds together with higher infation expectations. Mark Peger Group Finance Director 9 March 2010 Overview Business Review Governance Financia Statements Information 15

18 Stock Code HILS Business Review Key Performance Indicators The Board of Hi & Smith Hodings PLC has adopted certain financia and non-financia Key Performance Indicators (KPIs) as stated beow. Other simiar performance indicators are used at the subsidiary business eve adapted to suit the diversity and variety of the Group s operations. Revenue Our aim is to increase revenue each year through a combination of price and voume increases, organic growth and acquisition. In 2009, our Group revenue fe by 7.2% to 389.7m, primariy as a resut of ower voumes, raw materia prices and the genera economic cimate. Underying operating margin (*) This represents the Group s underying operating profit (*) divided by Group revenue. In 2009 our underying operating margin (*) was 12.1% compared to 11.3% in the previous year. Profitabiity The Group measures profitabiity KPIs at a eves. The fina resuts for 2009 produced year on year increases in underying profit before tax (*) and underying earnings per share (*) of 8.5% and 18.9% respectivey. Net cash from operating activities The Company activey monitors working capita eves in a its operations. In 2009 the Group generated free cash fow of 46.6m (2008: 9.4m) incuding a working capita infow of 11.8m driven by the Group s continued focus on working capita management. Heath and safety The heath and safety performance of each subsidiary is monitored and reviewed at each monthy Board meeting. The number of reported accidents is monitored each month and appropriate action taken. In 2009 we achieved a 33% year on year reduction in the number of accidents. From the new programme of site audits, carried out by externa consutants, a weighted scoring system has now been introduced for benchmarking and targeting an overa improvement in heath and safety performance. Sustainabiity We continue to track our performance on CO 2 emission reduction and have added CO 2 tonnes per m of revenue to our interna reporting. Further detais of our achievement for 2009 and our pans for 2010, are contained in the Corporate Socia Responsibiity Report on pages 18 and 19. (*) Non-Underying items represent business reorganisation costs, property items, amortisation of acquisition intangibes, impairments, gains on disposa of avaiabe for sae financia assets, change in the vaue of financia instruments and net financing return on pension obigations. 16

19 Stock Code HILS09 Principa Risks and Uncertainties The Group is required to formay review the principa areas of risk and uncertainty for a its businesses in order for the major risks to be addressed at a eves. Outined beow is a description of the principa risks and uncertainties specific to our businesses, together with commentary on the monitoring and mitigation of such risks. Reated detais are provided in Note 26 on page 85. Market dynamics and competition The Group operates in a business environment where it needs to be proactive to market dynamics incuding customer preference, new technoogy, reguatory changes and competition, a of which coud have an adverse effect on the financia performance of the Group. The Group derives part of its revenue from Government spending on infrastructure projects, such as road and rai and any timing, funding or poicy issues can have an adverse impact on key areas of the business. Our investment and commitment to research and product deveopment continues to ensure we maintain strong competitive market positions. We monitor those businesses most ikey to be impacted by these risks and the markets in which they operate, working with customers and reguatory bodies and where necessary expanding our geographica reach and product portfoio. Commercia reationships The Group benefits from cose commercia reationships with a number of ong standing key customers and suppiers. The oss of any of these or a significant worsening of commercia terms coud have an impact on the Group s reported resuts. The Group ensures sufficient resource is devoted to maintaining the cose working reationships we have with customers and suppiers. Product faiure Many of the Group s products are suppied to the pubic sector for the benefit of members of the pubic. To the extent that any of the Group s products fai, this coud generate adverse pubicity and have a simiar effect on the Group s reputation, its financia position and its abiity to win new business. Where appropriate, accreditation, reguatory approva and testing are undertaken to reach required compiance eves. Quaity contro procedures are appied in tandem with the compiance requirements to ensure products are safe and fit for purpose. Reguar reviews are aso undertaken with the Group s insurance brokers. Suppy of key raw materias In recent years there has been significant voatiity in the price of certain of the Group s key raw materias, particuary stee, which is used in the fabrication of many of the Group s products, and zinc, which is used in the Group s gavanizing operations. We monitor the avaiabiity and price of key raw materias and forward purchase these where judged to be appropriate. Where market conditions permit, any increase in raw materia or energy costs are refected in our seing prices. Financia risks The Group is exposed to a number of financia risks incuding credit risk, iquidity risk and market risks. A description of these risks and the Group s approach to managing them is described in Note 21 and on pages to the Group Financia Statements. Pensions Factors outside the Company s contro, such as mortaity rates, interest and infation rates and investment performance, may ead to an increase in the deficit and Company contributions. The Group iaises reguary with the Trustees on a aspects, incuding assessment of the risks factors, appropriate mitigating actions and investment performance of the assets. Environmenta and heath and safety risks Changes in egisation and standards, or the Group s faiure to adequatey contro environmenta risks, may have an adverse effect on the Group. A serious faiure on the part of the Group to adequatey contro its heath and safety risks coud have an adverse impact on its operations, reputation and financia performance. Operationa management work within the poicies and processes aid down by the Group. Where appropriate outside speciaist expertise is engaged and recommendations and improvements monitored for impementation as necessary. Overview Business Review Governance Financia Statements Information 17

20 Stock Code HILS Business Review Corporate Socia Responsibiity Our strategy To make the principes of Corporate Socia Responsibiity (CSR) part of our business to ensure high standards of corporate behaviour are maintained throughout the Group. This wi be demonstrated by measured improvements in our CSR performance and our business activities being conducted in a responsibe, fair and baanced manner. Responsibiities and accountabiity The Board of Directors have impemented poicies deaing with the Group s responsibiities for the environment and reationships with its various stakehoder groups, incuding its empoyees. The poicies are based upon a combination of custom and practice from around the Group aong with industry best practice. These poicies are reviewed and updated, as and when necessary, to refect changes to egisation, emerging best practice and the needs of the business; they set the framework for the impementation and deveopment of the CSR activities throughout the Group. D W Muir, the Chief Executive, is the main Board Director responsibe for CSR in the Group. Operating company Managing Directors are responsibe for compiance with the Group s poicies, their communication across the business units and impementation of the supporting principes. This invoves appropriate deegation in parts of the operating companies and in certain cases has evoved into specific and expanded roes for individua empoyees who act as the oca CSR champion. A our empoyees have a responsibiity to be aware of, and to compy with, the Group s poicies and procedures, which have been deveoped for their guidance and to reguate the conduct of the day-to-day operations of the business. Empoyees are encouraged to make suggestions to improve these poicies and procedures. Key performance indicators (KPIs) We continue to operate KPIs covering carbon (CO 2 ) emissions, energy consumption and heath and safety. Priorities for 2009 In our ast Annua Report we identified the foowing priorities: Further improvements in energy conservation and management of CO 2 emissions. Our CO 2 emissions were reduced by 9%, exceeding our annua target of 5%. As a resut of ower production voumes in our gavanizing pants, which adversey affected energy usage efficiency, the saving of 1.8%, on Co 2 tonnes per m of revenue, was not as high as in previous years. Heath and safety accident reduction and management of ost working time. Across the Group we achieved a 33% reduction in the number of accidents. Our management and recording of ost working time has aso improved and wi aow us to effectivey monitor and set reaistic targets. Improved waste management A number of operations have impemented waste recycing schemes and initiatives to reduce packaging. We are continuing to review opportunities to effect improvements and structure suitabe reporting and monitoring criteria for Increased eves of training and deveopment Overa eves of training and deveopment were maintained and in certain instances increased as a number of operating companies appied for compiance and standards recognition. Maatite Limited based in Chesterfied were awarded ISO which was added to their OHSAS and ISO 9001 achievements. The industria fooring operation at Lionwed Kennedy in Middesbrough was aso presented with the RoSPA god award in recognition of its training and heath and safety performance. Review of standards for our suppiers Increased compiance with the standards referred to on page 21 and with our Code of Business Operation, has resuted in improved quaity, deivery and contro. We are continuing to work on this issue in

21 Stock Code HILS09 CO 2 and energy management The Group s operating units iaise with our externa energy consutants and the Carbon Trust, on the practices and initiatives for the improvement in the reduction of our CO 2 emissions. As we come to the fina year of our three year programme we are ooking at the next stage of energy and CO 2 management, particuary in reation to the Carbon Reduction Commitment ( CRC ). In conjunction with our consutants and the Carbon Trust we are reviewing our management of the CRC. For the UK operations, our consutants carried out further reviews of energy consumption, focusing upon routine maintenance, the repair of compressors, reviewing and adjusting heating systems and improving ighting efficiency. Savings have been produced at reativey ow cost and have contributed to our overa 9% year on year, reduction in CO 2 emissions. Of particuar note during the year was the achievement of the ISO accreditation for Maatite in the UK. At the beginning of the year one of our UK operations instaed a rainwater harvesting system to capture surface water run-off. The tanks for the system are manufactured from Wehoite pastic pipe made by another Group operation, Asset Internationa, and store 300,000 itres of rainwater that can be used in the pants production process. Construction, operations and maintenance of the harvesting system were neither abour or energy intensive. Pastic Wehoite storm water and storage piping is an exampe of an environmentay friendy product manufactured by the Group. Asset Internationa competed a project for Severn Trent Water using Wehoite which wi deiver an extra saving of CO 2 equa to 2,600 tonnes, compared to aternative products. Wind turbine Having carried out a detaied evauation of the introduction of a 2 mwh wind turbine, at the ony site potentiay suitabe, we concuded that the project was neither economicay or operationay viabe. Vehice feet Both in respect of our commercia feet and company car feet we have: fitted GPS tracking devices to deivery vehices reducing engine iding times by 80%; continued our coaboration with suppiers to further reduce the number of orry mies for deiveries; upon repacement, further encouraged the use of ower emission company cars, as manufacturers improve the CO 2 performance; encouraged the use of car sharing and cycing schemes amongst our empoyees. Waste reduction Throughout the Group initiatives invoving reativey itte expenditure have been impemented to improve recycing and packaging usage. Joseph Ash (Teford pant) invested in a machine to hande aeroso paint cans, transforming them from hazardous waste to saeabe scrap. At another Joseph Ash gavanizing pant in Chesterfied we instaed an additiona fux treatment pant that reduces chemica usage, wastage and through greater energy efficiency, CO 2 emissions. We continue to assess individua opportunities and an appropriate overa strategy for the management of waste. Environment Our Environmenta Poicy is avaiabe throughout the Group and is pubished on our website. The poicy requires high standards at a sites with the objective of continuous improvement in environmenta performance, based on risk assessment and the management and mitigation of identified risks. Business in the community As in previous years our businesses have been invoved in a variety of oca community projects. In the UK we have extended our reationship with Business in the Community and are currenty deveoping with them a scheme to benefit oca schoos through work pace awareness and training. Other companies across the Group engaged with their oca communities on schemes ranging from Eco-Schoo assistance to oca charity funding and event support and sponsorship. In the USA and Thaiand we aso sponsored the panting of over 1,000 trees. Heath and safety performance 2009 We set ourseves a target of reducing the number of accidents by 10% year on year for each of the three years We have again met our target for 2009 with the achievement of a substantia 33% reduction in the number of accidents year on year. Unfortunatey two fataities occurred at our sites during the year. The first incident resuted from a working at height accident at Bromford Lane, West Midands, where a third party was carrying out works under the direction and contro of a new tenant, from outside the Group, who was in occupation of a buiding on our site. The second incident occurred at our V&S LLC gavanizing pant in Michigan, USA where an empoyee was invoved in an accident whist a crane was in operation. Both incidents are currenty the subject of investigation by the reevant enforcement authorities. Over the past year we have: undertaken eeven site audits reviewing management systems and activities; actioned appropriate audit report findings to ensure continuous improvement in our heath and safety performance; investigated, where appropriate reportabe (RIDDOR) accidents and impemented any necessary changes to procedures. Overview Business Review Governance Financia Statements Information 19

22 Stock Code HILS Business Review Corporate Socia Responsibiity Empoyment Poicies The Group reies upon the abiities and commitment of its empoyees and has a cear poicy objective of promoting an environment in which a empoyees are motivated and enabed in order to achieve their best. Empoyees at a eves throughout the Group are encouraged to make the fuest contribution. Fairness and equa opportunity are core to the Group s empoyment poicy and this appies to not ony any job appicant or matters reating to gender, age, race, sexua preference, marita status, reigion, beief or disabiity but aso promotion deveopment and training. The Group has a poicy of non-discrimination and does not toerate buying or harassment in any form. The Group gives fu consideration to appications for empoyment from disabed persons where the requirements of the job can be adequatey fufied by a handicapped or disabed person. In the event of an existing empoyee becoming disabed continuing empoyment wi be provided wherever practicabe. Each operating subsidiary has empoyment and reated poicies and procedures taiored to the oca operations and detaied in staff handbooks or empoyment terms and conditions. These are reviewed and updated as necessary in the ight of any egisative or empoyment practice changes. The Board vaues two way communication between the business units management and empoyees on a matters affecting the wefare of the business incuding reguar senior management visits to operating units. The Group has poicies and procedures in pace to compy with the appropriate requirements of the Data Protection Act. Empoyee invovement and reward Effective communication is encouraged within the Group through the subsidiary company management, the Group s website and intranet and the deveopment of centraised briefings and training programmes The Group continues to encourage empoyee share ownership through the 2005 Empoyee ShareSave Scheme. Training and deveopment Recruitment, training and deveopment is designed to ensure that the Group has suitaby skied and quaified empoyees to satisfy the operationa needs of the business as we as offer opportunity for persona growth and deveopment. The Group provide a range of training and deveopment opportunities to empoyees, incuding: induction training; heath and safety training; programmes reating to the enhancement of knowedge/skis for each empoyee s current position; programmes reating to the provision of knowedge/skis for new procedures or standards; programmes with a specific management or supervisory focus; support with programmes eading to a professiona or academic quaification. The Group recognises that normay the main training method wi be through each empoyee s immediate ine manager, with most training carried out in the workpace. Training is primariy deivered through interna resources with assistance from externa providers as and when required. Heath and Safety Heath and Safety is a key issue for the Group. Our Group Heath and Safety Poicy forms the foundation of our heath and safety management together with bespoke systems and processes for a our operations. The poicy is avaiabe throughout the Group and is pubished on our website. The poicy requires high standards at a sites with the objective of continuous improvement in heath and safety performance. As a resut of a review undertaken during the year by externa consutants we have identified the foowing key issues for greater effectiveness of our poicy: Resource requirements. Setting new standards. Communications. Corporate reporting. Procurement. An action pan has been deveoped for impementation in 2010 to address these issues and achieve improved effectiveness and performance. The management of our heath and safety performance is aigned with the operation of the business and in practice a empoyees are responsibe for ensuring that our heath and safety poicies are impemented and for identifying additiona areas and opportunities for further deveopment. In support of this we reguary use our intranet for communication on heath and safety matters and the exchange of information and ideas arising from our quartery Group Heath and Safety Committee meetings. 20

23 Stock Code HILS09 Our prime heath and safety key performance indicators focus on accident reporting and cause. These indicators are used to monitor the effectiveness of the poicy impementation and the reated management systems. We have aso deveoped for our UK sites a scored auditing system, benchmarking the individua business unit s heath and safety performance. This scoring system is a product of the programme of site audits carried out during 2009 and wi faciitate greater eves of monitoring and targeted improvement. The main objective for 2010 remains the continued achievement of a 10% year on year reduction in accidents. Code of Business Operation The Board has set down a Code of Business Operation that appies to a Directors, managers and empoyees in the Group. A Directors, managers and empoyees must exercise high standards of integrity and sound ethica judgement, adhering to the etter and spirit of the Code and of a aws, rues and reguations appicabe to the conduct of the Group s business. This Code is currenty being reviewed with the assistance of externa advice and through the interna audit function. Whistebowing The Board encourages empoyees to raise concerns about misconduct and mapractice and have adopted a Group Whistebowing Poicy and Procedure to ensure that such concerns can be raised and reviewed fairy and propery. As with the Code of Business Operation the effectiveness of the Whistebowing Poicy and Procedure is under review. Suppy chain Our poicy on the management of human rights, working conditions and the environment in the suppy chain is one of a series of governance poicies that are intended to underpin the Group s vaues. The Group sources components, materias and services for its manufacturing processes from a number of countries. Whist there are oca and nationa differences in standards in reation to many aspects of the manufacturing and wider business environment, there are a number of minimum standards that must be achieved by a. It is the poicy of the Group that it wi ony trade with suppiers who meet or exceed these minimum standards or demonstrate progression towards these standards over an agreed and suitabe timescae. Each operation of the Group is required to have appropriate systems in pace to ensure that suppiers compy with or exceed the foowing requirements: compiance with appropriate egisation; provision of a safe and competent workforce empoyed in accordance with industry best practice; timey submission of tenders and deivery to the agreed specification, on time and at the agreed price; co-operation with the Group and the rest of its suppy chain. We continue to monitor compiance and the actions taken by subsidiaries to improve the standards aid down. Priorities for 2010: Review of our main CSR initiatives and KPIs. New poicies for Heath and Safety, Whistebowing and Code of Business Operations. A new 3 year pan for energy, CO 2 emissions and CRC management. Further improvement of our management of waste. Achievement of 10% annua reduction in the number of accidents. Improvement in the average weighted scored performance arising from the heath and safety audit programme. Overview Business Review Governance Financia Statements Information 21

24 Stock Code HILS Governance Board of Directors W H Whiteey (*) (Chairman) 2 D W Muir (Group Chief Executive) 3 M Peger (Group Finance Director) 4 J F Lennox (*) 5 H C Marsha (*) 6 C J Snowdon (*) Committees Audit Committee Messrs Lennox (Chairman), Marsha, Snowdon and Whiteey Remuneration Committee Messrs Marsha (Chairman), Lennox, Snowdon and Whiteey Nominations Committee Messrs Whiteey (Chairman), Lennox, Marsha, Muir and Snowdon Company Secretary (*) Non-Executive Director J C Humphreys FCIS 22

25 Stock Code HILS09 Directors Biographies W H Whiteey BSc, FCMA Chairman and Non-Executive Bi, aged 61, joined the Board on 1 January He has spent the majority of his career at internationa engineering group Rotork pc, where he was Chief Executive from 1996 to In Juy 2009, he became Chairman of Spirax Sarco Engineering pc, the FTSE 250 engineering group. He is aso a Non-Executive Director of Brammer pc and Renishaw pc. M Peger BCom, ACA Group Finance Director Mark, aged 41, joined the Company as Finance Director designate on 7 January 2008 and was appointed to the Board on 11 March Mark has extensive experience on an internationa eve having been Group Finance Director of Whittan Group Limited, a private equity backed business, between 2002 and After quaifying with Price Waterhouse, he spent severa years in various corporate and operationa roes in internationa manufacturing businesses. H C Marsha MSc, BSc Non-Executive Howard, aged 66, joined the Board on 2 November He is currenty the Chairman of JSJS Design pc and a Director of LJM Consutancy. He was previousy Chief Executive of Ash & Lacy pc, Chairman and Chief Executive of Buough pc, Chairman of Imaginatik Pc, Governor of the Birmingham City University and Chairman of Orchestra of the Swan. Howard is Chairman of the Remuneration Committee. D W Muir BSc, C Eng, MICE Group Chief Executive Derek, aged 49, joined the Board on 21 August He has been a senior manager within the Hi & Smith Group for 22 years. He was appointed Managing Director of Hi & Smith Limited, one of the Group s principa subsidiaries in 1998 and from 2001 he was the Group Managing Director of the core Infrastructure Products segment. C J Snowdon BA, FCA Non-Executive Cive, aged 56, joined the Board in May Since 1997, he has hed the position of Chief Executive of Umeco pc, a eading internationa provider of advanced composite materias and suppy chain services, principay to the aerospace industry. He joined Umeco after a career which incuded senior roes with Vickers pc, BTR pc, Hawker Siddeey and Burnfied pc and is currenty Chairman of Midands Aerospace Aiance. Cive is the Senior Independent Director. J F Lennox CA Non-Executive Jock, aged 53, joined the Board in May He is a Non-Executive Director of Oxford Instruments pc, a member of the Advisory Board of Achemy and a member of the Counci of the Institute of Chartered Accountants of Scotand. He is aso a Director of Goden Lane Housing Ltd. Jock was formery a Partner of Ernst & Young where he began his career in 1977, becoming a Partner in Jock is Chairman of the Audit Committee. Overview Business Review Governance Financia Statements Information 23

26 Stock Code HILS Directors Report The Directors present their 49th Annua Report together with the Financia Statements for the year ended 31 December Principa activities During 2009 the principa activities of the Group comprised the manufacture and suppy of: Infrastructure Products Gavanizing Services Buiding and Construction Products Pages 5 to 9 contain further detais of these three areas of the business and the subsidiaries operating within them are set out on pages 96 to 97. Business review A review of the deveopment and performance of the business of the Group during the financia year ended 31 December 2009, detaiing its position at the end of that financia year, key performance indicators, a description of the principa risks and uncertainties and its prospects is provided in this report. The information required to be discosed, in addition to that reported beow and which is incorporated into this report by reference, can be found in the Business Review, but excudes the section entited Corporate Socia Responsibiity (with the exception of the two sections reating to empoyment poicies and empoyee invovement and reward on pages 20and 21). Resuts The Group profit before taxation for the year, from continuing operations, amounted to 39.7m (2008: 35.1m). Group revenue at 389.7m was 7.2% ower on the prior year, mainy as a resut of ower voumes, raw materia prices and the genera economic sowdown. Operating profit at 44.9m (2008: 43.4m) was 3.5% above the eve for the previous year. Detais of the resuts for the year are shown on the Consoidated Income Statement on page 44 and the business segment information is given on pages 55 to 57. Dividends The Directors recommend the payment of a fina dividend of 6.8p per Ordinary Share (2008: 5.7p per Ordinary Share) which, together with the interim dividend of 4.7p per Ordinary Share (2008: 4.3p per Ordinary Share) paid on 7 January 2010, makes a tota distribution for the year of 11.5p per Ordinary Share (2008: 10.0p per Ordinary Share). Subject to sharehoders approving this recommendation at the Annua Genera Meeting, the dividend wi be paid on 9 Juy 2010 to sharehoders on the register at the cose of business on 4 June The atest date for receipt of Dividend Re-investment Pan eections is 18 June Artices of Association The rues reating to amendment of the Company s Artices of Association are that any change must be authorised by a Specia Resoution of the Company in a genera meeting. Share capita Exchange traded Cass New ordinary shares issued during the year Rights & Obigations The Company s ordinary shares are isted on the Main Market of the London Stock Exchange. Singe cass of ordinary shares of 25p each Empoyee share schemes 1995 Save As You Earn Scheme 159, Executive Share Option Scheme 10, Executive Share Option Scheme 274,290 Tota new ordinary shares issued 443,779 A issued shares rank equay. Rights and obigations attaching to the Company s shares are set out in the Company s Artices of Association. For further detais of share capita see Note 22 on page 76 of the Group Financia Statements. 24

27 Stock Code HILS09 There are no restrictions on the transfer of shares in the Company provided they are fuy paid up and the Company does not hod any ien over them and as the shares rank equay none of them carry any specia rights with regards to contro of the Company. Such equa rights appy to shares acquired through any of the Company s empoyee share schemes and those shares so acquired carry no esser or greater rights than shares acquired in the Company in any other way. Accordingy there are no restrictions on voting rights attaching to any shares, whether reating to the eve of sharehoding or otherwise. The Company is not aware of any arrangements between sharehoders of the Company that may resut in restrictions on the transfer of Ordinary Shares or voting rights. In reation to the purchase by the Company of its own shares the rues reating thereto are set out in the Company s Artices of Association which state that the Directors powers to authorise such purchase by the Company are subject to the provisions of the reevant statutes and aso the UK Listing Authority requirements, as the Company s shares are isted on the London Stock Exchange. Accordingy a Resoution is put to the members of the Company at the Company s Annua Genera Meeting in each year (currenty the authority is imited by the Resoution of the 2009 Annua Genera Meeting and wi be imited by the Resoution to be put to the 2010 Genera Meeting) for approva to make market purchases not exceeding 5% of the Company s then issued share capita. The prices to be paid must be a minimum price of 25 pence per Ordinary Share (the nomina vaue) and a maximum price of 5% above the average of the midde market quotations for Ordinary Shares derived from the London Stock Exchange Daiy Officia List for the five business days immediatey preceding the day on which any such purchase takes pace. Substantia sharehodings As at 9 March 2010, the Directors had been advised of the foowing hodings representing 3% or more of the voting rights of the issued Ordinary Share capita of the Company: Number of % Ordinary of Issued Company Shares Share Capita F&C Asset Management 6,962, Henderson Goba Investors 5,188, Lega & Genera Investment Management 3,091, Invesco Perpetua 2,483, Discretionary Unit Fund Managers 2,323, Directors The Directors who served during the year ended 31 December 2009 and to the current date are as foows: Date of Date of Resignation/ AGM Name Appointment Retirement Re-eection AGM Eection D L Grove (*) 20 March December 2009 J F Lennox (*) 12 May May 2010 H C Marsha (*) 2 November 2000 D W Muir 21 August 2006 M Peger 11 March 2008 R E Richardson (*) 1 May May 2009 C J Snowdon (*) 11 May May 2010 W H Whiteey (*) 1 January May 2010 (*) Non-Executive Directors. Biographica detais of the Directors are shown on page 23. Detais of the Directors service contracts and etters of engagement are set out in the Directors Remuneration Report on pages 37 and 38. Directors are appointed pursuant to the Artices of Association either by the Directors, to fi a vacancy, or by the members in genera meeting, subject to the maximum number of Directors being ten. Any Director appointed by the Directors wi be subject to eection by the members in a genera meeting at the next Annua Genera Meeting. Each Director is subject to re-eection at east once in every three years and any Non-Executive Director serving nine years or more is subject to annua re-eection. The Director retiring by rotation at the forthcoming Annua Genera Meeting is C J Snowdon who being eigibe, offers himsef for re-eection. J F Lennox and W H Whiteey were appointed as Non-Executive Directors by the Board on 12 May 2009 and 1 January 2010 respectivey and in accordance with the Company s Artices of Association, wi retire and offer themseves for eection at the next Annua Genera Meeting. Both appointments foow the retirements of R E Richardson and D L Grove. The Board recommends to sharehoders the re-eection of C J Snowdon and the eection of J F Lennox and W H Whiteey. Overview Business Review Governance Financia Statements Information 25

28 Stock Code HILS Directors Report H C Marsha, having served more than nine years as a Non-Executive Director, is subject to annua re-eection at the next Annua Genera Meeting. H C Marsha has decided not to stand for re-eection. Directors interests The tabe beow shows the beneficia interests as at the beginning of the year and as at 31 December 2009 or on the date of retirement (if earier) of the persons who on that date were Directors (incuding the interests of their connected persons) in the Ordinary Shares of Hi & Smith Hodings PLC. A such interests were beneficia except as otherwise stated. However, interests in Ordinary Shares that are the subject of awards under the 2007 Long Term Incentive Pan, the 2005 Executive Share Option Scheme, the 2005 ShareSave Scheme and the 1995 SAYE Scheme, and discosed esewhere, are not incuded in the tabe beow but are shown on pages 39 and 40. None of the Directors has a beneficia interest in the shares of any of the Company s subsidiaries. Beneficia Beneficia interest interest in Ordinary in Ordinary Shares Change to Shares at at 1 Jan 2009 beneficia 31 Dec 2009 (or appointment date) interest (or retirement date) Directors D L Grove (retired 31 December 2009) 919,969 (60,000) 859,969 J F Lennox (appointed 12 May 2009) 2,500 2,500 H C Marsha 78,624 78,624 D W Muir 40,834 40,834 M Peger 4,000 4,000 C J Snowdon 20,000 5,000 25,000 Former Directors R E Richardson (retired 12 May 2009) 3,859 3,859 There were no changes in the beneficia interests of the Directors in the Company s Ordinary Shares between 31 December 2009 and the date of this report, other than the exercise by D W Muir, in accordance with the UK Listing Rues, of 12,360 options under the 1995 SAYE Scheme, which matured and became exercisabe on 1 January Mr Muir continues to hod the shares in his name. W H Whiteey was appointed a Director on 1 January 2010 and hed prior to this date 3,000 ordinary shares in the Company, purchased on 30 December The Register of Directors Interests, which is open to inspection, contains fu detais of Directors sharehodings and options to subscribe for ordinary shares. Conficts No Director had any interest in any materia contract or arrangement in reation to the business of the Company and any of its subsidiaries during the year. The Company amended its Artices of Association in May 2008 to dea with, amongst other things, the provisions of confict of interest in the Companies Act 2006 which came into force in October As a resut, the Company has procedures for the discosure and review of any conficts, or potentia conficts, of interest which the Directors may have and for the authorisation, where considered appropriate, of such confict matters by the Board. Any potentia conficts of interest in reation to newy appointed Directors are considered by the Board prior to appointment. Directors and officers iabiity insurance The Company purchases and maintains iabiity insurance for its Directors and officers and those of the subsidiaries of the Group. Financia instruments The financia risk management objectives and poicies are as detaied in Note 21 on pages 71 to

29 Stock Code HILS09 Significant agreements There are no agreements between the Group and its Directors or empoyees providing for compensation for oss of office or empoyment that occurs because of a change of contro, other than revised notice periods and termination payments for D W Muir and M Peger set out in the Director s Remuneration Report on page 38. The Group has a muti currency revoving faciity which incudes a change of contro provision. Under this provision, a change in ownership/contro of the Company coud resut in withdrawa of these faciities. There are no other significant agreements to which the Group is a party that take effect, ater or terminate upon a change of contro of the Group. Research and deveopment During the year, the Group spent a tota of 0.7m (2008: 2.1m) on research and deveopment. Poitica and charitabe donations Charitabe donations amounting to 35,000 (2008: 28,000) were made in the year principay to oca charities serving the communities in which the Group operates. There were no poitica contributions. Empoyment poicies Detais of the Group s Empoyment Poicies are set out on pages 20 and 21. Suppier payment poicy Individua operating companies within the Group are responsibe for estabishing and adhering to appropriate poicies for the payment of their suppiers. The companies agree terms and conditions under which business transactions with suppiers are conducted. The Group does not foow any code or standard on payment practice but it is the Group s poicy that, provided a suppier is compying with the reevant terms and conditions, incuding the prompt and compete submission of a required documentation, payment wi be made in accordance with the agreed terms. It is the Group s poicy to ensure that suppiers know the terms on which payments wi take pace when transactions are agreed. The Group s average credit period was 75 days (2008: 77 days). The Company s average credit period was 36 days (2008: 36 days). Independent auditor A resoution for the re-appointment of KPMG Audit Pc as auditor of the Company wi be proposed at the forthcoming Annua Genera Meeting. Discosure of information to auditors The Directors who hed office at the date of approva of this Directors Report confirm that, so far as they are each aware, there is no reevant audit information of which the Company s auditors are unaware; and each Director has taken a the steps that he ought to have taken as a Director to make himsef aware of any reevant audit information and to estabish that the Company s auditors are aware of that information. Going concern After making enquiries, the Directors have a reasonabe expectation that the Company and its subsidiaries have adequate resources to continue in operationa existence for the foreseeabe future. For this reason, they continue to adopt the going concern basis in preparing the Financia Statements. Annua Genera Meeting The Annua Genera Meeting of the Company wi be hed at am on Friday 7 May 2010 at The Viage Hote, The Green Business Park, Shirey, Soihu, B90 4GW. Notice is sent to sharehoders separatey with this Report, together with an expanation of the specia business to be considered at the meeting. Other important dates can be found in the Financia Caendar on page 94. Company information Further information on the Company is avaiabe on the Group website: By order of the Board John Humphreys Company Secretary 9 March 2010 Overview Business Review Governance Financia Statements Information 27

30 Stock Code HILS Corporate Governance Governance framework Effective governance is key to the Company s abiity to operate successfuy and discharge its responsibiities. The focus is on providing a simpe but effective framework of business principes, structures and contros designed to drive standards and performance across the Group and accountabiity to the Company s sharehoders for the conduct of the Company s affairs. The Board s commitment to a high standard of corporate governance is designed to underpin integrity within the Group and preserve investor confidence in the decisions taken by the Board. The foowing paragraphs, together with the Directors Remuneration Report contained on pages 34 to 41 provide a description of how the main supporting principes of corporate governance have been appied within the Company during You can find out more about our approach to corporate governance by accessing the foowing documents onine at In December 2009 the Board announced the appointment of W H Whiteey, as a Non-Executive Director and as the new Chairman of the Board, effective from 1 January The Board is fuy satisfied that on his appointment as Chairman W H Whiteey was independent in character and judgement and satisfied the requirements of the Code appying to a Chairman on appointment. The Board is to assess the Non-Executive Directors independence. R E Richardson, Senior Independent Director, was appointed to the Board on 1 May His ength of service on the Board exceeded the nine years referred to in the Combined Code. The Board considered that R E Richardson maintained an independent and rigorous approach to the Group s business and his ength of service was not an impairment to his independence. R E Richardson retired from the Board on 12 May 2009 and J F Lennox was appointed in his pace as an Independent Non-Executive Director. For the purposes of the Code, J F Lennox is deemed to be independent. Terms of Reference for the Audit, Remuneration and Nomination Committees. Corporate Socia Responsibiity Poicies (inc Heath & Safety). Business Operating Poicy. Whistebowing Poicy and Procedure. H C Marsha s membership of the Board has aways been as a Non-Executive Director and his Board coeagues consider him as being independent in his approach to the roe and in his judgement and character. He has no interests or reationships that affect his independent approach. Compiance with the Combined Code Subject to the Exceptions detaied beow, the Directors consider the Company has throughout 2009 fuy compied with the principes set out in Section 1 of the UK Financia Reporting Counci s Combined Code of Corporate Governance (the Code). Exceptions A former Chief Executive shoud not become the Chairman. Major sharehoders were, and continued to be, supportive of the rationae behind the appointment of D L Grove as Chairman. At the time of the appointment the Board considered the significant benefits of continuity, as we as the eadership that D L Grove brought to the roe of Chairman and has been satisfied that this has been the case. Having hed the post of Chairman since May 2007 D L Grove has, with effect from 31 December 2009, retired from his position as a Non-Executive Director and as Chairman of the Company and accordingy this exception to compiance with the Code no onger appies. The Board is fuy satisfied that both C J Snowdon (who offers himsef for re-eection at the Annua Genera Meeting) and J F Lennox (who offers himsef for eection, foowing his appointment during the year) are independent in character and judgement and that there are no circumstances or reationships which are ikey to affect their character and judgement. Composition of the Board As from 1 January 2010 the composition of the Board comprises three independent Non-Executive Directors (W H Whiteey, Chairman, C J Snowdon, Senior Independent Director and J F Lennox) two Executive Directors (D W Muir and M Peger) and H C Marsha, a Non-Executive Director who, athough not deemed independent by the Code, is deemed independent by the Board. Accordingy the composition of the Board during the year has moved towards compete compiance with the Code and this position wi be fuy achieved by the concusion of the next Annua Genera Meeting. 28

31 Stock Code HILS09 The Directors and the Board No. of years Independent on the (as determined by Audit Nominations Remuneration Directors Position Board the Code/Board) Committee Committee Committee W H Whiteey Chairman Yes Yes Yes Yes (appointed 1 January 2010) (Chairman) D W Muir Chief Executive 3 No No Yes No M Peger Finance Director 2 No No No No H C Marsha Non-Executive Director 9 Yes Yes Yes Yes (Chairman) C J Snowdon Non-Executive Director 2 Yes Yes Yes Yes (Senior Independent Director) J F Lennox Non-Executive Director Yes Yes Yes Yes (appointed 12 May 2009) (Chairman) The Chairman has prime responsibiity for eadership of the Board, sets its agenda, devotes such time to his roe as is necessary to propery discharge his duties and faciitates the effective engagement of the Non-Executive Directors. He is responsibe, jointy with the Chief Executive, for communication with the Company s sharehoders and representation of the Group externay. The Chief Executive has executive responsibiity for executing the Group s strategy and deveopment. He eads the management of the Group with the aim of optimising ong term sharehoder vaue by meeting key strategic and financia objectives. The changes in the composition of the Board during the year are noted in the Directors Report. Biographica detais of a the Directors are set out on page 23. A Directors have access to the Company Secretary who is responsibe for ensuring ega and reguatory compiance. The Company Secretary is responsibe for assisting the Chairman in a matters reating to corporate governance. The Company Secretary aso acts as Secretary to each of the Audit, Nominations and Remuneration Committees. Detais of the terms of appointment of both the Executive and Non-Executive Directors are set out on pages 37 and 38 of the Directors Remuneration Report, which refers to Executive Director s service contracts and Non-Executive Director s etters of engagement, copies of which are avaiabe for inspection at the Company s registered office and which wi be avaiabe for inspection at the forthcoming Annua Genera Meeting to be hed on 7 May The Non-Executive Directors of the Company, incuding the Chairman, do not participate in any bonus, share option or share ownership schemes and there are no pension benefits or payments. Re-eection of Directors In accordance with the Company s Artices, not more than one-third of the Directors are required to be re-eected at each Annua Genera Meeting of the Company, the Directors so doing being those who have been ongest in office since their ast appointment or re-eection. Every Director must in any event be re-eected at east every three years. C J Snowdon is the Director retiring by rotation at the forthcoming Annua Genera Meeting of the Company and, being eigibe, offers himsef for re-eection. The Board and the Nominations Committee support the re-eection of C J Snowdon having assessed his performance, vaue to the Board and its Committees and his abiity to continue to operate as a Director. As recommended by the Code, Non-Executive Directors who have been in office for more than nine years are required to stand for re-eection at the next Annua Genera Meeting. H C Marsha was appointed to the Board on 2 November 2000 and wi not be seeking re-eection at the Annua Genera Meeting. He wi be retiring from the Board with effect from the concusion of that meeting. Eection of Directors Foowing the appointments of J F Lennox (12 May 2009) and W H Whiteey (1 January 2010) as Non-Executive Directors, both wi retire and offer themseves for eection at the Annua Genera Meeting to be hed on 7 May The roe of the Board and its effectiveness The Board is responsibe to the Company s sharehoders for: strategic direction, financia performance and monitoring, resource aocation, risk management, governance and interna contros. Overview Business Review Governance Financia Statements Information 29

32 Stock Code HILS Corporate Governance The schedue of matters reserved to the Board for its own and its Committees decisions ensures excusive decision making powers over these responsibiities as we as such matters as: remuneration poicies; accounting poicies; capita expenditure; acquisitions; disposas and; financing. The Board adopts an annua timetabe to ensure significant matters are given appropriate consideration and sufficient time for debate. The Board normay meets ten times per year to consider the matters referred to above and any other reated issues. A Directors attended meetings in person or by teephone. The Directors ensure the effectiveness of the Board through reguar Board and Committee meetings and by having open ines of communication between Board members. Detais of attendances at these meetings are set out beow: Pc Audit Remuneration Nominations Board Committee Committee Committee Directors (10 meetings) (3 meetings) (5 meetings) (1 meeting) D L Grove 8 1 J F Lennox H C Marsha D W Muir 10 1 M Peger 10 1 R E Richardson C J Snowdon Notes: J F Lennox was appointed on 12 May 2009 and attended a possibe Board and Committee meetings. He aso attended one Board meeting as an observer, prior to his appointment. W H Whiteey attended one Board meeting and one Remuneration Committee meeting in December 2009 as an observer prior to his appointment on 1 January M Peger attended the Nominations Committee as an observer. R E Richardson retired 12 May The Board is suppied in a timey manner with the appropriate information to enabe it to discharge its duties, incuding providing constructive chaenge to, and scrutiny of the management of the Company. Further information is obtained by the Board from the Executive Directors and other reevant Senior Executives as the Board, particuary its Non-Executive members, considers appropriate. Procedures are in pace for Directors to take independent professiona advice, when necessary, at the Company s expense. The Board is supported by the Company Secretary who, under the direction of the Chairman, ensures good communication and information fows within the Board, incuding between Executive and Non-executive Directors and between the Board and its Committees. Board baance and independence Having assessed the four Non-Executive Directors against the criteria set out in the Combined Code the Board considers a of them to be independent. A four Non-Executive Directors remain independent of management and free from any business or other reationship that woud materiay interfere with the exercise of their independent judgement. The Board membership and that of its Committees is designed to ensure that no one individua or group dominates proceedings and that the wide variety of skis aows effective eadership across the business activities of the Group. Senior Independent Director During the year C J Snowdon was appointed the Senior Independent Director, repacing R E Richardson. Board deveopment The Board beieves that the benefit of its coective experience is a vauabe asset but accepts that Directors need to keep their professiona knowedge up to date from time to time. Consequenty, the Board has agreed guideines for meeting their own training needs. 30

33 Stock Code HILS09 There is in pace a performance evauation process for the Board and each of the Audit, Nominations and Remuneration Committees. This process invoves the circuation of a questionnaire to Directors, through the Company Secretary. The Chairman, with the assistance of the Company Secretary, reports the coective findings to the Board and agrees any actions to be taken. The areas covered incude effectiveness of individua contributions, reationships, communication and deveopment. The current process is under review to determine its scope, effectiveness and vaue to the Board. Committees of the Board The Board has three Committees, as foows: In regard to the atter, the Committee beieves that there are certain non-audit services where it is cost effective for the externa auditor to be used. These primariy incude merger and acquisition due diigence work and pensions administration, actuaria and consutancy services. A number of activities are prohibited incuding work on accounting records, interna audit, IT consutancy and advice to the Remuneration Committee. The poicy is consistent with the ethica standards recommended by the Accounting Practices Board. The Committee approves the scope and terms of engagement of each audit, and then reviews the performance of the auditor foowing the competion of each audit. Audit Committee The Audit Committee consists of four Non-Executive Directors and is chaired by J F Lennox. Executive Directors are invited to attend as necessary. The objectives of the Audit Committee have been confirmed in its terms of reference as: ensuring the integrity of the Group s Financia Statements; reviewing and monitoring the Group s interna contro systems; overseeing the effectiveness of the Group s interna audit activity; overseeing the Group s reationship with its externa auditors; ensuring that Group reporting compies in a respects with reevant statutory and required financia reporting standards, incuding corporate governance discosures. A review and update of the terms of reference was undertaken in November 2009 and approved by the Board. Detais can be found on the Company s website at Financia Reporting: a procedure setting out responsibiities for the preparation of the Group s Financia Statements and their review by the externa auditor and the Audit Committee has been documented. This aso sets out the basis on which the Board makes its statement on Going Concern. The Audit Committee reviewed the preiminary and interim statements prior to their approva by the Board. The Committee has aso considered the externa auditor s management etter and the assumptions underying the Financia Statements prior to recommending their approva to the Board. Externa Reporting: the Audit Committee has an agreed procedure setting out the basis upon which the Committee wi consider and make recommendations as appropriate concerning the appointment, re-appointment or remova of the externa auditor. The Committee assesses the quaification, expertise, independence and objectivity of the auditor on an annua basis and has set down a timetabe and criteria for making those assessments. Poicies concerning the empoyment of former empoyees of the externa auditor and the use of the externa auditor to perform non-audit services have been adopted. Remuneration Committee The membership of the Remuneration Committee comprises four Non-Executive Directors and is chaired by H C Marsha. D W Muir is invited to attend meetings as necessary. Under its terms of reference, the Remuneration Committee is responsibe for: ensuring that the Company s Executive Directors and certain other agreed Senior Executives are fairy and propery rewarded for their individua contributions to the Company s overa performance; demonstrating to sharehoders and other interested parties that the remuneration (incuding a benefits and terms of empoyment) of the Executive Directors of the Company are set by a committee of Board members who have no persona interest in the outcome of their decisions and who wi give due regard to the interests of the sharehoders and to the financia and commercia heath of the Company; assessing how the Company shoud compy with estabished best practice in Directors remuneration. Fu detais of the roe, poicies and activities of the Remuneration Committee are set out in the Directors Remuneration Report on pages 34 to 41. Nominations Committee The Nominations Committee comprises four Non-Executive Directors and D W Muir (Chief Executive). The Chairman of the Committee is W H Whiteey. The Board understands the need to refresh its membership and, to that end, has estabished a Nominations Committee whose objectives are: ensuring that the size and composition of the Board is appropriate for the needs of the Group; seecting the most suitabe candidate or candidates for appointment to the Board; overseeing succession panning for the Board. Overview Business Review Governance Financia Statements Information 31

34 Stock Code HILS Corporate Governance The Nominations Committee agrees a forma process, incuding whether externa assistance woud be appropriate, when it deems it necessary to make new appointments. The terms of reference of the Nominations Committee make it cear that the appointment of the Chairman of the Board is a matter for the Board as a whoe to consider. The Board has an approved standard engagement etter for Non-Executive appointments to the Board, incuding expected time committments, a fee structure and a programme for the induction of new Directors. During the year the Committee appointed consutants to recruit a repacement for D L Grove as Chairman and met once formay, aong with the Executive Directors, to decide upon the appointment of his successor. Interna contros The Directors have overa responsibiity for ensuring that the Group maintains a sound system of interna contro to provide them with reasonabe assurance that a information used within the business and for externa pubication is adequate. This incudes financia, operationa and compiance contro and risk management, to ensure that assets are safeguarded and sharehoders investments protected. In ine with best practice, the Board has reviewed the interna contro system in pace during the year and up to the date of the approva of this report. This review, aong with interna consutation ed by the Board, ensures that the system of interna contro remains effective. Where weaknesses are identified as a resut of the reviews, new procedures are put in pace to strengthen contros and these are aso reviewed at reguar intervas. The Board has in pace risk assessment processes and estabished procedures to impement the reevant guidance as updated by the Financia Reporting Counci (the Turnbu Committee Guidance). There is a process for identifying, managing and reviewing any changes in the risks faced by the business. This process, which is kept under continua review and improvement, has been in pace during the year under review and remains in pace as at the date of approva of this report. The process operates under the direction of the Board and is reviewed by the Audit Committee. The key procedures that the Directors have estabished and which are designed to provide effective interna contro for the Group are: reguar Board meetings to consider a schedue of matters reserved for the Directors consideration; the Audit Committee of the Board considers significant financia contro matters as appropriate; Group guidance and poicy documentation for the preparation of financia and management information; monitoring of the financia performance of operating companies and divisions through anaysis of reguar financia and management reports; continuous direct contact with operating companies and divisiona management and attendance at monthy subsidiary board meetings; consoidated reports and independent commentaries are prepared and submitted to the Board for review at forma monthy Board meetings; maintenance of oca operating Boards and divisiona management teams, enabing the Board to deegate appropriate eves of authority to a sma number of subsidiary company Directors and managers, a of whom are accountabe to the Group Board; the appication of rigorous annua budgeting processes and presentations. A budgets are subject to approva at Group Board eve; the review and comparison of detaied monthy management reports, received from each business unit, against budgets and forecasts; ceary defined poicies and contros for capita expenditure that incude annua budgets, appraisa and review procedures; adoption of a Group risk management framework that identifies responsibiities at both Group and subsidiary eve for the ongoing management of risk across the business; programming interna audit work to take account of the risk assessment resuts and processes; the use of externa professiona advisers to carry out due diigence for potentia acquisitions. Through the procedures set out above the Board has reviewed, in accordance with the Turnbu Committee Guidance, the effectiveness of the system of interna contro in operation during the financia year. Interna audit The Audit Committee has set down the criteria by which it wi assess the effectiveness of the interna audit function on an annua basis. In addition to the above areas of activity set out in its terms of reference, the Committee has aso approved arrangements by which staff may raise concerns about possibe improprieties in matters of financia reporting. No significant matters were raised in the reports made to the Audit Committee during the year. Whistebowing If any empoyee in the Group has reasonabe grounds to beieve that the Group Business Operating Poicy is being breached by any person or group of peope, he or she is abe to contact the Company Secretary with fu detais. The Company has a Whistebowing poicy which is on dispay at its operations and which can be viewed on its website at 32

35 Stock Code HILS09 Group Treasury management The Group uses financia instruments and derivatives comprising borrowings, cash and iquid resources, trade receivabes and payabes and in particuar forward currency contracts and interest rate swaps to manage financia risks associated with its underying business activities and the financing of those activities. This function is run purey as a service centre for the Group and its prime objective is to manage financia risk arising from iquidity, interest rates and foreign exchange. Further information on these matters is set out in Note 21 on pages 71 to 76 incuding the Group s arrangements for credit insurance. It is, and has been throughout the period under review and up to the date of approva of this report, the Group s poicy that no specuative trading in financia instruments or derivatives be undertaken. Sharehoder communications and reations The Board recognises the importance of good cear communications with sharehoders. There is reguar diaogue with institutiona investors and anaysts to discuss the progress of the business and dea with a wide range of enquiries. This incudes meetings and presentations after the announcement of the resuts for the year and the haf year with feedback from the Company s brokers as necessary. Directors reguary receive copies of anayst reports and reports on movement in major sharehodings as we as key broker comments. The Chairman and Senior Independent Director are avaiabe to meet with sharehoders concerning corporate governance issues, if so required. Copies of a major press reeases and interim and annua reports are posted on the Company s website together with additiona detai on major contracts and projects, key financia information, Company products, structure and background. The Board wishes to encourage the constructive use of the Company s Annua Genera Meeting for sharehoder communication. Each of the Chairmen of the Audit, Nominations and Remuneration Committees wi be in attendance at the forthcoming Annua Genera Meeting, which wi be convened on at east 20 working days notice. As with previous practice, the eve of proxies cast for each resoution wi be communicated foowing approva of each resoution at the forthcoming Annua Genera Meeting. After the concusion of the meeting the fina resuts are pubished through a Reguatory Information Service on the Company s website. Further information regarding the share capita structure of the Company is contained in the Directors Report on pages 24 to 27. Overview Business Review Governance Financia Statements Information 33

36 Stock Code HILS Directors Remuneration Report The Directors Remuneration Report is divided into two parts. The first part contains commentary on the Company s remuneration poicy, which is not required to be audited. The second part contains information that has been audited in accordance with the reevant statutory requirements. As required, a resoution to approve the report wi be proposed at the Annua Genera Meeting on 7 May PART 1 (Not subject to Audit) Remuneration Committee (the Committee ) Membership The members of the Committee during the year were H C Marsha (Chairman), J F Lennox (appointed 12 May 2009), R E Richardson (retired 12 May 2009) and C J Snowdon. W H Whiteey was appointed to the Committee as from 1 January A members of the Committee are Non- Executive Directors of the Company, are regarded as independent and do not participate in any form of performance reated pay or pension arrangements. Meetings The Committee met five times in the period under review and on each occasion a the Committee members were present. The Company Secretary acts as secretary to the Committee. The Chairman and the Chief Executive aso attended meetings of the Committee by invitation. No Executive Director or other attendee is present when their own remuneration is under consideration. Responsibiities As set out on page pages 31 and 32 of the Corporate Governance Report, the Committee determines, on behaf of the Board, the Company s poicy on remuneration and the terms of engagement of the Executive Directors, certain other agreed Senior Executives and the fees of the Chairman. The Committee operates under cear written terms of reference (avaiabe on the Company s website: The responsibiities of the Committee incude: reviewing and recommending the remuneration poicy for Executive Directors and certain other agreed Senior Executives, for the Board to approve; within this poicy, agreeing the individua remuneration packages; approving the design of, and determining targets for, any performance reated pay schemes operated by the Company for the Executive Directors and certain other agreed Senior Executives and approving the tota payments made under such schemes; reviewing and recommending the design of, and any changes to, a share incentive pans for approva by the Board and sharehoders; reviewing the terms and conditions to be incuded in the service agreements for Executive Directors and certain other agreed Senior Executives; approving the terms of any compensation package in the event of eary termination of contracts of Executive Directors or certain other agreed Senior Executives, ensuring that they are fair to the individua and to the Company. In doing so the Committee wi ensure that faiure is not rewarded and the duty to mitigate oss is fuy recognised. Key activities during the year During the year the Committee: reviewed the remuneration poicy and determined the appropriate individua remuneration packages of Executive Directors and certain other agreed Senior Executives; determined the fees for the Chairman; determined fina annua bonus payments for Executive Directors and certain other agreed Senior Executives for the 2008 financia year; considered and approved awards to Executive Directors and one other agreed Senior Executive under the Company s 2007 Long Term Incentive Pan (incuding a review of performance conditions/targets to ensure that they were appropriatey chaenging); approved the Directors Remuneration Report which was incuded in the 2008 Annua Report. Advisers To the extent required the Committee used the externa services of Deoitte LLP as its principa externa adviser during 2009 on matters reating to the Executive Directors base saaries and performance reated pay. Separatey during the year Deoitte LLP aso provided taxation advice and other non-audit services to the Company. The Chairman and the Chief Executive aso gave advice to the Committee by request. Overa Remuneration poicy and purpose Broad poicy The remuneration poicy is designed to be in ine with the Company s fundamenta principes of fairness, being competitive and supporting the Company s corporate strategy. The Committee beieves that a consistenty appied cohesive reward structure with inks to corporate performance is key to ensuring attainment of the Company s strategic goas. Accordingy, the Company sets out to provide competitive remuneration to a its empoyees, appropriate to the business environment in the markets in which it operates. To achieve this, the remuneration packages are based on the foowing principes: tota rewards shoud be set to be fair and attractive; appropriate eements of the remuneration package shoud be designed to reinforce the ink between performance and reward. 34

37 Stock Code HILS09 The Company aso seeks to aign the interests of sharehoders and empoyees at a eves by giving empoyees opportunities and encouragement to buid up a sharehoding interest in the Company through various share option schemes. Executive remuneration The Company operates in highy competitive environments and for it to continue to compete successfuy, it is essentia that the eve of remuneration and benefits offered for eadership roes achieve the objectives of attraction, retention, motivation and reward of high caibre individuas. The base saaries of Executive Directors continue to be reviewed annuay. The Committee does not have a forma positioning poicy for base saary as it is acutey aware of the issues around setting pay soey by reference to a benchmark reference point. Instead, to review saaries, the Committee uses externa base saary information as a basis for considering a range of factors, incuding: the performance of the business/function under the incumbent s stewardship; the scope and reative compexity of the business/function; individua performance and experience; reporting reationships; the importance of each roe within the organisation; the externa market for taent at that eve; the eves of incentives, pension and other benefits which are driven from base saary. The performance reated eements of remuneration are reviewed on an annua basis. As an integra part of this process the performance conditions and targets are reviewed to ensure that they are sufficienty stretching and that they continue to be aigned with the business strategy and the creation of sharehoder vaue. This ensures that Executive Directors incentives are firmy aigned with the interests of sharehoders. Summary of Executive Directors remuneration arrangements Component Purpose Appication Deivery/Criteria Base saary Market competitive Payabe monthy Externa benchmarking review of appropriate saary eves Refect skis and Pensionabe and and review of performance, experience and reated factors. experience used for pension contributions Performance Incentivise the Paid annuay Based on UEPS performance over one financia year. reated bonus attainment of Non-pensionabe Maximum bonus opportunity for both Chief Executive corporate targets and Finance Director is 100% of base saary. on an annua basis 2007 Long Term Incentivise growth in Discretionary annua Performance measured over three financia years. Vesting Incentive Pan (LTIP) earnings per share grant of conditiona of award is as foows: over a three year share awards. 50% based upon achievement of absoute growth in period Maximum award is UEPS targets. 100% of saary. 50% based upon UEPS growth reative to other FTSE Non-pensionabe A-Share companies basic EPS growth. Pension Provision of Chief Executive Defined benefit arrangement which provides, at norma competitive post- Hi & Smith retirement age, a pension based upon an accrua of 1/30th retirement benefits Executive of the Earnings Cap for each year of service from Pension Scheme 1 October 1998 (see aso Note under pension arrangements). Finance Director A contribution of 25% of base saary to a private pension Pension arrangement. contribution Notes: UEPS (Underying Earnings Per Share) See page 36 for detais of Other Benefits provided. Overview Business Review Governance Financia Statements Information 35

38 Stock Code HILS Directors Remuneration Report Detai of Executive Directors remuneration The remuneration poicy for Executive Directors is structured to ensure a proper baance of fixed and variabe performance reated remuneration (inked to short and ong term objectives). The current baance of the Executive Directors remuneration between fixed and variabe performance components (excuding pension and other benefits ) is as foows: Group Chief Executive Chief Executive 44% 56% Group Finance Director 41% 59% n Fixed n Variabe/performance reated (Bonus and LTIP awards) The components of Executive Directors remuneration are outined in more detai beow. Fixed remuneration Basic saary Basic annua saaries for Executive Directors are reviewed by the Committee on an annua basis or when a materia change of responsibiity occurs. In making saary decisions the Committee considers saaries offered for simiar roes by reference to practice across industry comparators and companies of a simiar size and compexity to the Company. The Deoitte LLP report commissioned by the Committee, for the 1 January 2008 remuneration review, paced the base saaries for both the Chief Executive and Finance Director at the ower end of the benchmark ranges. As both were reativey new in their respective positions the Committee acknowedged that the benchmarking positions were at that time appropriate and that future reviews woud take into account further experience and maturity gained in the particuar roes. A subsequent simiar benchmarking exercise for the 1 January 2009 review was undertaken by Deoitte LLP, taking into account company compexity and size weightings, to produce appropriate positioning of the saaries for both the Chief Executive and Finance Director. As a resut of this externa benchmarking exercise and the factors of performance and additiona experience, the Chief Executive s and Finance Director s saaries were reviewed and aigned to the mid-point between the median of the core bench marking comparator group and the median of the Deoitte LLP weighted company compexity and size measure. Pension arrangements Chief Executive D W Muir participates in the Hi & Smith Executive Pension Scheme, which provides a defined benefit pension and other reated benefits. Under this arrangement D W Muir s pension benefit is based upon an accrua of 1/30th of the Earnings Cap (appying prior to 6 Apri 2006 and increased in ine with the rues of the Scheme) for each year of pensionabe service cacuated from 1 October The tabe on page 40 gives detais of the changes in the vaue of D W Muir s accrued pensions during Finance Director M Peger receives a payment of 25% of his base saary as a defined contribution to his own private pension arrangements. Other than as stated above, there are no other pension arrangements in pace for Executive Directors. Other benefits These principay comprise car benefits, ife insurance, membership of the Company s heathcare, income protection scheme and persona accident insurance. These benefits do not form part of pensionabe earnings. Performance reated remuneration Cash bonus Executive Directors are eigibe for an annua performance reated cash bonus. The basis for the payment of any bonus is determined by reference to underying earnings per share performance over one financia year of the Company. The Committee is committed to ony paying maximum bonuses in circumstances where stretching performance targets have been satisfied. Bonuses are not pensionabe. As a resut of the remuneration review for the 1 January 2009 the Finance Director s maximum bonus entitement was set at 100% of base saary. This ateration was made so as to aign his benefits with the benchmarked core comparator group and the Deoitte LLP weighted compexity and size measure and to refect the Committee s and Chief Executive s assessment of his performance since appointment. Long term incentive pans The Company operates three share pans: the 2007 Long Term Incentive Pan, the 2005 Executive Share Option Scheme and the 2005 ShareSave Scheme. The Long Term Incentive Pan is the primary ong term incentive vehice for Executive Directors. Prior to the impementation of the Long Term Incentive Pan in 2007, awards were made to Executive Directors under the 2005 Executive Share Option Scheme Long Term Incentive Pan (LTIP) The Hi & Smith 2007 Long Term Incentive Pan provides for the grant of conditiona share awards. Generay, awards are made to Executive Directors on an annua basis with the eve of vesting determined by reference to stretching performance conditions. The maximum market vaue of shares pursuant to an award to any Director or empoyee in respect of any financia year is 100% of that Director s or empoyee s base saary. Awards are not pensionabe and may not generay be assigned or transferred. 36

39 Stock Code HILS09 Awards to the Chief Executive and Finance Director were made on 25 March The vaue of the shares subject to the award was equa to 31% of the Chief Executive s saary and 48% of the Finance Director s saary. These awards were set in the context of the ow eve of the share price and were fixed at 75,000 shares each for the Chief Executive and Finance Director. The Committee aso reviewed the origina performance conditions and were satisfied that they continue to be aigned with the business strategy and the creation of sharehoder vaue. Further detais of subsisting awards to Executive Directors are shown in the tabe on page 39. For awards made pursuant to the LTIP, the performance targets are based on the Company s underying earnings per share (UEPS) measured over the reevant three year period. The UEPS criterion was chosen to refect the business strategy and ensure that earnings attributabe to the sharehoders increased at an appropriate rate before any awards under the LTIP vest. Haf of the award is based on the Company s UEPS performance against prescribed targets which were determined by the Committee at the time each award was granted. The Committee set a threshod eve of UEPS growth (20% over the performance period), beow which none of this proportion of the award vests, and a stretch eve of UEPS growth (45% over the performance period), at which a of this proportion of the award vests. Vesting is on a straight ine basis between the two threshod points of 20% and 45%. For the 25 March 2009 award ony the stretch eve of 45% was reduced to 40% to refect the ower percentage of saary each of these individua awards represented. The Committee continues to beieve that absoute UEPS targets are appropriate to incentivise the Executive Directors to deveop the UEPS in ine with the business pan. The remaining haf of the award is based on the Company s UEPS growth reative to the FTSE A-Share index basic earnings per share (EPS) growth (the index uses basic earnings per share ony). The ranking of the Company s UEPS performance over the performance period determines the vesting for this proportion of the award, as per the vesting schedue shown in the tabe beow: UEPS performance ranking of the Company in FTSE A-Share index Vesting Percentage Beow median 0% Between median and upper quartie 50% Between upper quartie and 100th percentie 100% The Committee determined that the measurement of reative growth for haf of the award woud compement the absoute growth targets to ensure that an award coud ony fuy vest if the Company s performance is superior to a majority of the companies in the FTSE A-Share index. The Committee aso has the discretion to make an adjustment to the number of shares vesting from an award to take account of the underying financia performance of the Company over which performance is measured Executive Share Option Scheme Under this scheme, options may be awarded at the discretion of the Committee to acquire Ordinary Shares at an exercise price no ower than the market vaue of a share at the date of grant. The options can ony be exercised between three and ten years after the date of grant. Additionay options may ony be exercised if the growth in underying earnings per share of the Company over a three year period is not ess than the increase in the Retai Price Index pus nine per cent, over the same period. No awards were made to Executive Directors under this scheme in For options outstanding under the 2005 Executive Share Option Scheme see the tabe on page ShareSave Scheme The 2005 ShareSave Scheme is open to a empoyees (incuding Executive Directors) who have competed six months continuous service. Under this scheme the Company can, if it thinks fit, grant options at a price up to twenty per cent beow the market price. Executive Directors did participate in the scheme in 2009 and detais are contained in the tabe on page 40 incuding those for subsisting options. Diution The diutive effect of the grants of awards is considered by the Committee when granting awards under the ong term incentive and share option pans. In accordance with its commitment, the percentage of the issued share capita that coud be aocated under a of the Company s empoyee share pans over a period of ten years shoud be under 10%. Currenty the LTIP, as the principa ong term incentive vehice for Executive Directors, does not have a diutive effect because it does not invove the issue and aotment of new shares in the Company but rather reies on the market purchase of shares. Executive Directors service agreements The Committee operates a poicy of one year roing contracts for Executive Directors. Each Executive Director has such a contract, executed at the time of his appointment (and amended from time to time as required). The Committee woud consider the circumstances of any individua case of eary termination and woud determine compensation payments accordingy. A fair but robust principe of mitigation woud be appied to the payment of compensation in these circumstances. Overview Business Review Governance Financia Statements Information 37

40 Stock Code HILS Directors Remuneration Report Current service agreements as at the date of this Report: Notice Period Date of Service to be given Executive Director Contract to the Director D W Muir 4 June months M Peger 28 November months D W Muir s service agreement provides tweve months notice of termination to be given by the Company and for D W Muir to give the Company tweve months notice of termination. During the period of ninety days foowing a change of contro the notice period to be given by the Company to D W Muir is tweve months and by D W Muir to the Company is reduced from tweve months to ninety days. If during the period of ninety days foowing a change of contro, the service agreement is terminated by D W Muir or is terminated by the Company without prior notice, D W Muir is entited to a sum equa to tweve months basic saary. M Peger s service agreement entites him to receive tweve months notice of termination by the Company. In the event that M Peger terminates the service agreement he is due to give the Company six months notice. During the period of ninety days foowing a change of contro the notice period to be given by the Company to M Peger is tweve months and by M Peger to the Company is reduced from six months to ninety days. If during the period of ninety days foowing a change of contro, the service agreement is terminated by M Peger or is terminated by the Company without prior notice, M Peger is entited to a sum equa to tweve months basic saary. Apart from the above, there are no specia provisions in the Executive Directors service contracts for compensation for oss of office. D L Grove announced his intention to retire from the Board on 31 December 2009 and consequenty his service agreement dated 9 Juy 1999 terminated on this date without cost to the Company. Sharehoding guideines The Committee has estabished a sharehoding guideine under which it is expected that Executive Directors retain haf of any shares which vest for awards made from 2008 onwards, pursuant to the 2007 Long Term Incentive Pan. Poicy on externa appointments Subject to the approva of the Board in each case, Executive Directors may accept externa appointments as Non-Executive Directors of other companies and retain any reated fees paid to them provided aways that such externa appointments are not considered by the Board to prevent or reduce the abiity of the Executive to perform his roe to the required standard. Such appointments are seen as a way in which Executives can gain a broader business experience and, in turn, benefit the Company. Currenty the Chief Executive and the Finance Director do not hod any externa Non-Executive Directorships. D L Grove is a Non-Executive Director of Headam Group pc. In respect of such position he retained the fees paid to him for his services. In 2009, the tota amount of such fees paid to him in respect of these services was 35,000. Non-Executive Directors The Non-Executive Directors do not have service contracts. Fees for Non-Executive Directors are determined by the Chairman and Chief Executive in ight of market best practice and with reference to the time commitment and responsibiities associated with the roe. The Non-Executive Directors do not participate in any decision made by the Board in reation to the determination of their fees. The Audit Committee Chairman and the Remuneration Committee Chairman receive additiona fees as does the Senior Independent Director. The Non-Executive Directors are not eigibe for performance reated bonuses or the grant of awards under the Company s ong term incentive pans. No pension contributions are made on their behaf. The appointments of a the Non-Executive Directors are governed by etters of engagement. Under the terms of their engagement, the notice period to be given by the Non-Executive Directors to the Company is three months and the Company is obiged to give the same ength of notice to each individua Director to terminate their engagement. H C Marsha wi not be standing for re-eection to the Board at the forthcoming Annua Genera Meeting to be hed on 7 May Tota sharehoder return graphs The UK Directors Remuneration Report Reguations 2002 require the incusion in the Directors Remuneration Report of a graph showing tota sharehoder return (TSR) over a five year period in respect of a hoding of the Company s shares, potted against TSR in respect of a hypothetica hoding of shares of a simiar kind and number by reference to which a broad equity market index is cacuated. The foowing graph shows the TSR performance of the Company over the five year period to 31 December The Company s performance has been compared against the FTSE A-Share Index and FTSE Sma Cap Index (which were chosen because they represent broad equity indices of which the Company is a constituent). The graph is based on three month average vaues and has been re-based to 100 at the start of the five year period. Hi & Smith Hodings tota return on investment Hi & Smith Hodings PLC FTSE 350 FTSE Sma Cap

41 Stock Code HILS09 PART 2 (Subject to Audit) Directors emouments in 2009 The aggregate remuneration, excuding pension contributions and the vaue of ong term incentive awards, paid to or accrued for a Directors of the Company for services in a capacities during the year ended 31 December 2009 was 1.5m (2008: 2.4m). The remuneration of individua Directors is set out beow. Performance Vaue of Tota Tota Saary/fees Reated Bonus benefits Directors D W Muir M Peger (appointed 11 March 2008) D L Grove * J F Lennox (appointed 12 May 2009) H C Marsha C J Snowdon Former Directors C J Burr (retired 11 March 2008) 455 R E Richardson (retired 12 May 2009) Tota ,485 2,422 * Payment made to D L Grove pursuant to an agreement dated 6 December 2007 compensating him for remova of future bonus entitement and conditiona upon the net sum being used to purchase shares in the Company. Payment made to C J Burr as compensation due under his service agreement. The Executive Directors were aso granted awards of Ordinary Shares under the Company s 2007 Long Term Incentive Pan (LTIP). Detais of awards made in the year under the LTIP are given beow. Long Term Incentive Pan (LTIP) The interests of Directors at 31 December 2009, in shares that are the subject of awards under the LTIP are shown beow: Performance At 1 Jan 2009 Awarded in 2009 At 31 Dec 2009 period Executive Director Award date number of shares number of shares number of shares 3 years from Vesting date D W Muir 02 Ju 2007 * 67,791 67,791 1 Jan Jan Mar ,849 99,849 1 Jan Jan Mar ,000 75,000 1 Jan Jan 2012 Tota D W Muir 167,640 75, ,640 M Peger 14 Mar ,514 60,514 1 Jan Jan Mar ,000 75,000 1 Jan Jan 2012 Tota M Peger 60,514 75, ,514 No awards vested or apsed in * The share price as cacuated on 2 Juy 2007 in accordance with the LTIP rues was 367p. The share price as cacuated on 14 March 2008 in accordance with the LTIP rues was 330p. The share price as cacuated on 25 March 2009 in accordance with the LTIP rues was 154p. Overview Business Review Governance Financia Statements Information 39

42 Stock Code HILS Directors Remuneration Report Share options The interests of Directors, and of former Directors who served during 2009, in options to subscribe for Ordinary Shares in the Company, which incude options granted under the 2005 Executive Share Option Pan, the 2005 ShareSave Scheme and 1995 SAYE Scheme, together with options granted and exercised during 2009, are incuded in the foowing tabe: At 1 Jan 2009 Granted in 2009 At 31 Dec 2009 Dates from number of shares Grant price number of shares number of shares which exercisabe Latest expiry date D W Muir 2005 Exec Share Option Pan 78, p 78,114 4 Oct Oct ShareSave Scheme 1, p 1,328 1 Jan Ju SAYE Scheme 12, p 12,360 1 Jan Ju 2010 M Peger 2005 ShareSave Scheme 3, p 3,902 1 Dec Jun 2012 D L Grove 2005 ShareSave Scheme p Jan Ju SAYE Scheme 12, p 12,360 I Jan Ju 2010 Apart from the LTIP awards made to D W Muir and M Peger on 25 March 2009 no further options or awards were made to Directors. During 2009, the mid market price of Ordinary Shares in the Company ranged from 140p to 365p. The mid market price of an Ordinary Share on 31 December 2009 was 344p. Pensions Defined benefits earned by Directors D W Muir Age at period end 49 Accrued benefit at 31 December ,001 pa Increase in accrued benefits excuding infation 6,880 pa Increase in accrued benefits incuding infation 9,391 pa Director s contributions 12,210 Transfer vaue of accrued benefits at 1 January ,074,114 Transfer vaue of accrued benefits at 31 December ,425,140 1 The pension entitement is that which woud be paid annuay on retirement based on service to the period end and incudes the deferred pension eement for pre 1 October 1998 service which, as from 6 Apri 2008, has ceased any inkage to saary. 2 The increase in accrued benefits is on account of the additiona benefits from one more year of service and the change made on 6 Apri 2008 in respect of service pre 1 October 1998 which is subject to statutory revauation as a deferred benefit. 3 The individua has the option to pay Additiona Vountary Contributions; neither the contributions nor the resuting benefits are incuded in the above tabe. 4 The foowing is additiona information reating to the Director s pension: (a) Norma Retirement Age: 60 (b) Spouse s pension: 2/3 pension on death after retirement (c) Pension increases: post Apri 1997 pension increases in ine with RPI, imited to 5% per annum, subject to a minimum of 3% per annum on pension accrued post 1 October pre Apri 1997 pension ni (d) Discretionary benefits: None 5 The transfer vaue at 31 December 2009 has been cacuated on the basis set by the Trustees of the Hi & Smith Executive Pension Scheme having taken actuaria advice. 40

43 Stock Code HILS09 Defined contribution arrangements M Peger receives a payment of 25% of his base saary as a contribution to his own private pension arrangements. The Company contributed 60,000 to M Peger s private pension arrangement in Transactions with Directors There were no materia transactions between the Company and the Directors during Howard Marsha Chairman, Remuneration Committee 9 March 2010 Overview Business Review Governance Financia Statements Information 41

44 Stock Code HILS Statement of Directors Responsibiities in respect of the Annua Report and the Financia Statements The Directors are responsibe for preparing the Annua Report and the Group and Parent Company Financia Statements in accordance with appicabe aw and reguations. Company aw requires the Directors to prepare Group and Parent Company Financia Statements for each financia year. Under that aw they are required to prepare the Group Financia Statements in accordance with IFRSs as adopted by the EU and appicabe aw and have eected to prepare the Parent Company Financia Statements in accordance with UK Accounting Standards and appicabe aw (UK Generay Accepted Accounting Practice). Under Company aw the Directors must not approve the Financia Statements uness they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or oss for that period. In preparing each of the Group and Parent Company Financia Statements, the Directors are required to: seect suitabe accounting poicies and then appy them consistenty; make judgements and estimates that are reasonabe and prudent; for the Group Financia Statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; for the Parent Company Financia Statements, state whether appicabe UK Accounting Standards have been foowed, subject to any materia departures discosed and expained in the Parent Company Financia Statements; prepare the Financia Statements on the going concern basis uness it is inappropriate to presume that the Group and the Parent Company wi continue in business. Responsibiity Statement of the Directors in respect of the Annua Financia Report We confirm that to the best of our knowedge: the Group and Parent Company Financia Statements in the Annua Report, which have been prepared in accordance with appicabe UK aw and with the appicabe set of accounting standards, give a true and fair view of the assets, iabiities, financia position and profit or oss of the Company and Group as a whoe; the management report (which comprises the Directors report and the Business Review) incudes a fair review of the deveopment and performance of the business and the position of the Company and Group as a whoe, together with a description of the principa risks and uncertainties that they face. By order of the Board. John Humphreys Company Secretary 9 March 2010 The Directors are responsibe for keeping adequate accounting records that are sufficient to show and expain the Parent Company s transactions and discose with reasonabe accuracy at any time the financia position of the Parent Company and enabe them to ensure that its Financia Statements compy with the Companies Act They have genera responsibiity for taking such steps as are reasonaby open to them to safeguard the assets of the Group and to prevent and detect fraud and other irreguarities. Under appicabe aw and reguations, the Directors are aso responsibe for preparing a Directors Report, Directors Remuneration Report and Corporate Governance Statement that compies with that aw and those reguations. The Directors are responsibe for the maintenance and integrity of the corporate and financia information incuded on the Company s website. Legisation in the UK governing the preparation and dissemination of Financia Statements may differ from egisation in other jurisdictions. 42

45 Independent Auditor s Report to the members of Hi & Smith Hodings PLC Hi & Smith Hodings PLC Stock Code HILS09 We have audited the Financia Statements of Hi & Smith Hodings PLC for the year ended 31 December 2009 which comprise the Consoidated Income Statement, the Consoidated Statement of Comprehensive Income, the Consoidated and Parent Company Baance Sheet, the Consoidated Statement of Changes in Equity, the Parent Company Reconciiation of Movements in Sharehoders Funds, the Consoidated Statement of Cash Fows and the reated notes. The financia reporting framework that has been appied in the preparation of the Group Financia Statements is appicabe aw and Internationa Financia Reporting Standards (IFRSs) as adopted by the EU. The financia reporting framework that has been appied in the preparation of the Parent Company Financia Statements is appicabe aw and UK Accounting Standards (UK Generay Accepted Accounting Practice). Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors Remuneration Report to be audited has been propery prepared in accordance with the Companies Act 2006; and the information given in the Directors Report for the financia year for which the Financia Statements are prepared is consistent with the Financia Statements; and the information given in the Corporate Governance Report set out on pages 32 and 33 with respect to interna contro and risk management systems in reation to financia reporting processes and about share capita structures is consistent with the Financia Statements. This report is made soey to the Company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditors report and for no other purpose. To the fuest extent permitted by aw, we do not accept or assume responsibiity to anyone other than the Company and the Company s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibiities of Directors and auditors As expained more fuy in the Statement of Directors Responsibiities set out on page 42, the Directors are responsibe for the preparation of the Financia Statements and for being satisfied that they give a true and fair view. Our responsibiity is to audit the Financia Statements in accordance with appicabe aw and Internationa Standards on Auditing (UK and Ireand). Those standards require us to compy with the Auditing Practices Board s (APB s) Ethica Standards for Auditors. Scope of the audit of the Financia Statements A description of the scope of an audit of financia statements is provided on the APB s website at UKP. Opinion on Financia Statements In our opinion: the Financia Statements give a true and fair view of the state of the Group s and of the Parent Company s affairs as at 31 December 2009 and of the Group s profit for the year then ended; the Group Financia Statements have been propery prepared in accordance with IFRSs as adopted by the EU; the Parent Company Financia Statements have been propery prepared in accordance with UK Generay Accepted Accounting Practice; the Financia Statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the Group Financia Statements, Artice 4 of the IAS Reguation. Matters on which we are required to report by exception We have nothing to report in respect of the foowing: Under the Companies Act 2006 we are required to report to you if, in our opinion: adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company Financia Statements and the part of the Directors Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain discosures of Directors remuneration specified by aw are not made; or we have not received a the information and expanations we require for our audit; or a Corporate Governance Statement has not been prepared by the Company. Under the Listing Rues we are required to review: the Directors Statement, set out on page 27, in reation to going concern; and the part of the Corporate Governance Report beginning on page 28 reating to the Company s compiance with the nine provisions of the June 2008 Combined Code specified for our review. Graham Neae Senior Statutory Auditor for and on behaf of KPMG Audit Pc, Statutory Auditor Chartered Accountants 1 Snowhi Snow Hi Queensway Birmingham B4 6GH 9 March 2010 Overview Business Review Governance Financia Statements Information 43

46 Stock Code HILS Consoidated Income Statement Year ended 31 December Non- Non- Underying Underying* Tota Underying Underying* Tota Notes m m m m m m Revenue 1, Trading profit 47.0 (0.5) (0.2) 47.2 Amortisation of acquisition intangibes 7 (0.9) (0.9) (0.6) (0.6) Business reorganisation costs 4 (1.8) (1.8) (3.2) (3.2) Gain on disposa of avaiabe for sae financia assets Profit on sae of properties Operating profit 1, (2.1) (4.0) 43.4 Financia income Financia expense 6 (5.5) (3.8) (9.3) (9.9) (4.3) (14.2) Profit before taxation 42.2 (2.5) (3.8) 35.1 Taxation 8 (13.2) 1.0 (12.2) (14.6) (0.7) (15.3) Profit for the year from continuing operations 29.0 (1.5) (4.5) 19.8 Discontinued operations Profit for the year Attributabe to: Equity hoders of the parent Minority interest Profit for the year Continuing basic earnings per share p 36.3p 32.2p 26.2p Basic earnings per share p 30.0p Continuing diuted earnings per share p 25.9p Diuted earnings per share p 29.7p Dividend per share Interim p 4.3p Dividend per share Fina proposed p 5.7p Tota p 10.0p * Non-Underying items represent business reorganisation costs, property items, amortisation of acquisition intangibes, impairments, gains on disposa of avaiabe for sae financia assets, change in the vaue of financia instruments and net financing return on pension obigations. 44

47 Stock Code HILS09 Consoidated Statement of Comprehensive Income Year ended 31 December Notes m m Profit for the year Exchange differences on transation of overseas operations (15.1) 29.0 Exchange differences on foreign currency borrowings denominated as net investment hedges (21.6) Effective portion of changes in fair vaue of cash fow hedges (0.6) Net change in fair vaue of avaiabe for sae financia assets 1.0 Net change in fair vaue of avaiabe for sae financia assets transferred to profit or oss (1.0) Actuaria oss on defined benefit pension schemes 25 (5.7) (5.7) Taxation on items taken directy to other comprehensive income Other comprehensive income for the year (8.8) 2.9 Tota comprehensive income for the year Attributabe to: Equity hoders of the parent Minority interest (0.3) 0.4 Tota comprehensive income for the year Overview Business Review Governance Financia Statements Information 45

48 Stock Code HILS Consoidated Baance Sheet As at 31 December (Restated) Notes m m Non-current assets Intangibe assets Property, pant and equipment Avaiabe for sae financia assets Other receivabes Current assets Inventories Trade and other receivabes Cash and cash equivaents Tota assets Current iabiities Trade and other iabiities 18 (74.7) (87.5) Current tax iabiities (8.3) (6.9) Interest bearing borrowings 17,18 (31.2) (16.7) (114.2) (111.1) Net current assets Non-current iabiities Other iabiities 19 (0.2) (0.3) Provisions for iabiities and charges 20 (5.0) (6.7) Deferred tax iabiity 14 (12.7) (14.5) Retirement benefit obigation 25 (16.7) (11.8) Interest bearing borrowings 17,19 (97.5) (155.4) (132.1) (188.7) Tota iabiities 1 (246.3) (299.8) Net assets Equity Share capita Share premium Other reserves Transation reserve Hedge reserve (0.6) Retained earnings Equity attributabe to equity hoders of the parent Minority interest 2.1 Tota equity Approved by the Board of Directors on 9 March 2010 and signed on its behaf by: D W Muir Director M Peger Director 46

49 Consoidated Statement of Changes in Equity Year ended 31 December 2009 Hi & Smith Hodings PLC Stock Code HILS09 Share Share Hedge Other Transation Retained Minority Tota capita premium reserve reserves reserve earnings interest equity Note m m m m m m m m At 1 January 2008 as previousy reported Restatement At 1 January 2008 (restated) Tota comprehensive income for the year Dividends (restated) 10 (6.6) (6.6) Change in ownership interest in subsidiaries Credit to equity of share-based payments Shares issued At 31 December 2008 (restated) Tota comprehensive income for the year (0.6) (4.0) 23.6 (0.3) 18.7 Dividends 10 (7.5) (7.5) Change in ownership interest in subsidiaries 4 (1.8) (1.8) Credit to equity of share-based payments Tax taken directy to the Consoidated Statement of Changes in Equity Shares issued At 31 December (0.6) Overview Business Review Governance Financia Statements Information 47

50 Stock Code HILS Consoidated Statement of Cash Fows Year ended 31 December Notes m m m m Profit before tax Add back net financing costs Operating profit 1, Adjusted for non-cash items: Share-based payment 5, Movement in fair vaue of forward contracts Loss on disposa of subsidiaries Gain on disposa of avaiabe for sae financia assets 4 (1.0) Gain on disposa of property, pant and equipment 7 (0.1) (0.4) Depreciation 7, Amortisation of intangibe assets 7, Impairment of non-current assets 7,11, Operating cash fow before movement in working capita Decrease in inventories Decrease/(increase) in receivabes 15.1 (5.2) (Decrease)/increase in payabes (12.7) 1.2 Decrease in provisions and empoyee benefits (1.2) (2.3) Net movement in working capita 10.6 (4.0) Cash generated by operations Income taxes paid (9.6) (16.0) Interest paid (4.4) (9.3) Net cash from operating activities Interest received Loan settement Proceeds on disposa of non-current assets Purchase of property, pant and equipment (9.7) (16.8) Purchase of intangibe assets 11 (0.7) (2.1) Disposa of avaiabe for sae financia assets Disposa of subsidiaries Deferred consideration received in respect of disposas Acquisitions of minority interests (21.0) Refund/(payment) in respect of acquisitions of subsidiaries and associates (12.8) Net cash used in investing activities (2.0) (49.3) Issue of new shares Dividends paid 10 (7.5) (6.6) New oans raised 16.2 Repayment of oans (43.2) (17.9) Repayment of obigations under finance eases (4.9) (2.3) Net cash used in financing activities (38.7) (26.7) Net increase/(decrease) in cash from continuing operations 16.3 (47.1) Cash fow from assets and iabiities hed excusivey for sae 19.1 Cash fow from other discontinued operations Net increase/(decrease) in cash 16.3 (19.4) Cash at the beginning of the year Effect of exchange rate fuctuations (1.1) 4.0 Cash at the end of the year

51 Group Accounting Poicies Hi & Smith Hodings PLC Stock Code HILS09 Hi & Smith Hodings PLC is a company incorporated in the UK. The Group considers a company a subsidiary when it hods more than 50% of the shares and voting rights, so that it has the power to govern the operating and financia poicies of that entity so as to obtain benefits from its activities. The Group considers a company to be an associate when it hods more than 20% of the shares and voting rights and is abe to significanty infuence the decisions of that entity. The Group Financia Statements consoidate the Company and its subsidiaries, proportionatey consoidate any jointy controed entities and equity account the Group s interest in associates. The Parent Company Financia Statements present information about the Company as a separate entity and not about the Group. The Group Financia Statements have been prepared and approved by the Directors in accordance with Internationa Financia Reporting Standards, as adopted by the EU ( Adopted IFRSs ). The Company has eected to prepare its Parent Company Financia Statements in accordance with UK GAAP; these are presented on pages 86 to 93. The accounting poicies set out beow have, uness otherwise stated, been appied consistenty to a periods presented in these Group Financia Statements. Judgments made by the Directors in the appication of these accounting poicies that have a significant effect on the Group Financia Statements and estimates with a significant risk of materia adjustment in the next year are discussed in Note 26. Going concern and iquidity risk The Group s business activities, together with the factors ikey to affect its future deveopment, performance and position are set out in the Business Review on pages 4 to 21. The financia position of the Group, its cash fows, iquidity position and borrowing faciities are described in the Business Review on pages 14 and 15. In addition, Note 21 to the Group Financia Statements incudes the Group s objectives, poicies and processes for managing its capita; its financia risk management objectives; detais of its financia instruments and hedging activities; and its exposures to credit risk and iquidity risk. The businesses of the Group have ong estabished reationships with customers and suppiers which, together with the Group s current financia strength, provide a soid foundation. The Group s forecasts and projections, taking account of reasonaby possibe changes in trading performance, show that the Group shoud be abe to operate within the eve of its current bank faciities, of which the Group s principa debt faciity is a 150m muti currency faciity expiring in June As a consequence, the Directors beieve that the Group is we paced to manage its business risks successfuy despite the current uncertain economic outook. After making enquiries, the Directors have a reasonabe expectation that the Company and its subsidiaries have adequate resources to continue in operationa existence for the foreseeabe future. For this reason, they continue to adopt the going concern basis in preparing the Annua Report and Accounts. New IFRS standards and interpretations adopted during 2009 In 2009 the foowing standards had been endorsed by the EU, became effective and therefore were adopted by the Group: IAS1 (Revised) Presentation of Financia Statements IAS23 (Revised) Borrowing costs Amendment to IAS10 Events after the accounting period Amendment to IFRS2 Share-based payments Amendment to IFRS7 Financia Instruments: Discosures IFRS8 Operating segments IFRIC14 IAS19 The imit on a defined benefit asset, minimum funding requirements and their interaction Foowing the adoption of IFRS8 Operating segments as at 1 January 2009, the Group now determines and presents operating segments based on the information that is presented internay to the Group s Chief Executive, who is the Group s Chief Operating Decision Maker. However, the Group continues to report the same three operating segments since these form the basis of interna reporting. Foowing the adoption of the amendment to IAS10 Events after the accounting period, the Group now accounts for dividends when they are decared. Accordingy, the prior year comparatives have been restated and the effect of this is shown in Note 10. The adoption of the remaining standards and interpretations has not had a significant impact on the resuts for the year. Overview Business Review Governance Financia Statements Information 49

52 Stock Code HILS Group Accounting Poicies New IFRS standards and interpretations not adopted The IASB and IFRIC have issued additiona standards and interpretations which are effective for periods starting after the date of these Financia Statements. The foowing standards and interpretations have not yet been adopted by the Group: IAS27 (Revised) Consoidated and separate financia statements (effective for annua periods beginning on or after 1 Juy 2009) IFRS3 (Revised) Business Combinations (effective for business combinations taking pace in annua periods beginning on or after 1 Juy 2009) IFRIC16 Hedges of a Net Investment in a Foreign Operation The Group does not anticipate that the adoption of the above standards and interpretations wi have a materia effect on its Financia Statements on initia adoption. Measurement convention The Group Financia Statements are prepared on the historica cost basis except where the measurement of baances at fair vaue is required as expained beow. Intangibe assets In respect of subsidiaries, jointy controed entities and associated companies, goodwi on acquisition comprises the excess of the fair vaue of the purchase consideration and any associated acquisition costs for the investment over the Group s share of the fair vaue of the identifiabe assets and iabiities acquired. On an ongoing basis the goodwi is measured at cost ess impairment osses (see accounting poicy Impairment of assets ). Fair vaue adjustments are aways considered to be provisiona at the first Baance Sheet date after the acquisition to aow the maximum time to eapse for management to make a reiabe estimate. The Group has eected not to appy IFRS3 retrospectivey. Goodwi prior to 1 October 1998 was written off to reserves. Goodwi from 1 October 1998 to 31 December 2003 was amortised in ine with UK GAAP. From 1 January 2004 this goodwi is subject to annua impairment testing. Gains and osses on the disposa of an entity incude the carrying amount of goodwi reating to the entity sod. Goodwi arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additiona investment over the carrying amount of the net assets acquired at the date of exchange. Brands and customer ists that are acquired by the Group as part of a business combination are stated at cost ess accumuated amortisation and impairment osses (see accounting poicy Impairment of assets ). Cost refects management s judgement of the fair vaue of the individua intangibe asset cacuated by reference to the net present vaue of future benefits accruing to the Group from the utiisation of the asset, discounted at an appropriate discount rate. The US brand is considered to have an indefinite ife and therefore is subject to annua impairment testing (see accounting poicy Impairment of assets ). For other brands and customer ists, amortisation is provided equay over the estimated usefu economic ife of the assets concerned, currenty up to 20 years. Expenditure on deveopment activities is capitaised if the product or process is considered to be technicay and commerciay viabe and the Group has sufficient resources to compete deveopment. The expenditure capitaised incudes the cost of materias, direct abour and an appropriate proportion of overheads. Other deveopment expenditure is recognised in the Consoidated Income Statement as an expense as incurred. Capitaised deveopment expenditure is stated at cost ess accumuated amortisation and impairment osses. Amortisation is provided equay over the estimated usefu economic ife of the assets concerned, currenty up to seven years. Trade icences are amortised over the specific term granted to each individua icence. Property, pant, equipment and depreciation Depreciation is provided to write off the cost or deemed cost ess the estimated residua vaue of property, pant and equipment by equa instaments over their estimated usefu economic ives as foows: Freehod buidings Leasehod buidings Pant, machinery and vehices 5 to 50 years ife of the ease 4 to 20 years 50

53 Stock Code HILS09 No depreciation is provided on freehod and. The Group has chosen to take the first time adoption exemption avaiabe under IFRS1 to use a previous revauation for certain and and buidings as its deemed cost at the transition date. A other items of property, pant and equipment are stated at cost uness it is fet that this vaue shoud be impaired. Discontinued operations A discontinued operation is a component of the Group s business that represents a separate major ine of business or geographica area of operations that has been disposed of or is hed for sae, or represents operations acquired excusivey with a view to resae. Cassification as a discontinued operation occurs upon disposa or when the operation meets the criteria as a discontinued operation, the comparative Consoidated Income Statement is represented as if the operation had been discontinued from the start of the comparative period. The resuts and cash fows of major ines of business that have been divested have been cassified as discontinued operations. Financia instruments Financia assets and iabiities are recognised on the Group s Baance Sheet when the Group becomes a party to the contractua provisions of the instrument. The Group s investments in equity securities and certain debt securities are cassified as avaiabe for sae financia assets. Subsequent to initia recognition, they are measured at fair vaue and changes therein, other than impairment osses and foreign exchange gains and osses on avaiabe for sae monetary items, are recognised directy in equity. When an investment is derecognised, the cumuative gain or oss in equity is transferred to profit or oss. Trade receivabes and trade payabes are initiay measured at fair vaue. Subsequent to initia recognition, they are carried at amortised cost using the effective interest method, ess any impairment osses. Derivative financia instruments of the Group are used to hedge its exposure to interest rate and foreign currency risks arising from operationa, financing and investment activities. In accordance with its treasury poicy, the Group does not hod or issue derivative financia instruments for trading purposes. However, derivatives that do not quaify for hedge accounting are accounted for as trading instruments, as foows: Derivative financia instruments are stated at fair vaue. The unhedged gain or oss on remeasurement to fair vaue is recognised immediatey in the Consoidated Income Statement. The fair vaue of interest rate swaps is the estimated amount that the Group woud receive or pay to terminate the swap at the Baance Sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair vaue of foreign exchange contracts is the estimated amount that the Group woud receive or pay to terminate such contracts at the Baance Sheet date, taking into account the forward exchange rates prevaiing at that date. Where derivative financia instruments are used to hedge the cash fow risk, such as interest rate swaps, the effective part of any gain or oss on the fair vaue of cash fow hedges is recognised in the Consoidated Statement of Comprehensive Income and in the hedge reserve, whie any ineffective part is recognised immediatey in the Consoidated Income Statement. Amounts recorded in the hedge reserve are subsequenty recassified to the Consoidated Income Statement when the interest expense is actuay recognised. To quaify for hedge accounting the hedging reationship must meet severa conditions with respect to documentation, probabiity of occurrence, hedge effectiveness and reiabiity of measurement. At the inception of the transaction, the Group documents the reationship between hedging instruments and hedged items, as we as its risk management objective and strategy for undertaking the hedge transaction. This process incudes inking a derivatives designated as hedges to specific assets and iabiities or to specific firm commitments or forecast transactions. The Group aso documents its assessment, at hedge inception and on a haf yeary basis, as to whether the derivatives that are used in hedging transactions have been, and are ikey to continue to be, effective in offsetting changes in fair vaue or cash fows of hedged items. Interest bearing borrowings are recognised initiay at fair vaue ess attributabe transaction costs. Subsequent to initia recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption vaue being recognised in the Consoidated Income Statement over the period of the borrowings on an effective interest basis. Cash and cash equivaents Cash and cash equivaents comprise cash baances and ca deposits. Bank overdrafts that are repayabe on demand and form an integra part of the Group s cash management are incuded as a component of cash and cash equivaents for the purpose of the Consoidated Statement of Cash Fows. Overview Business Review Governance Financia Statements Information 51

54 Stock Code HILS Group Accounting Poicies Foreign currencies Transactions in foreign currencies are recorded using the rate of exchange ruing at the date of the transaction. Any gain or oss on transation of monetary foreign currency assets and iabiities arising from a movement in exchange rates subsequent to initia measurement is incuded as an exchange gain or oss in the Consoidated Income Statement. The assets and iabiities of overseas subsidiary undertakings, incuding goodwi and fair vaue adjustments arising on acquisition, are transated at the cosing exchange rate. Income statements and cash fows of such undertakings are transated into Stering at weighted average rates of exchange, other than substantia transactions that are transated at the rate on the date of the transaction. The adjustments to period end rates are taken to the cumuative transation reserve in equity and reported in the Consoidated Statement of Comprehensive Income. When an overseas operation is disposed of, in part or in fu, the reevant amount in the transation reserve is transferred to profit or oss. Foreign currency differences arising on the retransation of a financia iabiity designated as a hedge of a net investment in a foreign operation are recognised directy in equity and reported in the Consoidated Statement of Comprehensive Income, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognised in profit or oss. When the hedged part of a net investment is disposed of, the associated cumuative amount in the transation reserve is transferred to profit or oss as an adjustment to the profit or oss on disposa. The principa exchange rates used were as foows: Average Cosing Average Cosing Stering to Euro ( 1 = ) Stering to US Doar ( 1 = $) Stering to Thai Baht ( 1 = Baht) Inventories Inventories are stated at the ower of cost and net reaisabe vaue. In determining the cost of raw materias, consumabes and goods purchased for resae, the FIFO or average cost method is used. Cost for work in progress and finished goods comprises direct materias, direct abour and an appropriate proportion of attributabe overheads. Provisions A provision is recognised in the Baance Sheet when the Group has a present ega or constructive obigation as a resut of a past event and it is probabe that an outfow of economic benefits wi be required to sette the obigation. If the effect is materia, provisions are determined by discounting the expected future cash fows at a pre tax rate that refects current market assessments of the time vaue of money and, when appropriate, the risks specific to the iabiity. A provision for restructuring is recognised when the Group has approved a detaied and forma restructuring pan, and the restructuring either has commenced or has been announced pubicy. Future operating costs are not provided for. In accordance with the Group s environmenta poicy and appicabe ega requirements, a provision for site restoration in respect of contaminated and is recognised as an obigation arises. The estimated cost of returning properties hed under eases to their origina condition in accordance with the terms of specific ease contracts is recognised as soon as such costs are abe to be reiaby estimated. Impairment of assets The carrying amounts of the Group s non-financia assets, other than inventories (see accounting poicy Inventories ) and deferred tax baances (see accounting poicy Deferred taxation ), are reviewed at each Baance Sheet date to determine whether there is an indication of impairment. Impairment reviews are undertaken at the eve of each significant cash generating unit, which are no arger than operating segments as defined in IFRS8 Segmenta reporting. If such an indication exists, the reevant asset s recoverabe amount is estimated. An impairment oss is recognised whenever the carrying amount of the asset or its cash generating unit exceeds its recoverabe amount. For goodwi and intangibe assets that have an indefinite ife, the recoverabe amount is assessed at each Baance Sheet date and an impairment oss is recognised for the amount by which the asset s carrying amount exceeds its recoverabe amount. The recoverabe amount of an asset or cash generating unit is the greater of its vaue in use and its fair vaue ess costs to se. In assessing vaue in use, the estimated future cash fows are discounted to their present vaue using a pre tax discount rate that refects current market assessments of the time vaue of money and the risks specific to the asset. 52

55 Stock Code HILS09 Leases Leases for which the Group assumes substantiay a the risks and rewards of ownership are cassified as finance eases. Upon initia recognition the eased asset is measured at an amount equa to the ower of its fair vaue and the present vaue of the minimum ease payments. Subsequent to initia recognition, the asset is accounted for in accordance with the accounting poicy appicabe to that asset. Other eases are cassified as operating eases and the eased assets are not recognised on the Group s Baance Sheet. Payments made under operating eases are recognised in the Consoidated Income Statement on a straight ine basis over the term of the ease. Lease incentives received are recognised as an integra part of the tota ease expense, over the term of the ease. Minimum ease payments made under finance eases are apportioned between the finance expense and the reduction of the outstanding iabiity. The finance expense is aocated to each period during the ease term so as to produce a constant periodic rate of interest on the remaining baance of the iabiity. Renta income from operating eases is recognised as revenue in the Consoidated Income Statement on an accruas basis. Revenue Revenue from the sae of goods represents the amount (excuding vaue added tax) invoiced to third party customers, net of returns, trade discounts and voume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer and the amount of revenue can be measured reiaby. No revenue is recognised where the recovery of the consideration is not probabe or where there are significant uncertainties regarding associated costs or the possibe return of goods. Government grants Government grants are recognised as a iabiity in the Baance Sheet and credited to operating profit over the estimated usefu economic ife of the reevant assets or the ength of empoyment specified in the grant. Guarantees The Group s poicy is to not give externa guarantees. Retirement benefits The Group operates pension schemes under which contributions by empoyees and by the sponsoring companies are hed in trust funds separated from the Group s finances. Obigations for contributions to defined contribution pension schemes are recognised as an expense in the Consoidated Income Statement as incurred. The Group s net obigation in respect of defined benefit pension schemes is cacuated separatey for each scheme by estimating the amount of future benefit that empoyees have earned in return for their service in the current and prior periods. This benefit is discounted to determine its present vaue, and the fair vaue of any scheme assets is deducted. The discount rate is the yied at the Baance Sheet date on AA rated bonds that have maturity dates approximating to the terms of the Group s obigations. The cacuation is performed by a quaified Actuary using the projected unit method. Scheme assets are vaued at bid price. Current and past service costs are recognised in operating profit within the Consoidated Income Statement. Aso in the Consoidated Income Statement, the expected return on pension scheme assets is incuded in financia income and the expected costs on pension scheme iabiities in financia expense. A actuaria gains and osses in cacuating the Group s obigation in respect of defined benefit schemes are recognised annuay in reserves and reported in the Consoidated Statement of Comprehensive Income. Share-based payment transactions The fair vaue of shares/options granted is recognised as an empoyee expense, with a corresponding increase in equity reserves. The fair vaue is cacuated at the grant date and spread over the period during which the empoyees become unconditionay entited to the shares/options. The Back Schoes mode has been adopted as the method of evauating the fair vaue of the options. The amount recognised as an expense is adjusted to refect the actua number of awards for which the reated service and non-market vesting conditions are expected to be met, such that the amount utimatey recognised as an expense is based on the number of awards that do meet the reated service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair vaue of the share-based payment is measured to refect such conditions and there is no adjustment for differences between expected and actua outcomes. Overview Business Review Governance Financia Statements Information 53

56 Stock Code HILS Group Accounting Poicies Financia income and expense Financia income comprises interest income on funds invested, expected returns on pension scheme assets and gains on the fair vaue of financia assets and iabiities at fair vaue through profit or oss. Interest income is recognised as it accrues in the Consoidated Income Statement using the effective interest method. Financia expense comprises interest expense on borrowings, expected interest cost on pension scheme obigations, unwinding of discounts, osses on the fair vaue of financia assets and iabiities at fair vaue through profit or oss and the interest expense component of finance ease payments. A borrowing costs are recognised in the Consoidated Income Statement using the effective interest method. Income tax Income tax on the profit or oss for the year represents the sum of the tax currenty payabe and deferred tax. Income tax is recognised in the Consoidated Income Statement except to the extent that it reates to items recognised directy in equity, in which case it is recognised in equity. Current tax is the expected tax payabe on the taxabe profit for the year. Taxabe profit differs from net profit as reported in the Consoidated Income Statement because it excudes items of income or expense that are not taxabe or deductibe. The Group s iabiity for current tax is cacuated using tax rates enacted or substantivey enacted at the Baance Sheet date, and any adjustments to tax payabe in respect of previous years. Deferred taxation Deferred tax is provided in fu using the Baance Sheet iabiity method and represents the tax expected to be payabe or recoverabe on the temporary differences between the carrying amounts of assets and iabiities for financia reporting purposes and the amounts used for taxation purposes. The foowing temporary differences are not provided for: goodwi not deductibe for tax purposes, the initia recognition of assets and iabiities not resuting from a business combination that affects neither accounting or taxabe profit, and differences reating to investments in subsidiaries to the extent that they wi not reverse in the foreseeabe future. The amount of deferred tax provided is based on the expected manner of reaisation or settement of the carrying amount of assets and iabiities, using tax rates enacted or substantivey enacted at the Baance Sheet date. A deferred tax asset is recognised ony to the extent that it is probabe that future taxabe profits wi be avaiabe against which the asset can be utiised. The carrying amount of deferred tax assets is reviewed at each Baance Sheet date and reduced to the extent that it is no onger probabe that sufficient taxabe profit wi be avaiabe to aow a or part of the asset to be recovered. Deferred tax assets and iabiities are offset when they reate to income taxes evied by the same taxation authority and the Group intends to sette its current tax assets and iabiities on a net basis. Ordinary dividends Dividends are accounted for in the Financia Statements when the Group decares the payment of the dividend. 54

57 Stock Code HILS09 Notes to the Consoidated Financia Statements 1. Segmenta information Business segment anaysis The Group has three reportabe segments which are Infrastructure Products, Gavanizing Services and Buiding and Construction Products. Severa operating segments which have simiar economic characteristics have been aggregated into these reporting segments Underying Underying Revenue Resut resut* Revenue Resut resut* m m m m m m Income Statement continuing Infrastructure Products Gavanizing Services Buiding and Construction Products Tota Group Net financing costs (5.2) (4.8) (8.3) (8.5) Continuing operations profit before taxation Taxation (12.2) (13.2) (15.3) (14.6) Continuing operations profit after taxation Income Statement discontinued Infrastructure Products Gavanizing Services Buiding and Construction Products Tota Group Net financing costs (0.5) Discontinued operations profit before taxation 4.6 Taxation (1.7) Discontinued operations profit after taxation 2.9 Income Statement Infrastructure Products Gavanizing Services Buiding and Construction Products Tota Group Net financing costs (5.2) (4.8) (8.8) (8.5) Profit before taxation Taxation (12.2) (13.2) (17.0) (14.6) Profit after taxation * Underying resut is stated before Non-Underying items as defined on the Consoidated Income Statement, and is the measure of segment profit used by the Chief Operating Decision Maker. The Resut coumns are incuded as additiona information. Infrastructure Products provided 0.7m (2008: 0.3m) revenues to Buiding and Construction Products. Gavanizing Services provided 4.8m (2008: 5.8m) revenues to Infrastructure Products and 1.8m (2008: 2.0m) revenues to Buiding and Construction Products. Buiding and Construction Products provided 0.5m (2008: 0.7m) revenues to Infrastructure Products. These interna revenues, aong with revenues generated from within their own segments, have been eiminated on consoidation. Overview Business Review Governance Financia Statements Information 55

58 Stock Code HILS Notes to the Consoidated Financia Statements 1. Segmenta information continued Baance Sheet Tota Tota Tota Tota assets iabiities assets iabiities (Restated) m m m m Infrastructure Products (35.4) (32.7) Gavanizing Services (24.6) (31.7) Buiding and Construction Products 33.7 (14.9) 45.8 (23.4) Tota segment assets/(iabiities) (74.9) (87.8) Taxes (21.0) (21.4) Provisions and retirement benefits (21.7) (18.5) Net debt 41.1 (128.7) 25.9 (172.1) Tota Group (246.3) (299.8) Net assets Capita expenditure and amortisation/depreciation Impairment Impairment osses, osses, amortisation amortisation Capita and Capita and expenditure depreciation expenditure depreciation m m m m Infrastructure Products Gavanizing Services Buiding and Construction Products Tota Group Property, pant and equipment (Note 12) Intangibe assets (Note 11) Tota Group

59 Stock Code HILS09 1. Segmenta information continued Geographica segment anaysis Detaied beow is the anaysis of revenue by geographica market, irrespective of origin. Revenues 2009 Continuing Discontinued 2008 m m m m UK Rest of Europe USA The Midde East Asia Rest of Word Tota Beow are tabes showing tota assets and capita expenditure by major geographica segment. Tota assets m m UK Rest of Europe USA Asia Tota Group Capita expenditure m m UK Rest of Europe USA Asia Tota Group Operating profit 2009 Continuing Discontinued 2008 m m m m Revenue Cost of saes (262.0) (285.7) (99.1) (384.8) Gross profit Distribution costs (20.0) (23.0) (8.1) (31.1) Administrative expenses (63.5) (68.6) (7.9) (76.5) Profit on sae of fixed assets Other operating income Operating profit Overview Business Review Governance Financia Statements Information 57

60 Stock Code HILS Notes to the Consoidated Financia Statements 3. Discontinued operations and assets hed for sae Discontinued operations Foowing the acquisition on 2 Juy 2007 of Zinkinvent GmbH the Group decided that it did not wish to retain the Beneux and German trading operations of that company. Accordingy, these businesses were accounted for as discontinued operations from the date of acquisition. These operations were disposed of in August 2008 for a consideration of 22.1m, incuding deferred consideration of 1.0m. In November 2008, the Group exited the stee bar reinforcing market through the disposa of its interests in Express Reinforcements Limited and the cessation of its reated activities. As a resut these operations have been treated as discontinued activities. The resuts of the discontinued operations are as foows: Income Statement 2008 m Operating profit (Note 2) 5.1 Net financing charges (Note 6) (0.5) Profit before taxation 4.6 Taxation (Note 8) (1.7) Discontinued operations profit for the year 2.9 Cash fows Net cash from operating activities 5.6 Net cash from investing activities 8.0 Net cash used in financing activities (5.0) Cash fow from other discontinued operations 8.6 The impact of the disposa of Express Reinforcements Limited on the Group s resuts is as foows: 2008 m Intangibe assets 4.0 Property, pant and equipment 3.5 Inventories 7.0 Current assets 13.4 Cash and cash equivaents 3.8 Current iabiities (22.3) Deferred tax (Note 14) (0.3) Net assets 9.1 Consideration: Cash consideration 12.8 Deferred consideration 0.4 Expenses (1.0) Tota net proceeds 12.2 Profit on disposa 3.1 Cash fow effect: Cash consideration 12.8 Cash eft in the business (3.8) Expenses (1.0) Net cash consideration

61 Stock Code HILS09 4. Non-Underying items Non-Underying items in 2009 incude a gain of 1.0m in reation to the disposa of the Group s utimate minority interest in Neho BV which was hed as an avaiabe for sae financia asset: 2009 m Avaiabe for sae financia assets (Note 13) 5.7 Minority interest (1.8) Sharehoder s equity 3.9 Consideration: Cash consideration 5.0 Expenses (0.1) Tota net proceeds 4.9 Profit on disposa 1.0 Cash fow effect: Cash consideration 5.0 Expenses (0.1) Net cash consideration shown in the Consoidated Statement of Cash Fows and Note The Group reaised a oss on the disposa of Ash & Lacy Perforators Limited as foows: 2009 m Property, pant and equipment 1.1 Inventories 0.2 Current assets 1.4 Cash and cash equivaents 2.1 Current iabiities (1.2) Net Assets 3.6 Consideration: Cash consideration 2.9 Deferred consideration 0.2 Expenses (0.1) Tota net proceeds 3.0 Loss on disposa (0.6) Cash fow effect: Cash consideration 2.9 Cash eft in the business (2.1) Expenses (0.1) Net cash consideration shown in the Consoidated Statement of Cash Fows and Note Aso incuded are a 0.1m gain on the sae of and, reorganisation and redundancy costs of 1.2m (2008: 1.9m) and intangibe amortisation and impairment charges of 1.4m (2008: 2.5m offset by a net curtaiment gain of 0.6m in respect of the Group s retirement obigations). Amounts incuded within financia income and expense represents the net financing return on pension obigations of 0.5m cost (2008: 0.2m income) and the gain on the fair vaue of financia instruments of 0.1m (2008: ni). Tax on Non-Underying items incudes a charge of 0.1m (2008: 1.1m) resuting from a change in the UK tax egisation preventing the recoverabiity of Industria Buidings Aowances. Overview Business Review Governance Financia Statements Information 59

62 Stock Code HILS Notes to the Consoidated Financia Statements 5. Empoyees 2009 Continuing Discontinued 2008 The average number of peope empoyed by the Group during the year Infrastructure Products 1,316 1,224 1,224 Gavanizing Services 1,294 1, ,608 Buiding and Construction Products ,232 3, ,741 m m m m The aggregate remuneration for the year Wages and saaries Share-based payments Socia security costs Pension costs* * Pension costs shown above excude the effect of net curtaiment gains of ni (2008: 0.6m) on the UK defined benefit pension schemes and ni (2008: 0.2m) on the overseas defined benefit pension schemes. Detais of the Directors remuneration and share interests are given in the Directors Remuneration Report on pages 34 to Net financing costs Non- Non- Underying Underying 2009 Underying Underying 2008 m m m m m m Interest on bank deposits Interest on other oans Tota interest income Change in fair vaue of financia assets and iabiities Expected return on pension scheme assets (Note 25) Tota other income Financia income Interest on bank oans and overdrafts Interest on finance eases and hire purchase contracts Interest on other oans Tota interest expense Change in fair vaue of financia assets and iabiities Put option discount unwind Expected interest cost on pension scheme obigations (Note 25) Tota other expense Financia expense Continuing net financing costs/(income) (0.2) 8.3 Discontinued operations 0.5 Net financing costs

63 Stock Code HILS09 7. Expenses and Auditor s remuneration 2009 Continuing Discontinued 2008 m m m m Income Statement charges Depreciation of property, pant and equipment: Owned Leased Operating ease rentas: Pant and machinery Other Research and deveopment expenditure Amortisation of acquisition intangibes Amortisation of deveopment costs Amortisation of other intangibe assets Impairment oss Fair vaue oss on forward exchange contracts Foreign exchange oss Income Statement credits Profit on disposa of properties 0.1 Profit on disposa of other fixed assets Grants receivabe Renta income Foreign exchange gain 0.2 A detaied anaysis of the Auditor s remuneration wordwide is as foows: 2009 Continuing Discontinued 2008 m m m m Hi & Smith Hodings PLC Audit of the Company s annua accounts Audit of the Company s subsidiaries Other services* Vauation and actuaria services Hi & Smith Hodings PLC pension schemes Vauation and actuaria services Other services pension administration * Incudes ni (2008: 0.1m) reating to the Auditor s work as reporting accountants in respect of corporate transactions, the costs of which are capitaised. A description of the work of the Audit Committee is set out in the Corporate Governance Report on pages 31 and 32 and incudes an expanation of how auditor objectivity and independence is safeguarded when non audit services are provided by the Auditor. Overview Business Review Governance Financia Statements Information 61

64 Stock Code HILS Notes to the Consoidated Financia Statements 8. Taxation 2009 Continuing Discontinued 2008 m m m m Current tax UK corporation tax Adjustments in respect of prior periods (1.8) Overseas tax at prevaiing oca rates Deferred tax (Note 14) Current year (0.2) Adjustments in respect of prior periods Overseas tax at prevaiing oca rates 0.6 (0.9) (0.9) Tax on profit in the Income Statement Current tax Reating to foreign exchange 0.1 Reating to share-based payments (0.1) Deferred tax (Note 14) Reating to defined benefit pension schemes (1.6) (1.5) Reating to financia instruments (0.2) Reating to share-based payments 0.3 Tax on items taken directy to other comprehensive income (1.8) (1.2) Deferred tax (Note 14) Reating to share-based payments (0.5) Tax taken directy to the Consoidated Statement of Changes in Equity (0.5) The tax charge in the Consoidated Income Statement for the period is higher (2008: higher) than the standard rate of corporation tax in the UK. The differences are expained beow: m m Profit from continuing operations before tax Profit from discontinued operations before tax (Note 3) 4.6 Profit before taxation Profit before taxation mutipied by the standard rate of corporation tax in the UK of 28.0% (2008: 28.5%) Expenses not deductibe for tax purposes Impairment of goodwi 0.6 Capita profits ess osses and write downs not subject to tax (0.3) (0.7) Overseas profits taxed at higher/(ower) rates Overseas osses not reieved Withhoding taxes 0.2 Impact of change in egisation 1.1 Adjustments in respect of previous periods (1.1) 0.2 Tax charge Tax charge on continuing operations Tax charge on discontinued operations (Note 3) 1.7 Tax charge

65 Stock Code HILS09 9. Earnings per share The weighted average number of Ordinary Shares in issue during the year was 75.8m (2008: 75.6m), diuted for the effects of the outstanding diutive share options 76.5m (2008: 76.5m). Underying earnings per share have been shown because the Directors consider that this provides vauabe additiona information about the underying performance of the Group Pence Pence per share m per share m Basic earnings Discontinued business (3.8) (2.9) Continuing basic earning per share Non-Underying items* Underying earnings Diuted earnings Discontinued business (3.8) (2.9) Continuing diuted earning per share Non-Underying items* Underying diuted earnings * Non-Underying items as defined on the Consoidated Income Statement. 10. Dividends Dividends paid in the year were the prior year s interim dividend of 3.2m (2008: 2.7m) and the fina dividend of 4.3m (2008: 3.9m). Dividends decared after the Baance Sheet date are not recognised as a iabiity, in accordance with IAS10. The Directors have proposed the foowing interim dividend and a fina dividend for the current year, subject to sharehoder approva, as shown beow: Pence Pence per share m per share m Equity shares Interim Fina Tota The Group previousy had a poicy of recognising dividends when they were committed, however, subsequent to the amendment of IAS10 Events after the accounting period, this poicy has been aigned so that dividends are now recognised when they are decared. This has resuted in the restatement of the 2008 Consoidated Baance Sheet. The effect of this restatement is refected in the Consoidated Statement of Changes in Equity and increases the opening retained earnings as at 1 January 2008 by 2.7m, the dividend in 2008 is reduced by 0.5m to 6.6m and the dividend accrua of 3.2m as at 31 December 2008 has been removed from Note 18. On the grounds of materiaity no restated Consoidated Baance Sheet as at 1 January 2008 has been presented. Overview Business Review Governance Financia Statements Information 63

66 Stock Code HILS Notes to the Consoidated Financia Statements 11. Intangibe assets Capitaised Customer deveopment Goodwi Brands ists costs Licences Tota m m m m m m Cost At 1 January Exchange adjustments Acquisitions subsidiaries Acquisitions minority interests Additions interna Additions externa Disposa of subsidiaries (4.0) (4.0) Disposas (0.4) (0.4) At 31 December Exchange adjustments (5.9) (1.3) (0.3) (7.5) Additions interna Additions externa Disposa of subsidiaries (1.9) (1.9) At 31 December Amortisation and impairment osses At 1 January Exchange adjustments Disposas (0.1) (0.1) Impairment osses Amortisation charge for the year At 31 December Exchange adjustments (0.1) (0.1) Disposas of subsidiaries (1.9) (1.9) Impairment osses Amortisation charge for the year At 31 December Carrying vaues At 1 January At 31 December At 31 December During the year the Group received a refund of consideration previousy paid of 0.7m (Note 17) due to Creative Putrusions Inc. not achieving certain targets as aid out in the sae and purchase agreement. A fair vaue adjustment of 0.7m (Note 14) in respect of deferred tax on the intangibe fixed assets of Creative Putrustions Inc. was aso made, but no prior year adjustment in respect of the atter was made on the grounds of materiaity Goodwi of 5.9m, brands of 0.9m and customer ists of 0.6m arose on the acquisition of Creative Putrusions Inc. in September Goodwi arises on this acquisition due primariy to the assembed workforce, technica expertise, knowhow, market share and geographica advantages afforded to the Group through this acquisition. Detais of the acquisition are provided in the tabe on the next page. Goodwi of 5.0m arising on the acquisition of minority interests consisted of the foowing: 4.3m in respect of the purchase in Juy 2008 of the 31.8% minority interest in Zinkinvent GmbH. The 4.3m represents the excess of the net consideration of 18.8m over the fair vaue of the put option recognised on acquisition in respect of the Group s potentia obigation to purchase the minorities sharehodings. 0.7m in respect of the purchase in January 2008 of the minority interests in the US fabrication operations of Voigt & Schweitzer LLC for a consideration of 2.2m. No intangibe assets other than goodwi were recognised upon these acquisitions as the Group had previousy recognised the intangibe assets upon acquiring a majority sharehoding in Zinkinvent GmbH in Juy

67 Stock Code HILS Intangibe assets continued Detais of acquisitions are shown beow: Poicy Creative aignment Putrusions Inc. and pre-acquisition provisiona Creative carrying fair vaue Putrusions amount adjustments Inc. m m m Intangibe assets Property, pant and equipment Inventories Current assets Current iabiities (2.2) (2.2) Deferred tax (Note 14) Non-current iabiities (Note 20) (0.3) (0.3) Sharehoder s equity Consideration Cash consideration in the year 12.4 Expenses 0.4 Tota cost 12.8 Goodwi 5.9 Cash fow effect Cash consideration 12.4 Expenses incurred in the year 0.4 Net cash consideration shown in the Consoidated Statement of Cash Fows and Note Post acquisition profit for the year incuded in the Group s Consoidated Income Statement 0.1 Poicy aignment and provisiona fair vaue adjustments principay reate to harmonisation with Group IFRS accounting poicies, incuding the appication of fair vaues on acquisition and the eimination of inter Group baances. Cash generating units with significant amounts of goodwi m m Gavanizing Services France Gavanizing Services USA Joseph Ash Limited Other cash generating units with no individuay significant vaue Goodwi impairments have been carried out at an operating segment eve on a cash generating units to which goodwi is aocated. Impairment tests on the carrying vaues of goodwi and the US brand name of 6.3m (2008: 7.0m), which is the Group s ony other indefinite ife intangibe asset, are performed by anaysing the carrying vaue aocated to each significant cash generating unit against its vaue in use. A goodwi is aocated to specific cash generating units whch are in a cases no arger than operating segments. Vaue in use is cacuated for each cash generating unit as the net present vaue of that unit s discounted future cash fows. These cash fows are based on budget cash fow information for a period of one year with an average growth rate of 1.0% appied subsequent to the initia budget period based on a prudent management estimate for revenue and associated cost growth. Overview Business Review Governance Financia Statements Information 65

68 Stock Code HILS Notes to the Consoidated Financia Statements 11. Intangibe assets continued An impairment charge of ni (2008: 1.9m) was recognised in respect of the whoe of the goodwi reating to Ash & Lacy Perforators Limited, a singe cash generating unit which was disposed of in 2009 and formed part of the Group s Buiding and Construction Products Division. This charge was treated as a Non-Underying item and was incuded in continuing administrative expenses. The initia measurements of the post tax and pre tax weighted average costs of capita were respectivey 8.09% and 11.24% (2008: 6.98% and 9.55%). However, to refect the differing risks and returns appied to the different cash generating units and the geographies in which they operate, the pre tax discount rates and growth rates respectivey have been adjusted as foows: Gavanizing Services France: 16.82% and 1.0% (2008: 12.28% and 1.0%) Gavanizing Services USA: 18.26% and 1.0% (2008: 13.82% and 0.5%). Joseph Ash Limited: 15.37% and 1.0% (2008: 11.16% and 1.0%) Other cash generating units with no significant amounts of goodwi principay consist of subsidiaries in the Infrastructure Products and Buiding and Construction Products segments. The Group has appied sensitivities to assess whether any reasonabe possibe changes in assumptions coud cause an impairment that woud be materia to these Consoidated Financia Statements and no such impairments were identified. 12. Property, pant and equipment Pant, Land and machinery buidings and vehices Tota m m m Cost At 1 January Exchange adjustments Acquisitions Disposa of subsidiaries (1.5) (7.6) (9.1) Additions Disposas (4.2) (3.8) (8.0) At 31 December Exchange adjustments (4.5) (2.8) (7.3) Disposa of subsidiaries (10.3) (10.3) Additions Disposas (0.2) (2.0) (2.2) At 31 December Depreciation and impairment osses At 1 January Exchange adjustments Disposa of subsidiaries (0.4) (5.2) (5.6) Disposas (2.3) (5.7) (8.0) Charge for the year Discontinued Charge for the year Continuing At 31 December Exchange adjustments (0.3) (0.5) (0.8) Disposa of subsidiaries (9.2) (9.2) Disposas (1.7) (1.7) Charge for the year Impairment provision At 31 December Carrying vaues At 1 January At 31 December At 31 December The gross book vaue of and and buidings incudes freehod and of 11.4m (2008: 12.3m). Incuded in the carrying vaue of pant, machinery and vehices is 13.5m (2008: 10.4m) in respect of assets hed under finance ease and hire purchase contracts. Incuded within pant, machinery and vehices are assets hed for hire with a cost of 26.3m (2008: 21.5m) and accumuated depreciation of 9.4m (2008: 7.0m). 66

69 Stock Code HILS Avaiabe for sae financia assets Fair and carrying vaue At 1 January Exchange adjustments 1.6 Interest receivabe on oan 0.1 Loan repayment (1.0) At 31 December Exchange adjustments (0.7) Disposa (Note 4) (5.7) At 31 December 2009 Tota m Avaiabe for sae financia assets consisted of a 33.3% sharehoding of Vista Investment NV in Neho BV, a Dutch hoding company. The Group disposed of its 68.2% hoding in Vista Investments NV on 26 June 2009 for a consideration of 5.0m, this transaction aso removed the 31.8% minority interest hed by Mr Lars Baumguerte as shown in the Consoidated Statement of Changes in Equity. On the date of disposa, the fair vaue was measured resuting in a 1.0m gain which was recognised directy in equity. The asset disposa recyced the 1.0m gain to the Consoidated Income Statement as a gain on disposa of avaiabe for sae financia assets. 14. Deferred taxation Property, Intangibe pant and Retirement Other timing assets equipment Inventories obigation differences Tota m m m m m m At 1 January 2008 (4.0) (7.7) (3.2) (10.7) Exchange adjustments (1.3) (1.0) (0.8) (0.3) (3.4) Fair vaue adjustment (1.4) (1.4) Acquisition of subsidiaries (Note 11) Disposa of subsidiaries (Note 3) Credited/(charged) for the year in the Consoidated Income Statement (Note 8) 0.1 (1.2) 0.9 (1.5) 0.5 (1.2) Credited/(charged) for the year in the Consoidated Statement of Comprehensive Income (Note 8) 1.5 (0.3) 1.2 At 31 December 2008 (5.2) (9.6) (3.1) (14.5) Exchange adjustments Fair vaue adjustment (Note 11) (0.7) (0.7) Credited/(charged) for the year in the Consoidated Income Statement (Note 8) 0.1 (1.2) (1.4) (1.1) Credited for the year in the Consoidated Statement of Comprehensive Income (Note 8) Credited for the year in the Consoidated Statement of Changes in Equity (Note 8) At 31 December 2009 (5.3) (10.2) (2.0) 4.8 (12.7) m m Deferred tax assets Deferred tax iabiities (14.4) (18.1) Deferred tax iabiity (12.7) (14.5) No deferred tax asset has been recognised in respect of tax osses of 14.1m (2008: 14.6m) as their future use is uncertain. There is no time imit on the carrying forward of these osses. A deferred tax charge of 0.1m (2008: 1.1m) has been made resuting from a change during the prior year in the UK tax egisation preventing the recoverabiity of Industria Buidings Aowances. Overview Business Review Governance Financia Statements Information 67

70 Stock Code HILS Notes to the Consoidated Financia Statements 15. Inventories m m Raw materias and consumabes Work in progress Finished goods and goods for resae The amount of inventories expensed to the Consoidated Income Statement in the year was 251.0m (2008: 273.0m). The vaue of inventories written down and expensed in the Consoidated Income Statement during the year amounted to 0.3m (2008: 1.0m). The amount of inventories hed at fair vaue ess cost to se incuded in the above was ni (2008: ni). 16. Trade and other receivabes m m Other non-current receivabes Deferred consideration Trade and other current receivabes Trade receivabes Prepayments and accrued income Other receivabes The Group maintains a substantia eve of credit insurance covering the majority of its trade receivabes which mitigates against possibe impairment osses, as such the impairment osses are not significant. The charge to the Consoidated Income Statement in the year in respect of impairment of trade receivabes was 0.6m (2008: 0.5m). 68

71 Stock Code HILS Cash and borrowings m m Cash and cash equivaents in the Baance Sheet Cash and bank baances Ca deposits Cash Interest bearing oans and borrowings Amounts due within one year (Note 18) (31.2) (16.7) Amounts due after more than one year (Note 19) (97.5) (155.4) Net debt (87.6) (146.2) Change in net debt Operating profit Non-cash items Operating cash fow before movement in working capita Net movement in working capita 11.8 (1.7) Changes in provisions and empoyee benefits (1.2) (2.3) Operating cash fow Tax paid (9.6) (16.0) Net financing costs paid (net of investment oan settement) (3.7) (7.0) Capita expenditure (11.7) (22.5) Sae of fixed assets Free cash fow Dividends paid (Note 10) (7.5) (6.6) Disposas (see beow) Acquisitions (see beow) 0.7 (33.8) Issue of new shares Net debt decrease/(increase) from continuing operations 46.9 (1.4) Net cash infow from discontinued operations 5.6 Net debt decrease Effect of exchange rate fuctuations 11.7 (32.6) Net debt at the beginning of the year (146.2) (117.8) Net debt at the end of the year (87.6) (146.2) Acquisitions Acquisition of minority interests (21.0) Refund/(payment) in respect of acquisition of subsidiaries and associates (Note 11) 0.7 (12.8) Tota 0.7 (33.8) Disposas Disposa of subsidiaries (Note 4) Disposa of avaiabe for sae financia assets (Note 4) 4.9 Deferred consideration received in respect of disposas Disposa of assets and iabiities hed for sae 21.1 Tota Overview Business Review Governance Financia Statements Information 69

72 Stock Code HILS Notes to the Consoidated Financia Statements 18. Current iabiities (Restated) m m Interest bearing oans and borrowings (Note 17) Current portion of ong term borrowings Finance ease and hire purchase obigations Bis of exchange Trade and other current iabiities Trade payabes Other taxation and socia security Accrued expenses Fair vaue derivatives Other payabes The dividend accrued for 2008 of 3.2m has been removed as a resut of the change in Group poicy in ine with IAS10 (Note 10). 19. Non-current iabiities m m Interest bearing oans and borrowings (Note 17) Long term borrowings Finance ease and hire purchase obigations Other non-current iabiities Deferred government grants Finance eases and hire purchase obigations and the effective interest rates for the period they mature as at the Baance Sheet date are detaied beow: Minimum Minimum Effective ease Effective ease interest rate payment Principa interest rate payment Principa % m m % m m Finance eases and hire purchase obigations Amounts due within one year Amounts due after more than one year Between one and two years Between two and five years Principa iabiity Finance charges payabe on outstanding commitments The unsecured bank borrowings carry a rate of interest of 1.35% above LIBOR/EURIBOR subject to a ratchet as defined in the faciity agreement. In the USA bank borrowings that are not fixed (Note 21) are at LIBOR +1.5% and are secured against substantiay a of the assets of V&S LLC and its subsidiaries. Obigations under finance eases and hire purchase obigations are secured on the reevant assets. 70

73 Stock Code HILS Provisions for iabiities and charges Property Other reated reguatory Tota m m m At 1 January Exchange adjustments On acquisition (Note 11) Provided during the year Utiised during the year (0.1) (0.1) At 31 December Exchange adjustments (0.3) (0.2) (0.5) Utiised during the year (1.2) (1.2) At 31 December Property provisions reate to potentia exposure to environmenta costs of properties owned by the Group and diapidation costs on easehod properties. Other reguatory provisions reate in the main to empoyment issues. The Group has sought independent expert vauations where appropriate on these matters, athough there are factors outside the Group s contro that give rise to uncertainties surrounding these events. The Group does not expect to be reimbursed for any of these future costs. A provisions reate to ongoing issues which are not anticipated to be resoved or resut in a cash outfow within the next 12 months. 21. Financia instruments (a) Management of financia risks Overview The Group has exposure to a number of risks associated with its use of financia instruments. This note presents information about the Group s exposure to each of these risks, the Group s objectives, poicies and processes for measuring and managing risk, and the Group s management of capita. Further quantitative discosures are incuded throughout these Consoidated Financia Statements. The Board of Directors has overa responsibiity for the estabishment and oversight of the Group s risk management framework. The Group s risk management poicies are estabished to identify and anayse the risks faced by the Group, to set appropriate risk imits and contros, and to monitor risks and adherence to imits. Risk management poicies and systems are reviewed reguary to refect changes in market conditions and the Group s activities. The Group, through its training and management standards and procedures, aims to deveop a discipined and constructive contro environment in which a empoyees understand their roes and obigations. The Group Audit Committee oversees how management monitors compiance with the Group s risk management poicies and procedures and reviews the adequacy of the risk management framework in reation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight roe by Interna Audit. Interna Audit undertakes both reguar and ad hoc reviews of risk management contros and procedures, the resuts of which are reported to the Audit Committee. Credit risk Credit risk is the risk of financia oss to the Group if a customer or counterparty to a financia instrument fais to meet its contractua obigations, and arises from cash and cash equivaents, derivative financia instruments and principay from the Group s receivabes from customers. The maximum exposure to credit risk for receivabes and other financia assets is represented by their carrying amount. It is the Group s poicy to insure a substantia part of the Group s trade receivabes, any residua risk is spread across a significant number of customers. As such the impairment osses are not significant. Purchase imits are estabished for each customer, which represent the maximum open amount without requiring approva from the Board, these imits are reviewed reguary. Customers that fai to meet the Group s benchmark creditworthiness may transact with the Group ony on a prepayment basis. The Group s UK companies represent the majority of the trade receivabe at 31 December 2009 with 66.7% (2008: 60.4%) and currenty the ony geographica region that does not insure their trade receivabes is the USA, which represents 9.9% (2008: 12.7%) of the Group s trade debt. The USA has a poicy of taking out trade references before granting credit imits and seectivey insuring where it is deemed necessary by management. The Group s poicy is to not provide financia guarantees. At 31 December 2009 and 2008, no guarantees were outstanding. Overview Business Review Governance Financia Statements Information 71

74 Stock Code HILS Notes to the Consoidated Financia Statements 21. Financia instruments continued Liquidity risk Liquidity risk is the risk that the Group wi not be abe to meet its financia obigations as they fa due. The Group s approach to managing iquidity is to ensure, as far as possibe, that it wi aways have sufficient iquidity to meet its iabiities when due, under both norma and stressed conditions, without incurring unacceptabe osses or risking damage to the Group s reputation. It is the Group s poicy to minimise its iquidity risk in terms of imiting the amounts of borrowings maturing within the next 12 months and as at 31 December 2009 a such debt was covered by cash and cash equivaents netting to 9.9m positive current iquidity (2008: 9.2m). The Group has an amortising 150.0m muti currency faciity consisting of fixed term and revoving credit that runs to June The repayment profie using 2009 year end exchange rates is as foows: m Aong with various other on demand ines of credit, incuding bank overdrafts, finance eases and bis of exchange, the Group has access to faciities of 203.6m. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices wi affect the Group s income or the vaue of its hodings of financia instruments. The objective of market risk management is to manage and contro market risk exposures within acceptabe parameters, whie optimising the return on risk. The Group buys and ses derivatives in the ordinary course of business, and aso incurs financia iabiities, in order to manage market risks. A such transactions are carried out within the guideines set by the Board. Currency risk The Group pubishes its Consoidated Financia Statements in Stering, but conducts business in severa foreign currencies, incuding significant operations based in Continenta Europe, the USA and Asia. This resuts in foreign currency exchange risk due to exchange rate movements which wi affect the Group s transaction costs and the transation of the resuts and underying net assets of its foreign operations. The trading currency of each operation is predominanty in the same denomination, however, the Group uses forward exchange contracts to hedge the majority of exposures that do exist. The Group does not appy hedge accounting to these derivative financia instruments. The Group has hedged its investment in US and European operations by way of financing the acquisitions through ike denominations through its muti currency banking faciity. The Group s investments in other subsidiaries are not hedged because fuctuations on transation of their assets into Stering are not significant to the Group. Interest rate risk The Group adopts interest rate swaps when engaging in ong term specific investments or contracts in order to more reiaby assess financia impications of these procurements. However, the Group currenty fees that using fixed interest rates for short term day to day trading is not appropriate. The UK Parent Company hods Stering, US Doar and Euro derivative instruments, designed to reduce the Group s exposure to interest rate fuctuations, as set out opposite. The notiona amounts represent approximatey 46.5% (2008: 0.0%) of the gross year end Stering borrowings, 56.3% (2008: 0.0%) of the Euro borrowings and 44.9% (2008: 0.0%) of the US Doar borrowings a hed in the UK. The Group aso has US Doar and Euro arrangements which are hed ocay and are detaied in the foowing tabe, the US Doar notiona amounts representing approximatey 29.8% (2008: 33.4%) of the oca US Doar year end gross borrowings. 72

75 Stock Code HILS Financia instruments continued Rate excuding Notiona Notiona Notiona Financia Maturity margin amounts amounts amounts Country instrument date % m m $m UK Swap 2 January UK Swap 7 June UK Swap 7 June UK Swap 7 June UK Swap 7 June UK Swap 7 June USA Swap 1 Apri USA Swap 1 February USA Swap 1 Juy USA Swap 1 October Begium Cap 30 March Begium Cap 30 March Insurance The Group purchases insurance for commercia, ega and contractua reasons. The Group retains insurabe risk where externa insurance is not commerciay viabe. Capita management The Board maintains a strong capita base so as to maintain investor, creditor and market confidence and to sustain future deveopment of the business. The Board monitors both the demographic spread of sharehoders, as we as the return on capita, which the Group defines as tota sharehoders equity and the eve of dividends to ordinary sharehoders. The Board seeks to maintain a baance between the higher returns that might be possibe with higher eves of borrowings and the advantages and security afforded by a sound capita position. There are financia covenants associated with the Group s borrowings which are interest cover and EBITDA to net debt. The Group comfortaby compied with these covenants in 2009 and There were no changes in the Group s approach to capita management during the year. (b) Tota financia assets and iabiities The tabe beow sets out the Group s accounting cassification of its financia assets and iabiities and their fair vaues as at 31 December. The fair vaues of a financia assets and iabiities are not materiay different to the carrying vaues. Tota Hed for Avaiabe Amortised carrying Fair trading for sae cost vaue vaue m m m m m Cash and cash equivaents Interest bearing oans due within one year (31.2) (31.2) (31.2) Interest bearing oans due after more than one year (97.5) (97.5) (97.5) Derivative iabiities (0.7) (0.7) (0.7) Other assets Other iabiities (64.0) (64.0) (64.0) Tota at 31 December 2009 (0.7) (77.7) (78.4) (78.4) Cash and cash equivaents Interest bearing oans due within one year (16.7) (16.7) (16.7) Interest bearing oans due after more than one year (155.4) (155.4) (155.4) Derivative iabiities (0.2) (0.2) (0.2) Other assets Other iabiities (73.7) (73.7) (73.7) Tota at 31 December 2008 (0.2) 6.4 (126.5) (120.3) (120.3) Overview Business Review Governance Financia Statements Information 73

76 Stock Code HILS Notes to the Consoidated Financia Statements 21. Financia instruments continued Fair vaue hierarchy The tabe beow anayses financia instruments carried at fair vaue, by vauation method. The different eves have been defined as foows: Leve 1: unadjusted quoted prices in active markets for identica assets or iabiities. Leve 2: inputs other than quoted prices incuded within Leve 1 that are observabe for the asset or iabiity, either as a direct price or indirecty derived from prices. Leve 3: inputs for the asset or iabiity that are not based on observabe market data. Leve 1 Leve 2 Leve 3 Tota m m m m Derivative financia iabiities (0.7) (0.7) At 31 December 2009 (0.7) (0.7) At 31 December 2009 the Group did not have any iabiities cassified at Leve 1 or Leve 3 in the fair vaue hierarchy. There have been no transfers in any direction in the year. The reconciiation of movements in Leve 3 fair vaue measurements of financia assets is as foows: Avaiabe for sae m At 1 January Exchange adjustments (0.7) Credited for the year in the Consoidated Statement of Comprehensive Income 1.0 Disposa of avaiabe for sae financia assets (4.9) Disposa of reated minority interest (1.8) At 31 December 2009 The Group s financia assets, excuding short term receivabes, consist mainy of cash and ca deposit accounts. Where cash surpuses arise in the short term, interest is earned based on a foating rate reated to bank base rate or LIBOR/EURIBOR. Where the Group s funding requirements aow onger term investment of surpus cash, management wi review avaiabe options to obtain the best possibe return whist maintaining an appropriate degree of access to the funds. The Group s financia iabiities, excuding short term creditors, are set out beow. Fixed rate financia iabiities comprise Stering, Euro and US Doar denominated finance eases and hire purchase agreements and bank oans. Foating rate financia iabiities comprise Stering, Euro and US Doar bank oans and overdrafts, and Stering finance eases and hire purchase agreements. The foating rate financia iabiities bear interest at rates reated to bank base rates or LIBOR/EURIBOR. Each subsidiary has financia assets and iabiities which are predominanty in the same denomination as that subsidiary s functiona currency. Excuding the UK Parent Company, the financia assets and iabiities not denominated in the functiona currency of these entities are insignificant to the Group. The UK Parent Company hods Euro 49.5m (2008: 77.8m) and US Doar 32.2m (2008: 38.7m) denominated interest bearing oans, which are predominanty used to fund its European and United States operations and incudes 81.7m (2008: 78.0m) designated as a hedge of the net investment in a foreign operation. The foreign currency gain of 10.8m (2008: oss of 21.6m) for the effective portion was recognised directy in equity netted against exchange differences on transation of foreign operations, any ineffective portion recognised in the Consoidated Income Statement is insignificant. Fixed rate financia iabiities Weighted average Weighted period average for which interest rate rate is fixed % Years Stering at 31 December US Doar at 31 December Euro at 31 December Stering at 31 December US Doar at 31 December

77 Stock Code HILS Financia instruments continued (c) Maturity profie The tabe beow sets out the contractua cash fows associated with the Group s financia iabiities, incuding estimated interest payments, anaysed by maturity: Due Due Due between between Due after Carrying Contractua within one and two and more than amounts cash fows one year two years five years five years m m m m m m Secured bank borrowings 6.6 (6.9) (1.0) (0.7) (2.2) (3.0) Unsecured bank borrowings (103.8) (18.6) (22.7) (62.5) Finance ease obigations 12.6 (13.6) (4.4) (4.3) (4.9) Bis of exchange 9.5 (9.6) (9.6) Other iabiities 64.0 (64.0) (64.0) Derivative iabiities 0.7 (5.7) (2.9) (1.8) (0.8) (0.2) Tota at 31 December (203.6) (100.5) (29.5) (70.4) (3.2) Secured bank borrowings 11.5 (13.2) (1.5) (4.0) (3.1) (4.6) Unsecured bank borrowings (164.1) (14.4) (18.9) (130.7) (0.1) Finance ease obigations 7.2 (7.9) (3.0) (2.0) (2.9) Bis of exchange 2.5 (2.6) (2.6) Other iabiities 73.7 (73.7) (73.7) Derivative iabiities 0.2 (0.2) (0.1) (0.1) Tota at 31 December (261.7) (95.2) (25.0) (136.8) (4.7) The Group had the foowing undrawn committed faciities, in respect of which a conditions precedent had been met: m m Undrawn committed borrowing faciities Expiring after more than one year (d) Fair vaues The oss in the year on the interest rate swaps hed by the UK Parent Company was 0.6m (2008: ni) which is recognised directy in equity as these instruments are accounted for as cash fow hedges. Any ineffective portion of these hedges is taken to the Consoidated Income Statement and was insignificant. The gain in the year on the US fixed rate interest swaps taken to the Consoidated Income Statement was 0.1m (2008: ni). The fair vaue of unhedged forward exchange contracts reaised in the Consoidated Income Statement as part of fair vaue derivatives amounted to a cost of ni (2008: 0.2m). The vaues of the Group s other financia instruments at 31 December 2009 and 2008 were not materiay different to the carrying vaue. Fair vaues were cacuated using market rates where avaiabe, otherwise cash fows were discounted at prevaiing rates. The Group has impaired non-current assets by 0.5m (2008: 1.9m) of their carrying vaues as detaied in Notes 11 and 12. (e) Credit risk Exposure to credit risk The exposure to credit risk is substantiay mitigated by the credit insurance empoyed by the Group. In the absence of this insurance the maximum credit exposure on the carrying vaue of financia assets at the reporting date was: Carrying amount m m Avaiabe for sae financia assets (Note 13) 6.4 Loans and receivabes Cash at the end of the year (Note 17) Tota At the reporting date the maximum exposure to credit risk for trade receivabes, ignoring credit insurance was: Carrying vaue of trade receivabes by geographic region m m UK Rest of Europe USA Asia and the Midde East Tota (Note 16) Overview Business Review Governance Financia Statements Information 75

78 Stock Code HILS Notes to the Consoidated Financia Statements 21. Financia instruments continued Carrying vaue of trade receivabes by business segment m m Infrastructure Products Gavanizing Services Buiding and Construction Products Tota (Note 16) Impairment osses The Group maintains a substantia eve of credit insurance covering the majority of its trade receivabes which mitigates against possibe impairment osses, as such impairment osses are not significant. The ageing of trade receivabes at the reporting date was: Gross Provisions Net Gross Provisions Net m m m m m m Not past due 53.2 (0.3) (0.1) 61.4 Past due 1 30 days 13.8 (1.0) Past due days 5.0 (0.4) (0.2) 9.1 More than 120 days 1.8 (1.6) (2.5) 0.4 Tota 73.8 (3.3) (2.8) 90.6 The movements in provisions for impairment of trade receivabes are as foows: m At 1 January Exchange adjustments 0.4 Charged to the Consoidated Income Statement during the year 0.5 Utiised during the year (0.9) At 31 December Exchange adjustments (0.1) Charged to the Consoidated Income Statement during the year 0.6 Utiised during the year At 31 December (f) Sensitivity anaysis In managing interest rate and currency risks the Group aims to reduce the impact of short term fuctuations on the Group s earnings. Over the onger term, however, permanent changes in foreign exchange and interest rates may have an impact on consoidated earnings. At the end of the reporting periods, the effects of hypothetica changes in interest and currency rates are as foows: Based on average month end net debt baances that are not subject to an interest rate swap, if interest rates had varied throughout the year by 1% the positive or negative variation on the year s resut woud have been 0.4m (2008: 1.3m), which woud directy impact on the Consoidated Income Statement. Based on a 10% weakening in Stering against a currencies throughout the year, the impact on the Consoidated Income Statement woud have been a gain of 1.8m (2008: 1.3m) and the impact directy in equity woud have been a gain of 3.4m (2008: 1.4m). Based on a 10% strengthening in Stering against a currencies throughout the year, the impact on the Consoidated Income Statement woud have been a oss of 1.4m (2008: 1.1m) and the impact directy in equity woud have been a oss of 2.8m (2008: 1.1m). 22. Caed up share capita m m Aotted, caed up and fuy paid 76.1m Ordinary Shares of 25p each (2008: 75.6m) In 2009 the Company issued 0.5m shares under its various share option schemes (2008: 0.1m), reaising 0.7m (2008: 0.1m). 76

79 Stock Code HILS Caed up share capita continued Options outstanding over the Company s shares Number Option Number Option Date first Expiry of shares price (p) of shares price (p) exercisabe date 1995 Executive Share Option Scheme 10, Juy Juy LTIP Award (granted March 2009)* 180, LTIP Award (granted March 2008)* 205, , LTIP Award (granted Juy 2007)* 103, , Executive Share Option Scheme (granted October 2005)* 136, , October October Non-Approved Executive Share Option Scheme (granted October 2005)* 84, , October October grant of 2005 Approved Executive Share Option Scheme (granted Apri 2007)* 247, , Apri Apri grant of 2005 Non-Approved Executive Share Option Scheme (granted Apri 2007)* 450, , Apri Apri grant of 2005 Savings Reated Share Option Scheme (granted January 2008)* 81, , January Juy grant of 2005 Savings Reated Share Option Scheme (granted January 2008)* 190, , January Juy grant of 2005 Savings Reated Share Option Scheme (granted December 2008)* 121, , December June grant of 2005 Savings Reated Share Option Scheme (granted December 2008)* 222, , December June grant of 1995 Savings Reated Share Option Scheme (granted January 2005)* 778, , January Juy 2010 Outstanding at the end of the year 2,801,982 3,480,199 Exercisabe at the year end 220, ,988 Not exercisabe at the year end 2,581,284 2,975,211 Outstanding at the end of the year 2,801,982 3,480,199 * Subject to share-based payments under IFRS2 (see beow). Options may be exercised eary under the terms of this scheme if empoyees meet the criteria of good eaver, which encompasses circumstances such as retirement or redundancy. Awards apse on the earier of the award hoder ceasing their empoyment or the appicabe performance conditions not being met. The eariest possibe date for award is 1 January 2010 for the 2007 grant, 1 January 2011 for the 2008 grant and 1 January 2012 for the 2009 grant. The remaining weighted average ife of the outstanding share options is 3 years 4 months (2008: 4 years 7 months). The movement and weighted average exercise prices of share options during the year: Weighted Weighted average average exercise Miions exercise Miions price (p) of options price (p) of options Outstanding at the beginning of the year Granted during the year Exercised during the year (163) (0.5) (119) (0.1) Lapsed during the year (270) (0.4) (295) (0.6) Outstanding at the end of the year Overview Business Review Governance Financia Statements Information The weighted average share price on the dates of exercise during the year for the above share options was 248p (2008: 289p), and the weighted average fair vaue of options and awards granted in the year was 133p (2008: 68p). 77

80 Stock Code HILS Notes to the Consoidated Financia Statements 22. Caed up share capita continued Share-based payments A option schemes marked as being subject to share-based payments have 2005, 2007, 2008 or 2009 as their first quaifying year. The fair vaue of services received in return for share options granted is measured by reference to the fair vaue of the share options granted. The estimate of the fair vaue of the services received is measured based on the Back Schoes mode. The contractua ife is the ife of the option in question and the growth in dividend yied is based on the best current estimate of future yieds over the contractua period. December January 2008 grant of 2008 grant of 2005 grant of 2009 grant of 2008 grant of 2007 grant of 2005 Savings 2005 Savings 1995 Savings 2007 grant 2005 grant Reated Reated Reated of 2005 of 2005 LTIP LTIP LTIP Share Option Share Option Share Option Share Option Share Option Award Award Award Scheme Scheme Scheme Schemes Schemes Fair vaue at measurement date (p) /3 51/ Share price at grant date (p) Exercise price (p) Expected voatiity (%) /24 29/ Option ife (years) /5 3/ Dividend yied (%) Risk free interest rate (%) / The expected voatiity is whoy based on the historic voatiity (cacuated based on the weighted average remaining ife of the share options), adjusted for any expected changes to future voatiity due to pubicy avaiabe information. Share options have been granted to quaifying empoyees in ine with either HM Revenue & Customs approved or non-approved schemes, as indicated above. Other than the LTIP, the strike price for the option is made based on the market vaues of shares at the date the option is offered. The tota expense recognised for the period arising from share-based payments is as foows: m m Expensed during the year Reserves With the disposa of Vista Investment NV on 26 June 2009, the fina minority interest was removed (Notes 4 and 13). In January 2008 the outstanding minority interests in the three fabrication businesses under Voigt & Schweitzer LLC, the American hoding company within the Zinkinvent Group, were purchased for a consideration of 2.2m. Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and 0.2m (2008: 0.2m) capita redemption reserve. 78

81 Stock Code HILS Guarantees and other financia commitments (a) Guarantees The Group had no financia guarantee contracts outstanding (2008: ni). (b) Capita commitments m m Contracted for but not provided in the accounts (c) Operating ease commitments The tota future minimum commitments payabe under non-canceabe operating eases fa into the periods as foows: Land and Land and buidings Other buidings Other m m m m Group Within one year Between one and two years Between two and five years After five years The tota future minimum commitments receivabe under non-canceabe operating eases fa into the periods as foows: Land and Land and buidings Other buidings Other m m m m Group Within one year Between one and five years After five years Overview Business Review Governance Financia Statements Information 79

82 Stock Code HILS Notes to the Consoidated Financia Statements 25. Pensions Tota The tota Group retirement benefit assets and obigations are detaied beow: UK Overseas 2009 UK Overseas 2008 m m m m m m Tota fair vaue of scheme assets Present vaue of scheme funded obigations (67.4) (1.4) (68.8) (56.8) (1.4) (58.2) Present vaue of scheme unfunded obigations (0.1) (0.1) (0.2) (0.2) Retirement benefit obigation (15.4) (1.3) (16.7) (10.4) (1.4) (11.8) United Kingdom The Group operates two main pension schemes in the UK, the Hi & Smith Executive Pension Scheme provides benefits on a defined benefit basis, the other arger Hi & Smith Pension Scheme provides benefits that are on a defined contribution basis. This second scheme aso contains some defined benefit iabiities. The assets of both schemes are administered by trustees and are kept entirey separate from those of the Group. Independent actuaria vauations are carried out every three years. Contribution rates are determined on the basis of advice from an independent professionay quaified Actuary, with the objective of providing the funds required to meet pension obigations as they fa due. There are aso separate persona pension pans. The Consoidated Income Statement for the year incudes a pension charge of 1.9m (2008: 2.5m), which incudes the costs of the defined contribution scheme and the defined benefit scheme and which are detaied beow. A actuaria gains and osses are recognised immediatey in the Consoidated Statement of Comprehensive Income. Composition of the Scheme The Group operates defined benefit schemes in the UK. A fu Actuaria vauation of the schemes was ast carried out as at 5 Apri 2009 and was updated to 31 December 2009 by a quaified Actuary. The principa assumptions used by the Actuary Rate of increase in saaries 3.60% 2.70% 4.80% 4.50% 4.00% Rate of increase in pensions payment 3.40% 2.60% 3.30% 3.00% 2.80% Discount rate 5.80% 6.50% 5.70% 5.20% 4.75% Infation 3.60% 2.70% 3.40% 3.10% 2.90% Mortaity tabe PA92YOB* PA92YOB* PA92YOB* PA92YOB* PA92C2005 * With the addition of the short cohort for the Hi & Smith Executive Pension Scheme, approximatey 1.3 years is added to the ife expectancies shown beow: The mortaity assumptions impy the foowing expected future ifetimes from age 65: Maes currenty aged 45 Femaes currenty aged 45 Maes currenty aged 65 Femaes currenty aged years 21.0 years 20.9 years 20.9 years 18.5 years 24.1 years 24.0 years 23.9 years 23.9 years 21.4 years 19.9 years 19.8 years 19.6 years 19.6 years 18.5 years 22.9 years 22.8 years 22.7 years 22.7 years 21.4 years The assumptions have been chosen by the Directors from a range of possibe actuaria assumptions which, due to the timescaes covered, may not be borne out in practice. 80

83 Stock Code HILS Pensions continued Assets and iabiities One scheme hods assets and iabiities in respect of defined contribution benefits which are equa in vaue and are excuded from the foowing figures. The fair vaue of scheme assets, which are not intended to be reaised in the short term and may be subject to significant change before they are reaised, and the vaue of the scheme iabiities, which is derived from cash fow projections over ong periods and which is therefore inherenty uncertain, are as foows: Rate of Rate of Rate of return Market return Market return Market expected vaue expected vaue expected vaue % m % m % m Assets Equities Bonds With profits poicies Hedge funds Currency funds Cash Tota fair vaue of scheme assets Present vaue of scheme funded obigations (67.4) (56.8) (72.2) Retirement benefit obigation (15.4) (10.4) (8.6) Rate of Rate of return Market return Market expected Vaue expected Vaue % m % m Assets Equities Bonds Gits With profits poicies Cash Tota fair vaue of scheme assets Present vaue of scheme funded obigations (72.9) (71.4) Retirement benefit obigation (10.5) (13.9) The overa expected return on assets assumption has been cacuated as an approximate weighted average of the expected returns of each asset cass taking into account the asset aocation of the scheme. When setting an expected return for each asset cass, the foowing factors have been considered: Equities a higher ong term rate of return is expected on equity investments than that which is avaiabe on bonds. The extent to which equities are assumed to provide higher returns than bonds in the future is estimated based on the returns achieved above bond returns historicay, market conditions at the Baance Sheet date and the empoyment of a UK active management approach with equities. Bonds, gits and cash where assets are hed in bonds, gits and cash, the expected ong term rate of return is taken to be the yieds generay prevaiing on such assets as at the Baance Sheet date. With profit poicies the underying asset aocation of the poicies and the overa rate is based on the expected ong term rate of return on each of the asset casses with reference to this aocation. Hedge funds these funds invest in a range of investments incuding equities, bonds and aternatives to generate stabe absoute returns at a eve above cash. The extent to which these funds are assumed to provide higher returns than cash in the future is based on the manager s objectives with regards to the average annua returns above cash and having regard to market conditions at the Baance Sheet date. Overview Business Review Governance Financia Statements Information 81

84 Stock Code HILS Notes to the Consoidated Financia Statements 25. Pensions continued Currency funds these funds incorporate gearing to generate expected returns significanty above the returns avaiabe on cash. The extent to which these funds are assumed to provide higher returns than cash in the future is estimated based on expected returns on equity investments and market conditions at the Baance Sheet date. Tota expense recognised in the Consoidated Income Statement Defined Defined Defined Defined contribution benefit contribution benefit schemes schemes Tota schemes schemes Tota m m m m m m Current service costs Gain on curtaiments and settements (1.8) (1.8) Charge/(credit) to operating profit (0.9) 0.7 Expected return on pension scheme assets (3.3) (3.3) (4.4) (4.4) Expected interest cost on pension scheme obigations Tota charged/(credited) to profit before tax (1.2) 0.4 Change in the present vaue of the defined benefit obigations m m Opening defined benefit obigations Current service costs Expected interest cost Actuaria oss/(gain) 10.2 (10.9) Liabiities extinguished on settement (4.9) Empoyee contributions Benefits paid (3.9) (4.8) Cosing defined benefit obigations Changes in fair vaues of scheme assets m m Opening fair vaue of assets Expected return on assets Actuaria gain/(oss) 4.4 (16.2) Empoyer contributions Empoyee contributions Benefits paid (3.9) (4.8) Assets distributed on settements (3.1) Cosing fair vaue of assets Actua return on scheme assets 7.7 (11.8) Expected empoyer contributions in the foowing year Defined benefit schemes Defined contribution schemes

85 Stock Code HILS Pensions continued Amounts recognised in the Consoidated Statement of Comprehensive Income % of scheme % of scheme % of scheme assets/ assets/ assets/ iabiities 2009 iabiities 2008 iabiities 2007 % m % m % m Difference between actua and expected return on scheme assets (35) (16.2) (3) (2.0) Experienced gain/(oss) on scheme obigations (1) (0.7) (1) (0.8) Changes in assumptions underying the present vaue of scheme obigations (16) (10.5) Annua amount recognised (8) (5.8) (9) (5.3) Tota amount recognised (21.1) (15.3) (10.0) Amounts recognised in the Consoidated Statement of Comprehensive Income % of scheme % of scheme assets/ assets/ iabiities 2006 iabiities 2005 % m % m Difference between actua and expected return on scheme assets Experienced gain/(oss) on scheme obigations (0.3) Changes in assumptions underying the present vaue of scheme obigations (2) (1.2) (18) (12.8) Annua amount recognised (11) (8.1) Tota amount recognised (10.6) (12.1) Overseas In France the Group provides certain ong term benefits and operates post empoyment defined benefit pans which provide ump sum benefits at retirement in accordance with coective abour agreements. Some of those pans are funded with insurance companies. The Group aso operates defined contributions with pans in the USA. The amount contributed to these pans during the year was 0.2m (2008: 0.1m). The Consoidated Income Statement for the year incudes a pension charge of 0.2m (2008: 0.1m), which incudes the costs of the defined contribution scheme and the defined benefit scheme as detaied beow. A actuaria gains and osses are recognised immediatey in the Consoidated Statement of Comprehensive Income. Composition of the scheme The Group operates defined benefit schemes in France. An actuaria vauation of the schemes was carried out by an independent Actuary as at 31 December The principa assumptions used by the Actuary Rate of increase in saaries 2.00% 2.00% % Discount rate 5.00% 5.50% 5.25% Infation 2.00% 2.00% 2.00% Expected ong term rate of return on pan assets 4.50% 4.50% 4.50% Mortaity tabe TH 00-02, TG H/F 05 MR/FR TF INSEE 98 H/F Overview Business Review Governance Financia Statements Information 83

86 Stock Code HILS Notes to the Consoidated Financia Statements 25. Pensions continued Assets and iabiities The fair vaue of scheme assets, which are not intended to be reaised in the short term and may be subject to significant change before they are reaised, and the vaue of the scheme iabiities, which is derived from cash fow projections over ong periods and which is therefore inherenty uncertain, are as foows: Rate of Rate of Rate of return Market return Market return Market expected vaue expected vaue expected vaue % m % m % m Assets Cash and other insured fixed interest assets Tota fair vaue of scheme assets Present vaue of scheme funded obigations (1.4) (1.4) (0.9) Present vaue of scheme unfunded obigations (0.1) (0.2) (0.3) Retirement benefit obigation (1.3) (1.4) (1.1) Cash and other insured fixed interest assets where assets are hed in cash or a poicy with a fixed interest asset aocation, the expected ong term rate of return is taken to be the yieds generay prevaiing on such assets as at the Baance Sheet date. Tota expense recognised in the Consoidated Income Statement Defined Defined Defined Defined contribution benefit contribution benefit schemes schemes Tota schemes schemes Tota m m m m m m Current service cost Gain on curtaiments and settements (0.2) (0.2) Charge/(credit) to operating profit (0.2) (0.1) Expected interest cost on pension scheme obigations Tota charged/(credited) to profit before tax (0.1) Change in the present vaue of the defined benefit obigation m m Opening defined benefit obigation Expected interest cost Actuaria (gain)/oss (0.1) 0.1 Gain on curtaiments and settements (0.2) Exchange adjustments (0.1) 0.4 Cosing defined benefit obigation Changes in fair vaues of scheme assets m m Opening fair vaue of assets Exchange adjustments 0.1 Cosing fair vaue of assets Actua return on scheme assets Expected empoyer contributions in the foowing year Defined benefit schemes Defined contribution schemes Amounts recognised in the Consoidated Statement of Comprehensive Income % of scheme % of scheme % of scheme assets/ assets/ assets/ iabiities 2009 iabiities 2008 iabiities 2007 % m % m % m Experienced oss on scheme obigations 3 (9) (0.1) 0 Exchange rate adjustment on assets and iabiities n/a 0.1 n/a (0.3) n/a (0.1) Amount recognised in the period 0.1 (0.4) (0.1) Tota amount recognised (0.4) (0.5) (0.1) 84

87 Stock Code HILS Accounting estimates, assumptions and judgements The principa accounting estimates, assumptions and judgements empoyed in the preparation of these Consoidated Group Financia Statements which coud affect the carrying amounts of assets and iabiities at the Baance Sheet date are as foows: Actuaria assumptions on pension obigations In determining the vauation of the defined benefit pension deficit, certain assumptions about the scheme have been made, notaby the expected return on assets, infation, discount rates, mortaity, saary increases and pension increases. The factors affecting these assumptions are argey outside the Group s contro (Note 25). Impairment of goodwi The determination of whether goodwi and other indefinite ife intangibe assets shoud be impaired requires the estimation of future cash fows and growth factors adopted by each cash generating unit. Furthermore, discount rates appied to these cash fows are determined by reference to the markets in which they operate and are risk adjusted to refect risks and opportunities existing for each cash generating unit. These factors are a affected by prevaiing market and economic factors outside the Group s contro. Further information on this issue is incuded in Note 11. Share-based payments In vauing the share-based payments charged in the Group s accounts, the Company has used the Back Schoes cacuation mode, which makes various assumptions about factors outside the Group s contro, such as share price voatiity and risk free interest rates. Detais of the options and assumptions used in deriving the share-based payments are discosed in Note 22. Environmenta and diapidation provisions Estimated environmenta and diapidation costs have been derived on the basis of the most recent assessments of the ikey cost. Certain factors concerning these costs are outside the Group s contro. In making this assessment the Group has sought the aid of independent experts where appropriate. Further information is incuded in Note 20. Deferred taxation Deferred taxation has been estimated using the best information avaiabe, incuding seeking the opinion of independent experts where appicabe (Note 14). Vauation of intangibe assets Where an acquisition is of a significant size, it is reviewed by independent experts to assess the specific intangibes arising from the acquisition. Brands and customer ists have been identified as part of this process and are discosed in Note 11. The reasons for the residua excess of consideration over net asset vaue are then identified to identify the reasons for goodwi arising, which in the case of recent acquisitions, has resuted mainy from assembed workforce, technica expertise, know how, market share and geographica advantages. Brands have been vaued based on estimated royaty rates discounted over their usefu ives, which is normay 20 years, but considered indefinite for the US Voigt & Schweitzer brand which has been successfuy trading since Customer reationships have been vaued based on discounted forecast turnover rates and have been deemed to have a usefu economic ife of five years based upon the average expected ength of reationships with customers. 27. Reated party transactions The key management are considered to be the Board of Directors of Hi & Smith Hodings PLC, whose remuneration can be seen in the Directors Remuneration Report on pages 34 to 41. The compensation in tota for each category required by IAS24 is as foows: m m Saaries and short term empoyee benefits Non-executive Directors fees Pension costs Share-based payments During the year the Group had some minor transactions with GIL Investments Limited, of which D L Grove was during the year a major sharehoder. A of these transactions aong with any trading between subsidiary companies or between segments were undertaken on an arm s ength basis. Overview Business Review Governance Financia Statements Information 85

88 Stock Code HILS Company Baance Sheet As at 31 December (Restated) Notes m m Fixed assets Tangibe assets Investments Current assets Debtors Cash at bank and in hand Creditors: amounts faing due within one year Bank oans and overdrafts 6, 7 (16.7) (33.3) Other creditors 6 (93.6) (61.7) (110.3) (95.0) Net current iabiities (20.9) (30.7) Tota assets ess current iabiities Creditors: amounts faing due after more than one year 7 (135.9) (230.9) Net assets Share capita and reserves Caed up share capita Share premium Capita redemption reserve Profit and oss account Equity sharehoders funds Approved by the Board of Directors on 9 March 2010 and signed on its behaf by: D W Muir Director M Peger Director Company Number:

89 Stock Code HILS09 Company Reconciiation of Movements in Sharehoders Funds As at 31 December (Restated) m m Profit for the year Dividends (restated) (7.5) (6.6) Credit to equity of share-based payments Shares issued in the year Net increase/(decrease) in sharehoders funds (1.7) Opening sharehoders funds as previousy reported Restatement (Note 2) 2.7 Opening sharehoders funds (restated) Cosing sharehoders funds Overview Business Review Governance Financia Statements Information 87

90 Stock Code HILS Company Principa Accounting Poicies The foowing accounting poicies have been appied consistenty in deaing with items which are considered materia in reation to the Company s Financia Statements, except as noted beow. Basis of preparation The Company s Financia Statements have been prepared in accordance with appicabe UK GAAP accounting standards and under the historica cost accounting rues. Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own Profit and Loss Account. Under FRS1 Cash Fow Statements, the Company is exempt from the requirement to prepare a Cash Fow Statement, on the grounds that the Company is incuded in its own pubished Consoidated Financia Statements. The Company has taken advantage of the exemptions contained in FRS8 Reated Party Discosures and has not discosed transactions or baances with whoy owned subsidiaries of the Group. Investments in subsidiary undertakings In the Company s Financia Statements, investments in subsidiary undertakings are stated at cost, ess amounts written off for impairment. They are reviewed for impairment whenever events or circumstances indicate that the carrying vaue may not be recoverabe. Foreign currencies Transactions in foreign currencies are recorded using the rate of exchange ruing at the date of the transaction. Monetary assets and iabiities denominated in foreign currencies are transated into Stering at cosing rates at the Baance Sheet date and the gains or osses on transation incuded in the Profit and Loss Account. Non-monetary assets and iabiities are transated into Stering at historic rates of exchange and are not updated to cosing rates at the Baance Sheet date. This poicy appies to the Company s ong term bank oans denominated in foreign currencies, which are monetary items, and therefore are transated into Stering at cosing rates at the Baance Sheet date, with exchange differences arising passing through the Profit and Loss Account. This poicy aso appies to ong term amounts denominated in foreign currencies owed to subsidiary undertakings and to investments denominated in foreign currencies in intermediary hoding companies. However, the Company appies fair vaue hedge accounting where appropriate, in accordance with FRS26, in order to hedge oans denominated in foreign currencies against a, or part, of the foreign currency denominated investments. Therefore, foreign exchange differences arising on transation into Stering of both the hedging oans and hedged investments using the cosing rates at the Baance Sheet date are taken to the Profit and Loss Account. Any unhedged investment baances continue to be hed at cost as described above. Financia instruments The Company has adopted the requirements of FRS29 and has taken the exemption under that standard from discosure on the grounds that the Consoidated Financia Statements contain discosures in compiance with IFRS7 in Note 21. Financia assets and iabiities are recognised on the Company s Baance Sheet when the Company becomes a party to the contractua provisions of the instrument. In accordance with its treasury poicy, the Company does not hod or issue derivative financia instruments for trading purposes. However, derivatives that do not quaify for hedge accounting are accounted for as trading instruments. Bank oans and overdrafts are recognised initiay at fair vaue ess attributabe transaction costs. Subsequent to initia recognition, bank oans and overdrafts are stated at amortised cost with any difference between cost and redemption vaue being recognised in the Profit and Loss Account over the period of the borrowings on an effective interest basis. Tangibe fixed assets and depreciation Depreciation is provided to write off the cost or vauation ess the estimated residua vaue of tangibe fixed assets by equa instaments over their estimated usefu economic ives as foows: Leasehod improvements Pant, machinery and vehices ife of the ease 4 to 20 years 88

91 Stock Code HILS09 Leases Assets acquired under finance eases are capitaised and the outstanding future ease obigations are shown in creditors. Operating ease rentas are charged to the Profit and Loss Account on a straight ine basis over the period of the ease. Pension scheme arrangements The Company participates in the Hi & Smith Executive Pension Scheme and the Hi & Smith Pension Scheme, as described in Note 12. As the Company is unabe to identify its share of the Group pension scheme assets in respect of the defined benefit sections on a consistent and reasonabe basis, the schemes are accounted for as if they are defined contribution schemes, as permitted by FRS17. Contributions in respect of defined contribution schemes are charged to the Profit and Loss Account in the period to which they reate. Share-based payments The share option programme aows empoyees to acquire shares of the Company. The fair vaue of options granted after 7 November 2002 and those not yet vested by 31 December 2004 are not recognised as an empoyee expense. Those vested since 1 January 2005 are expensed with a corresponding increase in equity. The fair vaue is measured at grant date and spread over the period during which the empoyees become unconditionay entited to the options. The fair vaue of the options granted is measured using an option pricing mode, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to refect the actua number of share options that vest except where forfeiture is ony due to share prices not achieving the threshod for vesting. Where the Company grants options over its own shares to the empoyees of its subsidiaries it recognises an increase in the cost of investment in its subsidiaries equivaent to the equity setted share-based payment charge recognised in its subsidiary s Financia Statements with the corresponding credit being recognised directy in equity. This increase is offset in fu by amounts recharged to the subsidiary, which are recognised as a reduction in the cost of investment in subsidiary. Income tax The charge for taxation on the profit or oss for the year represents the sum of the tax currenty payabe or recoverabe and deferred tax. This charge is recognised in the Profit and Loss Account except to the extent that it reates to items recognised directy in equity, in which case it is recognised in equity. Current tax is the expected tax payabe or recoverabe on the taxabe resut for the year. The taxabe resut differs from net profit or oss as reported in the Profit and Loss Account because it excudes items of income or expense that are not taxabe or not deductibe. The Company s debtor or creditor for current tax is cacuated using tax rates enacted or substantivey enacted at the Baance Sheet date, and any adjustments in respect of previous years. Deferred taxation Deferred tax is provided, without discounting, on timing differences between the treatment of items for taxation and accounting purposes as required by FRS19. Ordinary dividends Dividends payabe are accounted in the Company s Financia Statements when the Company decares the payment of the dividend. Dividends receivabe are accounted for on a cash accounting basis. Financia guarantees Where the Company enters into financia guarantee contracts to secure the indebtedness of other companies within its Group, the Company treats the guarantee contract as a contingent iabiity unti such time as it becomes probabe that the Company wi be required to make a payment under the guarantee. Overview Business Review Governance Financia Statements Information 89

92 Stock Code HILS Notes to the Company Financia Statements 1. Profit on ordinary activities before taxation m m The profit on ordinary activities is stated after charging Operating ease rentas and and buidings Fees paid to KPMG Audit Pc and its associates for audit and non-audit services to the Company itsef are not discosed in the individua Financia Statements of Hi & Smith Hodings PLC because the Group Financia Statements are required to discose such fees on a consoidated basis. 2. Dividends Dividends paid in the year were the prior year s interim dividend of 3.2m (2008: 2.7m) and the fina dividend of 4.3m (2008: 3.9m). Dividends decared after the Baance Sheet date are not recognised as a iabiity. The Directors have proposed a fina dividend for the current year, subject to sharehoder approva, as shown beow: Pence per Pence per share m share m Equity shares Interim Fina Tota The restatement of prior year baances resuts from dividend recognition in ine with FRS21 (IAS10 from a Group perspective), which is more fuy expained in Note 10 of the Group Financia Statements. 3. Tangibe fixed assets Short Pant, easehod machinery properties and vehices Tota m m m Cost or vauation At 31 December At 31 December Depreciation At 31 December Charge for the year At 31 December Net book vaue At 31 December At 31 December

93 Stock Code HILS09 4. Fixed asset investments Shares in Loans to subsidiary subsidiary Trade undertakings undertakings investments Tota m m m m Cost At 31 December Exchange adjustments (12.1) (12.1) Additions Transferred to Group undertakings (3.7) (3.7) At 31 December Provisions At 31 December At 31 December Net book vaue At 31 December At 31 December A ist of the principa businesses owned by the Company is given on pages 96 and 97. A of the Company s subsidiaries are whoy owned. Additions represent a further investment in an intermediary hoding company, Hi & Smith Overseas Limited of 18.7m. In May 2009 the Company transferred its investments in Barkers Engineering Limited ( 1.9m) and Birtey Buiding Products Limited ( 1.8m) to one of the Group s intermediary hoding companies, Hi & Smith Gavanized Products Limited for a consideration of 15.7m. The Company aso hods a trade investment of 19.5% in an unisted company whose fair vaue cannot be accuratey measured and is fuy written down. 5. Debtors m m Amounts owed by subsidiary undertakings Corporation tax Deferred tax (Note 8) Other debtors Prepayments and accrued income Creditors: amounts faing due within one year (Restated) m m Bank oans and overdrafts (Note 7) Bank overdrafts 23.3 Current portion of ong term bank oans Other creditors Trade creditors Other taxation and socia security Accruas and deferred income Other creditors Amounts owed to subsidiary undertakings Overview Business Review Governance Financia Statements Information 91

94 Stock Code HILS Notes to the Company Financia Statements 7. Creditors: amounts faing due after more than one year The Company s interest bearing oans and borrowings are detaied beow. Further information on the Company s exposure to interest rate and foreign currency risk is provided in Note 21 of the Group Financia Statements m m Amounts owed to subsidiary undertakings Long term bank oans The Company s bank oans and borrowings are aso anaysed beow into the periods in which they mature: m m Bank oans and overdraft Amounts due within one year (Note 6) Amounts due after more than one year: Between one and two years Between two and five years The bank oans are unsecured and carry a rate of interest of 1.35% above LIBOR/EURIBOR subject to a ratchet as defined in the faciity agreement. 8. Deferred tax m m At 1 January (0.1) (0.1) Credited for the year in the Profit and Loss Account (0.1) At 31 December (Note 5) (0.2) (0.1) Other timing differences (0.2) (0.1) 9. Caed up share capita m m Aotted, caed up and fuy paid 76.1m Ordinary Shares of 25p each (2008: 75.6m) In 2009 the Company issued 0.5m shares under its various share option schemes (2008: 0.1m), reaising 0.7m (2008: 0.1m). Detais of share options and reated share-based payments are contained in Note 22 to the Group Financia Statements. 92

95 Stock Code HILS Share premium and reserves Capita Profit Share redemption and Loss premium reserve Account (Restated) m m m At 1 January Profit for the year 4.5 Dividends (6.6) Credit to equity of share-based payments 0.3 Shares issued 0.1 At 31 December Profit for the year Dividends (7.5) Credit to equity of share-based payments 0.5 Shares issued 0.6 At 31 December Detais of share options and reated share-based payments are contained in Note 22 to the Group Financia Statements. 11. Guarantees and other financia commitments (a) Guarantees The Company had no financia guarantee contracts outstanding (2008: ni). The Company guarantees the bank oans and overdrafts of certain subsidiary undertakings. The amount outstanding at 31 December 2009 was 9.1m (2008: 25.4m). (b) Operating ease commitments Annua commitments under non-canceabe operating eases expire in the periods as detaied beow: Land and Land and buidings Other buidings Other m m m m After five years Pensions The Company contributes to two Group pension schemes, one providing benefits accruing in the future on a defined benefit basis and a second scheme providing benefits that are on a defined contribution basis. Detais of the schemes and their most recent actuaria vauations are contained in Note 25 to the Group Financia Statements. Because the Company is unabe to identify its share of the scheme assets and iabiities on a consistent and reasonabe basis, the schemes have been accounted for by the Company as if they were defined contribution schemes, as permitted by FRS17 Retirement Benefits. There are aso separate persona pension pans. The pension cost for the year incudes contributions payabe by the Company to the fund and amounted to 0.7m (2008: 1.6m), of which additiona deficit contributions were 0.6m (2008: 1.4m pus 1.2m for the reduced iabiity in deferred defined benefit pensioners detaied in Note 25 of the Group s Consoidated Financia Statements). There were no outstanding or prepaid contributions at either the beginning or the end of the financia year. Fu detais of the Group schemes are given in Note 25 to the Group Financia Statements. 13. Reated party transactions The Company reated party transactions are the same as those transactions discosed for the Group in Note 27 to the Group Financia Statements. Overview Business Review Governance Financia Statements Information 93

96 Stock Code HILS Five Year Summary m m m m m Revenue Underying operating profit* Underying profit before taxation* Sharehoders funds Pence Pence Pence Pence Pence Underying earnings per share Proposed dividends per share * Non-Underying items represent business reorganisation costs, property items, amortisation of acquisition intangibes, impairments, gains on disposa of avaiabe for sae financia assets, change in the vaue of financia instruments and net financing return on pension obigations. Financia Caendar Annua Genera Meeting 7 May 2010 Interim Management Statement May 2010 Ex dividend date for 2009 fina dividend 2 June 2010 Record date 2009 fina dividend 4 June 2010 Dividend Reinvestment Pan ast date for eection 18 June 2010 Fina 2009 ordinary dividend payabe 9 Juy 2010 Announcement of 2010 interim resuts August 2010 Interim Management Statement November 2010 Payment of 2010 interim dividend due January

97 Sharehoder Information Hi & Smith Hodings PLC Stock Code HILS09 Sharehoder base Hodings of Ordinary Shares at 9 March Sharehoders Shares Number % Number % Hodings , , , ,001 5, ,456, ,001 50, ,928, , , ,855, , , ,510, ,001 1,000, ,262, above 1,000, ,436, Totas 2, ,816, Sharehoder type Individuas 1, ,891, Institutions ,281, Other corporate , Totas 2, ,816, Dividend History pence per share Interim Fina * Tota * Proposed Communication with sharehoders and anaysts Directors meet with major sharehoders and potentia investors foowing Interim and Fina resuts, and at other times if requested. Presentations for anaysts are aso hed on the day of these announcements and we keep in reguar contact with anaysts throughout the year. Corporate information The Annua and Interim reports are the main forms of communication with our sharehoders. We have updated our website to suppement these reports with additiona information. The website address is and incudes share price information, investor reations information and contact detais. Annua Genera Meeting (AGM) The AGM wi be hed on Friday 7 May 2010 at 11 am at The Viage Hote, The Green Business Park, Shirey, Soihu, B90 4GW. Fu detais are contained within the Notice of AGM. A proxy card is aso encosed with this statement for voting. Aternativey you can vote eectronicay as expained in the next paragraph. Eectronic proxy voting To odge your proxy vote via the internet, og on to www. eproxyappointment.com. You wi need the Sharehoder Reference number and PIN number printed on your Form of Proxy where you wi find the fu instructions. Sharehoding onine Computershare Investor Centre gives access to view your hodings onine. To register cick on Investor Centre on the Computershare home page and foow the instructions. You wi be abe to: Access current and historica market prices Access trading graphs Add additiona sharehodings to your portfoio Share deaing Share deaing services are avaiabe through Computershare Investor Services PLC. Log on to uk for internet share deaing and for teephone deaing ring Dividend Reinvestment Pan DRIP (Latest date for eection is 18 June 2010) The Company offers sharehoders the faciity to re-invest their cash dividends to buy more shares in the Company. The service aows you to increase your sharehoding in an easy and convenient way. Onine appication process enabes you to participate easiy and securey; Cick on Register Now to sign up to the Investor Centre. This wi aow you to carry out a number of share reated transactions onine, incuding opting for the DRIP You wi be required to fi in your Sharehoder Reference Number (SRN) and your postcode, together with your e-mai address. You wi aso be asked to seect a User name (ID) and password of your choice. Once registered seect Reinvestment Pans from the eft hand menu and amend your current cash dividend instruction, confirming acceptance of the DRIP terms and conditions. New shares wi be purchased as soon as possibe on or after the dividend pay date. Overview Business Review Governance Financia Statements Information View a your hoding detais for companies registered with Computershare View the market vaue of your portfoio Update your contact address and persona detais onine Sharehoder hepine number There is a hepine for sharehoders who have enquiries about their sharehodings. The dedicated hepine number is

98 Stock Code HILS Principa Group Businesses Infrastructure Products Asset Internationa Limited Large diameter pastic pipes and storm water attenuation tanks Stephenson Street, Newport, South Waes, NP19 4XH Te: +44 (0) Fax: +44 (0) Barkers Engineering Limited* Fencing, gavanizing, powder coating and fasteners Duke Street, Fenton, Stoke-on-Trent, Staffordshire, ST4 3NS Te: +44 (0) Fax: +44 (0) British Pipe Supports (Jingjiang) Limited* Constant and variabe pipe support systems West End of Fuyang Road South Deveoping District Jingjiang City Jiangsu Province PRC, , China Te: +86 (0) Fax: +86 (0) CA Traffic Limited Traffic counting and cassifying equipment Griffin House, Gatehouse Way, Ayesbury, Buckinghamshire, HP19 8BP Te: +44 (0) Fax: +44 (0) Creative Putrusions, Inc.* Manufacturer of gass reinforced pastic products (GRP) for the infrastructure market Incorporated in USA 214 Industria Lane, Aum Bank, Pennsyvania, 15521, USA Te: +1 (814) Fax: +1 (814) Conimast Internationa SAS* Speciaist highmast ighting coumns Incorporated in France Z.I. La Sauniere BP70, Saint Forentin, France Te: +33 (0) Fax: +33 (0) ci@gava.fr Hi & Smith Limited Highway and off-highway safety barriers, temporary highway and genera workzone protection systems and corrugated stee structures Springvae Business and Industria Park, Biston, Woverhampton, WV14 0QL Te: +44 (0) Fax: +44 (0) barrier@hi-smith.co.uk Berry Systems (D) Car park and industria barriers, spring stee barriers, protection boards, speed ramps, handrai panes Te: +44 (0) Fax: +44 (0) saes@berrysystems.co.uk Brifen (D) Wire rope safety barriers Te: +44 (0) Fax: +44 (0) eng@brifen.co.uk Bristorm (D) Anti-terrorist security fencing Te: +44 (0) Fax: +44 (0) simon.box@hi-smith.co.uk Techspan Systems (D) Eectronic information messaging and dispay systems Griffin House, Gatehouse Way, Ayesbury, Buckinghamshire, HP19 8BP Te: +44 (0) Fax: +44 (0) enquiries@techspan.co.uk TopDeck Parking (D) Demountabe car parking system Springvae Business and Industria Park, Biston, Woverhampton, WV14 0QL Te: +44 (0) Fax: +44 (0) saes@topdeckparking.co.uk JA Envirotanks (D) Stee storage tanks PO Box 16, Chares Henry Street, Birmingham, B12 0SP Te: +44 (0) Fax: +44 (0) saes@iaenvirotanks.co.uk Maatite Limited Street and highway ighting coumns Homewood Industria Estate, Hardwick View Road, Homewood, Chesterfied, S42 5SA Te: +44 (0) Fax: +44 (0) saes@maatite.co.uk Pipe Supports Limited* Constant and variabe pipe support systems Unit 22, West Stone, Berry Hi Industria Estate, Droitwich, Worcestershire, WR9 9AS Te: +44 (0) Fax: +44 ((0) ps@pipesupports.com Pipe Supports Asia Limited* Constant and variabe pipe support systems Incorporated in Thaiand 26/5 Moo 9, Soi Rattanaraj, Banga-Trad Road. Km 18.2 Bangchaong, Bangpee, Samut Prakem, 10540, Thaiand Te: +66 (2) /7 Fax: +66 (2) /10 psa@pipesupports.com Varey & Guiver Limited Parapets, gantries and pedestrian guardrais Afred Street, Sparkbrook, Birmingham, B12 8JR Te: +44 (0) Fax: 44 (0) saes@v-and-g.co.uk V&S Utiities** Eectrica utiity products and service Incorporated in USA 1000 Buckeye Park Road, Coumbus, Ohio 43207, USA Te: +1 (614) Fax: +1 (614) info@hotdipgavanizing.com Notes: The above ists the Company s subsidiary undertakings, except for some intermediate hoding companies and certain other undertakings of minor importance. Except where indicated, the undertakings are subsidiaries incorporated in Great Britain. * The Company s effective interest is hed indirecty for these undertakings. ** Trading name for V&S Schuar Engineering, V&S Schuar Tubuar Products and V&S Cark Substations, a indirecty hed and a whoy owned and incorporated in the USA. (D) Operating division ony, not a imited company. 96

99 Stock Code HILS09 Gavanizing Services France Gava SA* Gavanizing and powder coaters of stee Incorporated in France Z.I. La Sauniere BP70, Saint Forentin, France Te: +33 (0) Fax: +33 (0) ci@gava.fr Joseph Ash Limited* Gavanizing Acora Buiding 2, Muckow Hi, Haesowen, West Midands B62 8DG Te: +44 (0) Fax: +44 (0) saes@josephash.co.uk Voigt & Schweitzer, LLC* Gavanizing Incorporated in the USA 1000 Buckeye Park Road, Coumbus, Ohio USA Te: +1 (614) Fax: +1 (614) info@hotdipgavanizing.com Buiding and Construction Products Ash & Lacy Buiding Systems Limited* Meta cadding buiding systems and anciary products Bromford Lane, West Bromwich, West Midands B70 7JJ Te: +44 (0) Fax: +44 (0) saes@ashandacy.com Birtey Buiding Products Limited* Stee intes, residentia doors and gavanizing Mary Avenue, Birtey, County Durham, DH3 1JF Te: +44 (0) Fax: +44 (0) info@birtey-buiding.co.uk www. birtey-buiding.co.uk Bromford Iron & Stee Company Limited* Hot roed stee fats, bars, sections and profies Bromford Lane, West Bromwich, West Midands, B70 7JJ Te: +44 (0) Fax: +44 (0) enquiries@bromfordstees.co.uk Lionwed Kennedy Fooring Limited Handrai and fooring structures Marsh Road, Middesbrough, TS1 5JS Te: +44 (0) Fax: +44 (0) saes@k-uk.com Redman Fisher Engineering Limited* Industria fooring, handrai systems and structures Bean Road, Birmingham New Road, Tipton, West Midands, DY4 9AQ Te: +44 (0) Fax: +44 (0) saes@redmanfisher.co.uk Access Design and Engineering (D) Speciaising in GRP, steework and metawork contracts Haesfied 18, Teford, Shropshire, TF7 4JS Te: +44 (0) Fax: +44 (0) saes@access-design.co.uk Notes: The above ists the Company s subsidiary undertakings, except for some intermediate hoding companies and certain other undertakings of minor importance. Except where indicated, the undertakings are subsidiaries incorporated in Great Britain. * The Company s effective interest is hed indirecty for these undertakings. (D) Operating division ony, not a imited company. Overview Business Review Governance Financia Statements Information 97

100 Stock Code HILS Contacts Professiona Advisers Hi & Smith Hodings PLC Registered Office Westhaven House Areston Way Shirey, Soihu West Midands B90 4LH Te: Fax: Registration Detais Registered in Engand and Waes Company Number: Company Website Company Secretary John Humphreys FCIS Auditors KPMG Audit Pc 1 Snowhi Snow Hi Queensway Birmingham B4 6GH Brokers Arden Partners pc Arden House 17 Highfied Road Birmingham B15 3DU Lawyers Wragge & Co 55 Comore Row Birmingham B3 2QD Siks Soicitors Barcays Bank Chambers Birmingham Street Odbury B69 4EZ Registrars Computershare Investor Services PLC PO Box 82 The Paviions Bridgwater Road Bristo BS99 7NH Principa Bankers Barcays Bank PLC Midands Corporate Banking Centre PO Box Comore Row Birmingham B3 2WN Financia Pubic Reations Hogarth Partnership Limited No. 1 London Bridge London SE1 9BG 98

101 Notes Hi & Smith Hodings PLC Stock Code HILS09 Overview Business Review Governance Financia Statements Information 99

102 Notes Hi & Smith Hodings PLC Stock Code HILS 100

103 Fowforge open stee fooring and tubuar baastrade system suppied by Access Design for Minworth, Warwickshire, waste water treatment pant. Hi & Smith Hodings PLC Stock Code HILS09

104 2009 Westhaven House, Areston Way, Shirey, Soihu, B90 4LH Te: +44 (0) Fax: +44 (0) Stock Code: HILS