Hill & Smith strengthens group portfolio with third eight-figure deal

SHIRLEY-based engineering group, Hill & Smith, has hit the acquisition trail again, strengthening its company portfolio with the addition of a firm based in the Black Country.

The group has paid £12.5m to acquire Oldbury-based Signature, a former subsidiary of Plastic Omnium. The deal will be funded from the group’s existing bank facilities.

It is Hill & Smith’s third eight figure acquisition in as many months and comes on the publication of strong interim results for the group.

Signature specialises in the development, manufacture, installation and maintenance of street lighting columns, road sign and traffic management systems. In the year to December 31, 2015, Signature recorded turnover of £14.8m, operating profit of £1.9m (before Plastic Omnium group charges), and had net operating assets, on a debt and cash free basis of £4m.

The acquisition is expected to be earnings enhancing to the group in the first full financial year of ownership.

Derek Muir, group chief executive, Hill & Smith, said: “Signature has an excellent range of long established products which will complement our existing product offering into the UK roads market.”

The group’s first half results, published today, show that in the six months to June 30, 2016, underlying revenue increased by 9% to £254.0m (2015: £233.0m), with translational currency benefits contributing £6.4m or 3%.

After adjusting for additional revenue of £6.4m from acquisitions and reduced revenue from restructuring actions of £5.0m, organic underlying revenue growth was £13.2m or 6%.

Underlying operating profit improved by 25% to £33.0m (2015: £26.3m), including a positive currency translation of £1.1m.

Acquisitions contributed £1.7m and the benefit of restructuring actions adds a further £0.9m. Underlying operating margin improved to 13.0% (2015: 11.3%).

Underlying pre-tax profit at £31.7m was 28% higher than the previous year (2015: £24.8m). Statutory pre-tax profit was £19.4m (2015: £7.1m).

Underlying earnings per share was up 27% at 30.7p (2015: 24.2p). Basic earnings per share was 16.8p (2015: 5.6p).

Net debt increased to £99.5m (December 31, 2015: £91.5m; June 30, 2015: £89.2m) including a negative currency translation impact of £3.3m.

The board has declared an interim dividend of 8.5p per share (2015: 7.1p), representing a 20% increase on the corresponding period last year. The interim dividend will be paid on January 5, 2017 to shareholders on the register on November 25, 2016.

Mr Muir said: “These results represent an excellent performance, with record revenue and profitability and improved underlying operating margins across all three divisions. We continue to benefit from our strong position in niche infrastructure markets, predominantly in the UK and US, where high levels of investment are fuelling demand for our products.
 
“In the UK, the Government’s Road Investment Strategy provides certainty of funding through to 2020/21 and, in addition, exciting progress is now being made in our Roads business in the US and Australia. In Utilities also, our UK and US activities are well placed to continue to benefit from the significant investment in the ageing infrastructure of those countries. In Galvanizing, notwithstanding strong comparatives in the second half, our US and UK operations are expected to more than offset any weakness in France.”

Market analysts responded well to the announcement.

Singer said: “This is another strong statement from HILS. We are upgrading FY16 EPS by 3% (and more in outlying years) reflecting the two recent acquisitions, underlying momentum and currency tailwinds.

“Visibility remains strong, unlike for most industrial peers, and recent acquisitions add further fuel to the gathering momentum. A dividend increase of 20% reflects management’s confidence and we increase our target price to 1160p (c.17x FY17 EPS) and remain at Buy.”