Hill & Smith Holdings, the engineering group chaired by West Midland industrialist David Grove, proved the value of operating in virtually recession-proof niche sectors with a strong set of interim figures yesterday.
The Solihull-based company shrugged off a seven per cent fall in revenue to £196.8 million in the six months up to June 30, to deliver a two per cent rise in underlying profit before tax (£20.5 m) and a 9.1 per cent increase in earnings per share (18p).
It also treated shareholders to a 9.3 per cent rise in the half-time dividend to 4.7p and pleased the City even further by paying down 27.4 per cent, or £40.1 m of debt, reducing the burden from £146.2 m at the end of the last financial year to £106.1 m The effect was to drive up Hill & Smith’s shares six per cent to 264.5p, thus giving the company a market value of £200.28 m.
H&S is an international group with market-leading positions in the supply of infrastructure products, galvanizing services and building and construction products.
It is the infrastructure products division, which accounts for some 85 per cent of turnover, that means it is one of the few capital goods companies to improve its financial performance compared with the first six months of 2008.
That is due in large part to Government spending on projects such as the Birmingham Box, the project to widen and install an active traffic management system on the motorway network around the city for which H&S supplies crash barriers, gantries, lighting columns and signage.
“If you replicate that several times around the country, then that is a lot of work,” chief executive Derek Muir said.
Overall revenue generated by infrastructure products rose by 8.1 per cent to £99.7 m, boosted to the tune of £4.4 m by favourable foreign exchange movements.
The galvanizing business saw revenue fall by 11.5 per cent to £58.5 m while building and construction products suffered a 28 per cent fall to £38.6 m. The two divisions generated underlying operating profits of £10.2 m and £900,000 respectively.
The company paid off 120 employees in building products in the first half, partially offsetting that with 47 new jobs in the infrastructure business.
Cash generated from operations remained strong at £35.2 m (as against £32.9 m last time) with the assistance of £5.6 m from non-core disposals.
Debt as a proportion of earnings before interest, tax, depreciation and amortisation improved to a ratio of 1.8 from 2.4 at the end of the last financial year.
Mr Grove said the company’s overall performance in the first half had been “resilient, delivering strong results against a background of difficult macro-economic conditions.
“Whilst revenue has fallen in the wake of the general economic downturn, swift and decisive action was taken on adjusting our cost base in line with demand,” he said.
Broker Evolution, which rates H&S shares a “buy” said “a really good set of interim results highlights the robustness of the model”.