Hill & Smith shares slump as UK project delays hit profits
Shares in specialist engineering group Hill & Smith, which includes a galvanizing plant in Telford, saw its shares slump by more than 20 per cent in early trading after it unveiled a slowdown in its UK business.
The company said its performance in the first half of the year had been hit by short-term project delays in UK's roads programme, including delays to Smart motorway projects, and the utilities market.
While its international businesses continued to trade well, with a strong performance in the USA, Hill & Smith also pointed to the impact of raw material price volatility, particularly around zinc, which hurt its operating margin. Zinc is a key component for the group's galvanizing businesses, including Joseph Ash on Telford's Stafford Park.
Chief executive Derek Muir admitted it had been a 'disappointing' first half but said he expected the group's second half performance to be better.
Shares fell sharply as the stock market opened, wiping up to £200 million off the group's market valuation.
West Midlands-based Hill & Smith owns a string of businesses at home and abroad, employing around 4,420 staff in seven countries.
It said underlying pre-tax profits in the first six months of the year were down 12 per cent, to £33 million. At the same time, revenue across the group inched up by one per cent to £295.4 million.
Hill & Smith said its second half trading was now "more in line with our original expectations, supported by stronger order books". The company also hiked its half year dividend payout to shareholders by six per cent to 10p per share.
Derek Muir said: "Our US and other international businesses performed strongly in the first half, driven by the significant investment going into the replacement of ageing infrastructure and new infrastructure projects.
"As previously reported, however, our UK business experienced certain headwinds – specifically adverse weather in Q1, short-term delays to some road projects, and a more cautious UK investment environment.
"Consequently, first half results were below those expected at the time of our May trading statement. Raw material input costs in both the UK and USA, particularly zinc commodity prices, have been volatile and impacted operating margins.
"While order books support a good second half, we now expect the performance for the remainder of the year to be more in line with our original expectations as set out in our 2017 preliminary results announcement. As a result, we do not expect to recover the shortfall experienced in the first half.
"Despite this disappointing first half performance, the fundamentals of our niche infrastructure markets remain encouraging, and, notwithstanding the more cautious investment environment in the UK, we continue to benefit from our industrial and geographical spread.
"Overall, we believe that our focused strategy of developing and investing in businesses with market leading positions in growth infrastructure markets, combined with our active and decisive approach to portfolio management, will provide continued growth and drive returns."
