LONDON, UK: Hill & Smith Holdings announced the proposed disposal of its French galvanizing and steel lighting column operations, France Galva SA to a consortium comprising ZINQ France SAS and Sofigalva SAS, for a net equity purchase price of €72.6 million.

Transaction highlights

· The Proposed Disposal is expected to be immediately enhancing to the Group’s growth profile and operating profit margin.

· French Works Council consultations and employee-related information processes are required in connection with the Proposed Disposal, which is also conditional upon approval by Hill & Smith shareholders.

· Subject to the receipt of satisfactory notifications and approvals, and assuming Hill & Smith decides to further consider the Proposed Disposal, completion of the Proposed Disposal and receipt of proceeds would be expected in Q4 2022.

Alan Giddins, Executive Chair, said: “The proposed disposal of France Galva is in line with the Group’s strategy of focussing our capital into higher growth markets. While galvanizing continues to be an important part of our long-term plans, we see the UK and US as offering better growth opportunities. The completion of the Proposed Disposal would provide the Group with additional financial firepower to support our organic and inorganic growth ambitions and would serve the best interests of our shareholders.”

The Proposed Disposal would constitute both a Related Party and Class 2 transaction for the purpose of the Financial Conduct Authority’s Listing Rules. Following completion of the French Works Council consultations and employee-related information processes, we anticipate that a circular and notice of General Meeting will be posted to shareholders. A further announcement will be made on posting.

Background to and reasons for the Proposed Disposal

France Galva was acquired in full by the Group in 2008 and offers hot-dip galvanizing services across ten strategically located plants in France, alongside a steel lighting column fabrication business. Hot-dip galvanizing is a proven steel corrosion protection solution which significantly extends the service life of steel structures and products.

Since acquisition, France Galva has been a profitable and cash generative part of the Group and has maintained a strong market position in France. However, as we look forward, the forecast growth rates for France Galva do not meet the Group’s long-term growth ambitions and its operating margins are below the Group average. Given our galvanizing operations serve local geographical markets, the Proposed Disposal would have no impact on our higher growth, higher margin galvanizing operations in the UK and US, both of which we remain committed to in the long-term.

Sofigalva and ZINQ as joint purchasers have granted a put option to the Group to effect the Proposed Disposal (the “Put Option”). The Put Option gives the Group the right, but not the obligation, to require Sofigalva and ZINQ to purchase the entire share capital and voting rights of France Galva on the terms of an agreed share purchase agreement (the “SPA”).

Due to French law requirements, any decision of Hill & Smith to further consider the Proposed Disposal requires consultation with the French Works Council and that employees of France Galva be informed of the Proposed Disposal and provided an opportunity to make an offer to purchase the shares in France Galva, although there is no obligation on the Group to accept any such offer.

These processes may take up to two months to complete. A further announcement will be made should the Put Option be exercised.

Under the SPA, Sofigalva would acquire 43% and ZINQ would acquire 57% of the share capital and voting rights of France Galva for a fixed equity purchase price of €96.5m (c.£81.8m1), less the amount of a pre-completion dividend of €23.9m (c.£20.3m1), which Hill & Smith will apply in settlement of an intercompany loan from France Galva to Hill & Smith.

The Proposed Disposal is a Related Party transaction under the Listing Rules because of the interests of Christophe Delot, France Galva’s Managing Director, in Sofigalva; its completion would therefore be conditional upon approval by Hill & Smith shareholders, as well as other customary closing conditions.

France Galva

France Galva is a France-based group, comprising of three main business areas:

· Hot-dip galvanizing

· Painting and powder-coating of galvanized steel

· Fabrication of street lighting columns

France Galva operates ten sites across France, employing approximately 680 people.

For the year ending 31 December 2021, France Galva reported underlying operating profit of €10.0m (c.£8.7m4) on revenue of €92.5m (c.£79.8m4).

The net cash proceeds arising from the Proposed Disposal are expected to be approximately €72.6m (c.£61.5m1), after the settlement of an intercompany loan of €23.9m (c.£20.3m1) from France Galva to Hill & Smith.

These proceeds will reduce the Group’s net debt and will be used to support further growth in strategically important markets, consistent with our disciplined portfolio management strategy.

As at 31 December 2021, France Galva had gross assets, before the deduction of any liabilities and excluding the intragroup loan, of €80.5m (c.£67.6m3), representing c.10% of the Group’s gross assets as at 31 December 2021.

In the year ending 31 December 2021, the Group reported underlying operating profit of £86.0m, and France Galva reported underlying operating profit of €10.0m (c.£8.7m4), representing c.10% of the Group’s underlying operating profit.

The Proposed Disposal is expected to be dilutive to Hill & Smith’s earnings per share and accretive to the Group’s operating profit margin and return on invested capital.

Established in 1889, ZINQ Group (of which ZINQ France is a wholly owned subsidiary) employs over 1,800 people and provides hot-dip galvanizing services from approximately 50 plants across Europe. ZINQ Group is solely owned by Mr Lars Baumgürtel, who was formerly the Managing Director of Zinkinvent GmbH, which owned France Galva prior to Hill & Smith’s ownership.

Sofigalva is a newly incorporated entity for the purpose of effecting the Proposed Disposal. Should completion of the Proposed Disposal occur, Christophe Delot is expected to be the majority shareholder (alongside local financial investors Caisse d’Epargne and Banque Populaire Bourgogne Franche-Comté) and President of Sofigalva. Christophe Delot is the current President of the Board of Directors (Président du Conseil d’administration) and the Managing Director (Directeur Général) of France Galva.

Other than Christophe Delot, no other individuals which are considered key to Hill & Smith will be exiting Hill & Smith by virtue of the Proposed Disposal.