Good morning, everyone, and welcome to the Hill & Smith 2023 full year results presentation. In particular, welcome to everyone who is joining online. I will start by giving a summary of the key highlights before passing over to Hannah to talk through the financial performance. I will then look at where we are against our key performance metrics, focus in on our most recent acquisitions from 2023 and the start of 2024, and then talk about the significant growth opportunities we see in our US utilities business. Before starting, I would just note this is Hill & Smith's 200th anniversary year since the business was founded by Edward Hill and then his brother-in-law, Henry Smith in Brierley Hill in the West Midlands, a not inconsiderable achievement. Once again, this is a record set of results for the group.
We've seen strong revenue and profit growth with 76% of group profits now generated from our U.S. businesses. This is testament to our clear strategy. Improving execution. We continue to see good progress in delivering on our M&A strategy, completing four acquisitions during 2023. A further two acquisitions in the U.S. in the first two months of 2024. One of which we announced this morning. We are pleased with the momentum we have built, identifying and securing strategically aligned, financially accretive businesses at sensible prices where we have the opportunity to complete our diligence outside of a competitive auction process. Cash conversion has been extremely strong at 115%. We have also seen a good uplift in our return on invested capital from 19.2% to 22%. As we focus our investment on our higher growth businesses. The board has approved a final dividend of 28p.
Giving a full year dividend of 43p. Up 23% on prior year. We have started 2024 with good momentum and a strong M&A pipeline. I will now pass over to Hannah to talk through the detailed financial performance of the group.
Good morning, everyone. I'm pleased to report that the group delivered another record set of results in 2023. Revenue was GBP 829.8 million. A year-on-year increase of 14% at constant currency. And at GBP 122.5 million, underlying operating profit was up by 26% on a constant currency basis. And well ahead of our initial expectations for the year. Acquisitions contributed GBP 74 million of revenue and GBP 13 million of operating profit in the year. Reflecting strong trading in National Signal and Enduro are two larger recent US acquisitions. Organic constant currency revenue growth was 5% and operating profit OCC growth was 12%. Operating margin increased by 150 basis points to 14.8%. Reflecting the improved portfolio mix and operational gearing benefits of significant volume growth in engineered solutions. Underlying profit before tax was 27% higher at GBP 111.9 million. And with an effective tax rate of 24.6%.
Earnings per share for continuing operations increased by 23% to GBP 1.054. Now turning to the group overview. The impressive results reflect strong momentum in the U.S. and a resilient performance in the U.K. As the charts at the top illustrate, our faster growing and higher margin U.S. businesses now represent a significant part of the group. Generated 56% of revenue and 76% of operating profit in the year. In terms of the weighting between divisions, Engineered Solutions delivered an exceptional performance. Generating 53% of group profit. Driven by buoyant demand for composite solutions and electricity substation components in the U.S. Galvanizing Services generated 37% of group profits. Maintained superior margins with a record performance in the U.S. and a resilient performance in the U.K. In contrast, the margin performance in Roads & Security was disappointing.
Reflecting the impact of one-off operational improvement costs in US Roads, together with non-recurring charges relating to certain UK businesses. So if we now turn to our divisional performance, starting with Engineered Solutions. The division delivered an excellent performance with 27% revenue and 84% profit growth on a constant currency basis. Operating margin increased by 540 basis points to 17.5%, reflecting operational gearing and the quality of our faster growing US portfolio. As highlighted on the top right chart, the US delivered 20% OCC revenue growth and record operating profit. US Composites delivered a standout performance underpinned by high demand for its range of innovative composite solutions. We were delighted to welcome Enduro Composites and United Fiberglass to the group during the year.
Our U.S. electricity substation business also reported record profits and enters 2024 with a strong order book. The business faces into an attractive end market, and we are investing to accelerate growth, which Alan will expand on later in the presentation. U.S. Engineered Supports generated record results underpinned by a large number of large infrastructure construction projects and a buoyant HVAC market. Overall, the outlook for the U.S. remains very positive. Market demand is supported by investment to modernize the power grid and multi-year planned government spending on infrastructure, in addition to private investment to onshore vital components and processes. In the U.K., revenue declined by 6%. Profit was at a similar level to 2022. Building Products experienced lower volumes, reflecting a wider slowdown in U.K. residential construction. However, this was offset by pricing and cost management actions.
Industrial Flooring delivered a robust performance with good demand from data center, battery plant, and oil and gas markets. Our Engineered Supports business in India delivered a record performance with buoyant demand for international LNG projects. The business enters 2024 with a strong order book and good medium-term growth prospects. If we turn now to the Galvanizing Services division. The division delivered a robust performance with 9% revenue growth and 4% profit growth on a constant currency basis. In line with expectations, the division maintained superior operating margins at 23.2%. Reflecting the value added service provided to our customers. In the U.S., revenue grew by 9% on an OCC basis with record operating profit against a strong 2022 comparator. The performance reflects an 8% organic increase in production volumes and focused pricing actions.
The medium-term outlook for US galvanizing remains positive, with our business well placed to benefit from high levels of industrial activity supported by the IIJA technology investment and a more general move to the onshoring of certain activities. In the UK, revenue was broadly flat on an organic basis, reflecting a 15% decline in volumes offset by pricing actions. The volume decline is attributable to an overall downturn in the UK galvanizing market. The impact of certain key customers delaying projects, with volume stabilizing in the second half. As a result, operating profit was lower than last year's record performance. The UK business benefits from a wide sectoral spread of customers, and while we expect end markets to continue to be challenging in 2024. We've taken proactive steps to strengthen the management team to support performance delivery. Turning to Roads & Security.
Performance in Roads & Security was disappointing with 2% revenue growth and 31% profit decline on a constant currency basis. The results reflect strong trading in National Signal. Our U.S. off-grid solar business and resilient trading in our core U.K. Roads business. However, this was offset by certain one-off charges included in underlying trading. As a result, operating margin was 4.7%, below our expectation, and we anticipate an improvement in 2024. U.K. Roads revenue was 3% lower and operating profit was significantly lower than 2022. While the barrier rental business delivered good profit growth with an increased fleet utilization, a wider U.K. Roads portfolio experienced challenges with inflationary and budgetary pressures curtailing customer spend. While U.K. markets continue to be challenging, we expect U.K. Roads to deliver a flat performance in 2024.
Our UK off-grid solar business experienced a slowdown in construction and markets during the year and has turned its focus to the more resilient facilities management sector. At the end of 2023, the business identified an issue with the historical installations of one of its products, and a provision for expected rectification costs has been included in the group's underlying results. The team acted quickly to take appropriate remedial action, and in the group context, the issue is relatively small. During the year, we exited Berry Systems, a small loss-making car park solutions business, and the results include an underlying charge in relation to future losses expected on a small number of legacy contracts. In the US, trading at National Signal was very strong, particularly in the first three quarters, supported by a high order backlog and strong demand from rental customers.
While we've seen a slight softening in demand coming into the first half of 2024, which is factored into our group outlook, the medium-term outlook remains positive. Underpinned by a drive towards sustainable solutions and an expected boom in large-scale infrastructure projects. Revenue in our U.S. roads business was lower than 2022, and operating profit was significantly impacted by one-off operational improvement costs. Mainly associated with re-engineering the trailer product line. The business is implementing a comprehensive improvement plan, and we expect progress in 2024. Our security subdivision saw revenue decline by 6%. Operating profit also declined. This reflects lower utilization of our U.K. security rental barrier fleet compared to a record 2022. Continuing challenges in our perimeter access security business. While the outlook for the security portfolio remains mixed, we expect that a focus on more resilient end markets, such as data centers, will support further progress.
Moving on to cash generation. We are pleased to report that the group was highly cash generative in 2023, with underlying cash conversion of 115%. We expect the group to continue to deliver strong cash conversion in 2024. In line with our financial framework of 80%+ and consistent with history. Working capital inflow in the year was GBP 22.8 million, reflecting the benefits of lower raw material costs and a tight focus on working capital efficiency. Capital expenditure was GBP 31.8 million, representing a multiple of depreciation and amortization of 1.5x. Significant growth investments included GBP 4 million to support capacity expansion in our U.S. Composites business and GBP 1.5 million on an automated kettle line in the recently acquired Corns Galvanizing. Cash tax paid in the year was GBP 31.7 million. The increase, reflecting higher profitability. The phasing of payments in the U.S.
Our decision to carry forward taxable UK losses to be used in future periods. As a result, the group generated GBP 97 million of free cash flow, providing funds to support our acquisition strategy and dividend policy. In the year, we invested GBP 48 million of capital across four value-enhancing acquisitions. We continue to maintain significant liquidity headroom. Leverage capacity to support future growth opportunities. Net debt at the end of the year was GBP 108.4 million. Better than we had expected, with the ratio of covenant net debt to EBITDA falling to 0.4 times. Return on invested capital for the year was 22%. The improvement reflecting the strong trading and our disciplined approach to capital investment, which more than offset the impact of acquisitions in the year. If we now turn to sustainability. Our group's sustainability strategy encompasses seven priority areas, including our commitment to reduce greenhouse gas emissions.
During the year, we successfully baselined our full Scope 3 GHG emissions , which enabled us to submit near- and long-term commitments to the Science Based Targets initiative , with an overarching target to reach net 0 GHG emissions across the value chain by 2050. We are delighted to report that our targets were approved by the SBTi in December 2023. This sits alongside our previous commitment to reach net 0 for our Scope 1 and 2 emissions by 2040. We also continue to make progress across our other sustainability priorities. In health and safety, our focus has been on accident prevention. While there's more work to do, the lost time incident rate reduced by 61% to 0.43. Talent development and engagement are key priorities for our sustainability strategy.
And within this, senior level succession is currently a key focus, including the development of high potential individuals and enhancing manager and supervisor training. Alongside this, we were pleased that our recent employee survey highlighted that we are making some positive progress with diversity and inclusion. We also remain committed to our UK apprenticeship program and now have 60 apprentices, a 9% increase compared to the end of 2022. So overall, a really strong set of financial results and good progress on our sustainability strategy. I will now hand back to Alan to summarize our progress against our financial framework.
Thanks, Hannah. Set out on the left-hand side of this slide are the through-the-cycle target financial performance metrics we set out last year. We've successfully delivered against all of these metrics, consistent with the good momentum we're seeing within the business. We saw 5% organic revenue growth.
13% total revenue growth in 2023, reflecting the positive impact from M&A. As a reminder, our focus is on trying to complete 2-4 deals a year. Investing an aggregate between GBP 50 million and GBP 70 million. We also saw positive margin expansion from 13.3%-14.8%. Noting that our target of 15% was set as a 2024 full-year target figure. In 2024, we expect to see further margin expansion as a result of both accelerated growth in our higher margin businesses through improved performance in our Roads & Security margins. Excellent cash conversion and return on invested capital up from 19.2%-22%. Leaves gearing at 0.4, well below our target range of 1-2 times. This gives us significant headroom for organic and inorganic investment. During the year, we completed 3 principal acquisitions.
In addition to which we made a very small bolt-on within our Novia business. In aggregate, we invested GBP 48 million. Enduro has been fully integrated into Creative Composites Group. Since acquisition, we have seen strong trading supported by a circa 300 basis point expansion in operating profit margins. We've also committed GBP 2.2 million of CapEx on a new pultrusion line, which will be operational by the start of April, and where we have excellent order book visibility. We acquired United Fiberglass at the end of last year. United, based in Springfield, Ohio, is a market leader in the use of filament winding technologies, providing a range of lightweight applications into the utility, infrastructure, and industrial markets. United also has a strong CEO in Kevin Barnett, and we are very pleased to have Kevin as part of our wider composites team. 3 months in, the business is trading well.
In line with our expectations. United has started the year with a strong order book. Corns Galvanizing was acquired in March 2023 and has been fully integrated into V&S Galvanizing. Trading is ahead of our expectations. We have seen good margin expansion. We're also making good progress on our GBP 2.9 million investment in a new automated spin line. The acquisition of Corns has been an extremely well-executed integration process over the last 12 months and provides a playbook for future galvanizing acquisitions. Each of these acquisitions were consistent with our strategic framework, acquiring businesses outside of auction processes and where we have an existing relationship with both management and business. Since the start of the year, we have announced two further acquisitions investing GBP 11.6 million. Both acquisitions sit within our Engineered Solutions division. In January, we announced the acquisition of Capital Steel, based in Trenton, New Jersey.
The business serves a transmission and distribution market. It gives us both access to new customers but also significant cross-selling opportunities across our broader taper tubular product range. We will also be able to service Capital Steel's customers through our new expanded facility at Burton, Ohio. We've added a further 44,000 sq ft. We also announced today the acquisition of FM Stainless. FM is a business we're acquiring through the Paterson Group. We've probably not talked enough about the Paterson Group in the past. This is a business which has delivered a 35% profit CAGR organically over the last five years. It has taken advantage of significant infrastructure spend in the U.S., particularly around onshoring. It is also led by a very strong management team. FM Stainless manufactures a range of high precision steel products from a single site in Ellijay, Georgia.
It is a perfect fit in terms of geographic and customer complementarity. It also gives us a much greater exposure into the water and wastewater market where we see significant medium-term spend. We're also extremely pleased that Chad Hood, owner of FM, will be remaining with the business post-acquisition. Going forward, we have a strong M&A pipeline and would hope to execute on further acquisitions during 2024. I'd now like to focus on one of our fastest growing businesses, V&S Utilities. The business fabricates and supplies products into the electrical utility market, providing structural steel and component packages for high voltage electrical substations and transmission and distribution lines. It delivered record revenue in 2023 of $75 million. Operating margins significantly above the group and divisional average. This builds on a good growth performance over the last five years.
With an organic revenue and operating profit CAGR of 13% and 21%, respectively. The business has started 2024 with a record order book. We see the U.S. electrical and transmission and distribution market as very attractive in the medium term. With growth driven by the need to upgrade aging infrastructure. Supported by government investment and increasing demands on the electric grid driving capacity expansion. Given this, we are making thoughtful investments to support the growth potential in this business. A number of initiatives are underway to support organic growth, including a GBP 1 million investment in capacity expansion at our Burton site. Which will be complete over the coming months. Future plans to upgrade our Muskogee site in 2025. Alongside this, the team are making investments in automation and production efficiency. We're also looking at M&A opportunities in this attractive end market.
The acquisition of Capital Steel is a first example of this. As you can see on the map, we currently have significant white space where we can use M&A to access new customers and cross-sell our products. Turning then to a reminder of the investment case which underpins everything we do at Hill & Smith. First, it is about exposure to infrastructure spend in both the U.K. and U.S. As governments seek to upgrade the quality of their national infrastructure to support economic growth. Specifically in the U.S., our businesses are benefiting from the IIJA, which was the bipartisan infrastructure bill introduced in 2021. Increasing onshoring of manufacture and investment in technology in the form of data centers, semiconductor and EV plants. We see this as a 10-20-year mega trend for which we're only just starting to see the impact on our businesses.
It is then about market leadership in the niches in which we operate, allowing us to enjoy high barriers to entry and therefore strong operating margins. We do not want to be competing against commoditized players. Sustainability is core to our business model in terms of both how we operate and the products we manufacture. Critically, it is then about an autonomous business model which encourages and supports an entrepreneurial culture at the operating company level. Our head office team is there to ensure we have the right KPIs and controls but is also there to support setting the ambition for each operating company and as a result help ensure each of our businesses delivers to their full potential. Finally, it is about ensuring we maintain a strong balance sheet capable of supporting organic growth while also allowing us to deliver on our M&A strategy.
We see significant opportunities to use M&A to help us expand into new customers, new end markets, and into new technologies. Effective delivery on this M&A strategy is about ensuring that our group M&A team works hand in glove with our MDs to source opportunities and build relationships with owners, supported by best-in-class execution and post-acquisition integration. Finally, turning to outlook. We continue to see a very strong market in the U.S., and this is where we have our biggest businesses and some excellent management teams. Recovery in our Roads & Security margins is an absolute requirement for 2024, and we believe we have a route map to deliver on this. Our ability to continue to source and deliver highly complementary M&A opportunities will also be an important driver of growth. As a result, we expect to make good progress after a strong performance in 2023.
With the year modestly second half weighted in line with historic norms. Turning to the medium and longer term, I believe it is a combination of our attractive end markets, our agile operating model, and our ability to source highly accretive M&A opportunities, which makes me confident about the group's prospects. With that, can I suggest we open up for questions and maybe start with.
To ask a question remotely, raise your hand using the raised hand button or type your question clicking on the Q&A button.
Yeah. I, yeah, thanks for the presentation. Three questions from me. So engineered solutions, a huge step up in margin to 17.5%. Is it possible to break that out into kind of mixed volume drop through processing improvement, and then how sustainable do you see it at that level given the magnitude of the uptick? Secondly, really very bullish story on U.S. infrastructure spending over the next 5-10 years, but what worries you about that? What do you see as potential things that knock that off course? Is it politics? Is it kind of capacity? What are the kind of things that worry you there? And then thirdly, acquisitions, especially in engineered solutions, just lots of small businesses. And you put the chart in the presentation of the Capital Markets Day last November, I think. What do you see as the natural market structure?
How consolidated do you think that can become? And then is there an argument that given the buoyancy of the infrastructure spend that you move quicker than 2-4 small deals a year? Thanks.
Okay, alright, shall I do the last 2 and then pass over to you on that? So let me. Yeah, so let me do U.S. infrastructure spend. So what worries one? I mean, I don't want to say not a huge amount. I think the political one doesn't particularly worry me because there is a sort of bipartisan commitment to this spend. And so I think, you know, the Democrats are very committed to, I mean, you could probably argue. A lot of Trump's rhetoric led to a lot of the onshoring. So if you look at all of those automotive companies that onshored, I mean, part of his rhetoric led to that. So I don't think either party will naturally materially pull back on the commitment to infrastructure spend.
And you know, almost if you are in the US, you could see it's needed, so it's not really an optional spend. I think timing. You know, I think we discussed it before. If you look at the sort of roads, bridges market, that the spend flows much more naturally straight down to the county level. That is where you have seen more spend. It is more predictable. And to date, about 40% of contracts have been awarded. So even in the market where you've seen the greatest amount of projects and spend, I mean, it's only part of the way through that on some of these bigger projects. There will always be delays, but I think, you know, whether a mega 15-year project moves out by a year or not, I don't think that makes a huge amount of difference. In terms of capacity.
Yeah, clearly, if you've got very strong demand, you think naturally you'll get supply changes in the market. I think the key is, it's about relationship and service delivery. So if you look, that was the key rationale for buying Capital Steel. That is, for us to get access into those New Jersey utilities is very, very difficult. It's all about relationship. So we could have built capacity. We wouldn't necessarily have been able to fill it. And I think, you know, I was out in the U.S. last week talking to Greg, who runs our utilities business. He would say it's all these guys want is on-time delivery. And that is a reputation you build up over time. It's not something that people will literally shift their demand to just because someone's put additional capacity in the market.
So I mean, it's dangerous to say not a lot worries me, but if you look at those component parts, they feel reasonably robust. I think in terms of the M&A strategy. So I think 2 bits wrong. I think it was just a small dip. I mean, was the first one sort of small deals? Are they too small?
No, are they too small? It's more there's a huge power wave of infrastructure demand out there. You know, how do you capture that? Is the question.
Yeah, and then it was 2-4 deals. So I think, you know, well, that utilities map is a good one, because you can see exactly what where the white space, and it's obvious where we should go. You clearly want to go southeast. You've got big population shift down there. So if we could get anything down there and you want to go marginally west. You probably, you know, being in California is probably actually quite a tough place to do business. But so you can see exactly what where the white space is. It's then about unlocking the opportunities and you know they're not scientific. The timelines aren't, but as long as you know exactly where you're going, and people look at you as a very credible buyer, you will get in the door, whether you can unlock the deal. Time will tell.
Could we do more than 2-4 deals? We could potentially do it. I think the key in M&A is most mistakes happen in the first 6 months. So what you don't want to do is sort of do multiple deals all at the same time, try and integrate them. That is quite a dangerous thing to do. So could we, you know, aspire to do slightly more deals? Yeah, I think it'd be dangerous to sort of say, well, surely you can do 6-8 deals. That is a good way not to make money. But Hannah, over to you.
Yes, I think your question was around the engineered solutions. Growth and the split between sort of volume and price. So if you look at the 15% organic constant currency revenue growth that we delivered in 2023, it's sort of broadly split. Sort of 10% volume and and 5% price. And as we sort of looking forward into 2024. When we look at all of our U.S. businesses, we see that they're sort of facing into good growth markets. So we'd expect to continue to to progress, albeit noting that FY 2023 is clearly quite a strong comparator in that respect.
Thank you.
Yeah, good.
Just give a sense of the one-off, the materiality of the one-offs that we've had in the Roads division. Presumably they drop out, which is part of the kind of bridge to the improved margins. I think you talked about for the year ahead. And then secondly, on Enduro, I think you mentioned that there's about a 300 basis point margin expansion there after you acquired it. Just to give a little color around how you achieved that. What kind of drove that margin under Hill & Smith ownership?
Yeah. Well, do you want to take the first one?
Yeah. So when we talk about the one-offs in Roads & Security. So the sort of three component parts of that, as I sort of articulated. The first one is in our sort of operational improvement costs in our engine in our US Roads business. And that's sort of GBP 2 million. And then we've got some other one-off charges associated with our UK businesses. So one of those is a provision that we've made with regards to the rectification of some installation challenges associated with one of our product lines. And that's sort of a couple of million, as we've said. And then we've just got a final piece, which is around some provision that we've taken with regards to the contracts in Berry Systems that retain our responsibility. Yeah, which we've now sold.
Okay, you happy with that? Joe. Alright, so Enduro. I think it is a combination of three factors. So it is sales. But I would say that's the smallest impact, because actually very as at the 1st of January, brought Enduro into the whole CCG sales machine. So only from the 1st of January we actually cross selling across all our businesses. It's principally mix. And then there are some purchasing synergies, particularly on the resin side. Yeah.
Good morning, Tom Davey , three questions, if I may. Yeah, first one. I'll do them individually just to get it right. First one's on National Signal. You talked about slowdown in Q4. I was just wondering how that's progressed through January and February. Thinking of the recent Ashtead kind of wobble. And and is that still a key customer? And other how how fast is the customer base broadening out for that product in the US?
Okay, so you're absolutely right. Sunbelt is the key customer. Herc was the other major customer when we bought the business. So we saw very strong orders from Sunbelt last year that has slowed into the back end, slowed in the back end of last year and the start of this year. Now we have a very good relationship with Sunbelt. I think their commitment to the product is very strong. But you know, I think we will see slightly slower orders start of this year. What we were doing anyway, but maybe it's slightly accelerated. We have moved from no sales reps to 31 sales reps in the U.S. And in February, Sunbelt will be off lower orders was 30% of our sales. Historically, it was 85%.
So that doesn't mean we have, you know, cracked a whole range, but we have started to get some sales orders into other rental groups, which historically it wasn't that Mark wouldn't have got. We didn't have the capacity to do it. So Sunbelt definitely slower orders, but in a funny way it sort of accelerated what we wanted to do in terms of really broadening the customer base of the business.
Great. Thank you. Second question was just on the galvanizing margin outlook for 2024, and how much of a drag Corns lower margin. I know you mentioned it progressed through 2023, but how much that was a drag on the European delta in 2023, and just kind of really a guide for.
Yeah. So actually, if you look at galvanizing margins, H2 and H2, actually the very similar levels. So I don't think we view Corns as a drag, given that we've now sort of seen the volumes come through on that. So in terms of, you know, FY 2024, I think we view that similar margin profile to FY 2023. As you're aware, the margin is really a blend of the U.S. and the U.K. margins, with the U.S. being the higher of the 2 businesses. So yeah.
Great. Thank you. And then the final one. As you're closing in on your 15% operating margin target. What sort of discussions did the board have? And can you give a guidance to timing as to when maybe that 15% may be increased?
I think we might think about that once we've delivered it. So I think give us this year to prove we can deliver it, which is what we set out to do when we set the target at the start of last year. And then once we've done that, maybe we can debate it, but maybe not before.
Yeah. Hi, David from Jefferies. Just to put on the Roads & Security again. If I have back those provisions and one-offs, it kind of looks like you get back to 7% margins or thereabouts. But what's the kind of medium term outlook for that business?
So I think you've got to split it into multiple pieces. So you have got the National Signal and Prolectric business. And I think Hannah has noted that historical installation issue where we took a provision this year in Prolectric. But fundamentally, I think the solar market opportunity is good for both businesses. You have then got our core UK Roads business. Supermarket position actually has traded pretty well, considering actually the amount of spend in roads is sort of probably slightly at its nadir. But you know we have such a great market position. Actually, those guys have done pretty well. So you then focus in on the US Roads business. And I think my thesis there would be, you know, we said at the half year we would show some sort of operational improvement in 2023. We probably wouldn't show great P&L improvement.
Now we're in 2024. So we've definitely got to show the P&L improvement. And I think if you break roads down into its three component parts, you've got the barrier business where we have improved rental utilization from sort of high 50s to low 70s last year. So that's that's a pretty good profitable business. We have then got the attenuator business where we have got two sites. And our gross margin in one of those sites is significantly lower than the other. So we've got to actually get that's an operational improvement piece. And the trailer business is currently a loss-making business, and we are manufacturing about 50 trailers a week, and we need to be at about 70. And part of that has been labor and process, which I think we're sort of almost there, and part has been supply chain.
So if you sort of take that narrative, it really is in our hands. We've now actually got to really deliver on that thesis, which I think we can do. I think we have got the right person leading that business. And if you follow LinkedIn, we changed leadership of that business a few weeks ago. I was with Debbie Avar on Monday. You know, I think she's absolutely the right person to do it, but we sort of just have to deliver financial improvement.
What does that mean in terms of margins? It could be a kind of a high single digit, low double digit margin.
Over the medium to longer term. That is not where we're going to get to this year. But it, you know, you've got to believe that as a medium term thesis.
Then the second question I think it always gets asked at these meetings. Chief executive search. Where do we?
Yeah. So essentially what we said last May is I would continue doing the job for 12-18 months. And we would look at internal external candidates. Clearly we believe Hooman is a very strong internal candidate, and we've promoted him to COO. See how that plays out. We obviously, you know, will continue to evaluate that. We will evaluate external candidates. But I think.
There's gonna be kind of a formal start date when you kind of get resumes through the door.
No. Honestly, I think we're pretty confident we will meet that 12-18 months when you won't have me sitting here. So I said, no, I'm sure there'll be a better person than me. But so I think, you know, we're on that journey. We're not literally about to announce the answer to that.
Thanks.
Yeah.
Just 2, if I may. Firstly, just the near-term outlook for India. To what extent you can sustain? What sort of growth rate you think is sustainable, given those LNG comments? Yeah. And secondly, just a broader question around the M&A activity as to whether you're seeing anyone else spot the opportunities that you have in the U.S. and rolling up these relatively small private businesses. And I just wonder at what point you begin to see an opportunity to maybe more aggressively rationalize the footprint, because it feels as though you're adding quite a few sites, given the intended acquisition cadence this year.
India, I mean. If our whole business grew as fast, we would be in a very good place. Clearly, it had an unbelievable performance last year. It has got a very good guy running it in Jatinder. We have expanded the capacity in the business, and Hannah and I sat down with Jatinder at the end of last year, really around sort of what is the art of the possible? I don't think it's only India with 20% of our business. But you know we're serving, you know, very little of what we do goes into domestic markets, very international. It's playing into the LNG trend. For me, it's just absolutely making sure that we maximize the opportunity there. It's going to be an organic growth opportunity. We also increasingly use India to outsource some manufacture for our UK and US businesses.
So having a sort of low cost manufacture for certain component parts is actually quite attractive. So I mean, dangerous. I don't believe it can grow at the same pace it did last year. But I mean, clearly strong double digit growth is eminently feasible. They've started the year well. You know they are serving into those big, you know, Japanese, South Korean, the big manufacturers in the LNG side, and there's probably an opportunity for us through that Indian business into the US market as well. M&A opportunity. I mean, the private business, Capital Steel and FM. There was no competition. I mean, Greg knew Rob Hickman who ran Capital Steel for a long time. We built. We didn't know Chad, who owned FM, but we built a great relationship, and the TPG guys, you know, have done a very good job with that.
I mean, the last conversation I had with Chad around sort of just sort of why was he selling it to us? I mean, he genuinely. But I mean, these guys, they wanted a sensible price. But for him it was genuinely about his employees. So he genuinely wanted a good owner for the business, a fair price for the business. But it's a combination of the 2, rather than, you know, someone's told me it's worth 9 times, and that's what I want. I don't really care who I'm selling to. So I think, you know, inevitably, as a result, buying this is take quite a long time, because you need them to really trust you. You clearly trust them when they're sort of entrepreneurial leaders. So we're not. Yeah, we're not.
I think it's more the challenge is the competition is someone not selling, rather than, you know, we're turning up, and 4 other people have been there before us. Now, you know, we've just looked at a business in composites in the US, slightly bigger, north of $50 million. And you know the opening bid to even participate is 12x EBIT. So suddenly you sort of now that would be a pretty neat business for us. But if it's starting at 12, I mean, where could that end up? So you know it's not that we wouldn't do a sort of GBP 50 million-GBP 60 million deal. The pricing is very, very high. You've got loads of private equity in those deals. We just shouldn't really be playing in them. And rationalizing the footprint. I don't think the footprint in the US is unusually large, to be honest.
If you look at utilities, we've got 4 sites. We've got 9 galvanizing sites. You know, in composites we have 3 or 4 sites. I don't think it's a sort of unruly sort of footprint. The key is, as we saw with Capital Steel, those New Jersey utilities buy through Capital Steel. One, because great service, great relationship, because that is where they're based. So it's not a case of sort of rationalizing it into one super site. But Hannah, would you?
Yeah, no, I'd agree. Yeah.
How many composite sites now?
I think we've got probably 4. Yeah. Yeah, I think we got 4. Done just counting it up.
Yeah. All right. Bill, just a couple of things. Just maybe of thinking it. You're mentioning mix quite a lot, particularly in engineered solutions. And mix has a habit sometimes of being a bit more volatile. So it's just sort of, you know, is mix going to be an issue going forward? We need to be sort of particularly aware of, or I'm just being overly sensitive towards it.
I think mix is all about where you focus your sales efforts. If you believe you've got a sort of particular technology or ability to deliver, you can lean into higher margin yeah end products.
I think we talk about mix in the context of portfolio mix, where you've got the fast growing U.S. businesses. Indeed they have within the businesses. They're also seeing mixed benefits. There's 2 layers of it. I think you need to think about.
And then just secondly, so I always go back to the balance sheet. But if you put GBP 70 million in revenue this year, and you sort of the sort of numbers that are out there, your leverage is still going to be way below one.
Yeah.
You just mentioned the one , the sort of 12 times the larger acquisition. I'm afraid you know where this is sort of ending. But that broader capital allocation, you're looking, you're chucking off cash, which is great. You've got a great M&A pipeline that is sort of sort of holding in extraordinarily well. But you're still going to end up in this sort of, you know, pleasant position of choices, if you like, around capital, you know, additional capital. Buyback or not.
Yeah, before, I think, what we'll even debate. We can also generate quite a lot of value through organic investment in our facilities. Honestly, I think shareholders get better value from if we can deliver a consistent 22% return on capital. That is a much better use of our capital than, you know, anything else. Yeah, David.
Sorry, a quick follow-up. U.S. galvanizing volumes up 8%. I think last time it was right. You were talking about being kind of 60% capacity utilization, 80% being the sweet spot. Kind of if we get a couple of years of that kind of growth. When do we get to 80%? And are you gonna therefore leave volumes on the table? Because demand is stronger than that.
No, I don't think so. I think there's quite a long way to go, and these guys are very skilled at moving stuff between sites as well. So yeah. I promise you, I think we're a long way off ever declaring we're capacity constrained in those U.S. galvanizing plants. Yeah.
Sorry, there's one follow-up on, linked to both David and Harry's question on the U.S. galv . The cost of a greenfield. Is that obviously went up massively during COVID? Yeah, was pushing you more towards M&A for adding galv capacity. Is that? How's that dynamic looking today? Is it?
Well, it's sort of 2 things. One, cost of builders come down significantly. The second thing is what the guys have proved, particularly through New York, is their ability to ramp up more quickly and get to an acceptable return on capital more quickly is sort of evidenced. So where we are at the moment, sort of, yeah, 18 months ago, you know, the curve looked too flat, and the cost looked too high. Both have probably changed. They haven't like changed so dramatically to make it not a clearly you still need a pretty thoughtful decision. It's got to absolutely be in the right location. But you know, yeah, we are more actively debating that with the guys than we were 18 months ago.
Great. Thank you.
Should we go to the line ?
Yeah, should we just? Perhaps I think we've covered all the questions in the room. Can we take any questions online?
There are no remote questions.
No, no. Okay. Any other questions in the room? Yeah.
How much does a new galvanizing plant cost? And then capacity cost? Hannah, do you want to?
How much does a new one today? So the New York galvanizing plant that we last built cost about $15 million. The quotes that we received sort of last year were almost double that. As we've said, we're seeing those start to come down. And clearly we need to get that sort of right balance between the costs and the returns for it to become sort of commercially viable attraction. But we are, I think, starting to see some of those build costs ease a little bit compared to last year.
Any other questions from anyone?
Okay. Well, if there's none in the room, none online, I guess we call that to conclusion. And thank you very much, everyone, for coming along.
Thank you very much.