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Bodycote PLC  -  BOY   

Bodycote plc Half Year results

Released 07:00 27-Jul-2017

RNS Number : 2189M
Bodycote PLC
27 July 2017
 

PRESS RELEASE

 

Bodycote plc

Interim results for the six months ended 30 June 2017

 

 

Financial highlights

 

Half year to 30 June

2017

Half year to 30 June

2016

 

 

% change

Revenue

£345.7m

£291.0m

18.8%

Headline operating profit1

£61.7m

£49.3m

25%

Return on sales2

17.8%

16.9%


Headline profit before taxation1

£60.5m

£48.1m

26%

Free cash flow3

£42.1m

£20.9m

101%

Net cash/(debt)

£17.7m

£(5.5)m


Basic headline earnings per share4

23.6p

18.3p

29%

Interim dividend per share

5.3p

5.0p

6%

 

 

Statutory results

 

Operating profit

£59.4m

£47.1m


Profit before taxation

£58.2m

£45.9m


Basic earnings per share4

22.9p

17.5p


 

 

Highlights

           

·      Group revenue up 18.8% (up 8.3% at constant currency)

·      Organic constant currency revenue growth of 4.8%

·      Headline operating margin increased 90bps to 17.8%

·      Headline earnings per share up 29% to 23.6p

·      Free cash flow doubled to £42.1m (2016: £20.9m)

·      Net cash of £17.7m (2016: net debt £5.5m)

·      £36m growth investment projects approved in the period

·      Interim dividend of 5.3p, up 6.0%

 

 

Commenting, Stephen Harris, Group Chief Executive said:

"Bodycote achieved strong revenue growth in the first half, with good momentum in virtually all parts of the Group. Notably, the General Industrial business, which represents almost 40% of Group revenues, experienced a broad based recovery after over three years of decline. Automotive and Aerospace also moved ahead.

 

The growth strategy of bolt-on acquisitions and greenfield investment contributed 5.5% of the 8.3% constant currency growth. Investment in new projects has been stepped up.

 

The high margin Specialist Technologies continue to perform strongly and the margin expansion programme in European AGI is seeing further success.

 

The positive momentum achieved in the first half is expected to continue. While our business, by its nature, has limited forward visibility, the Board now expects the full year result to be towards the upper end of market expectations*."

 

* Company compiled analysts' estimates of full year headline operating profit range from £106.5m to £118.9m.

 

Definitions

1  Headline operating profit and headline profit before taxation are before amortisation of acquired intangibles of £2.3m (2016: £2.2m).

2   Return on sales is defined as headline operating profit as a percentage of revenue.

3   A detailed reconciliation is provided in the Financial Overview section.

4   A detailed reconciliation is provided in note 5.

 

A live webcast of the analysts' meeting will be available at 11.15am at www.bodycote.com. For further information, please contact:

 

Bodycote plc

Stephen Harris, Group Chief Executive

Dominique Yates, Chief Financial Officer

Tel No +44 (0) 1625 505 300

 

FTI Consulting

Richard Mountain, Susanne Yule

Tel No +44 (0) 203 727 1340

 

 

INTERIM MANAGEMENT REPORT

 

OVERVIEW

 

Bodycote revenues grew 18.8% to £345.7m in the first half (2016: £291.0m) corresponding to a growth of 8.3% at constant exchange rates. The five sites acquired in 2016 provided 3.5% of the constant currency growth such that organic constant currency growth was 4.8%. The contribution of recent greenfield investments made up 2.0% of the growth at constant exchange rates. The remaining 2.8% of the constant currency growth stems primarily from the macro-economic tailwind the Group has seen since the second half of 2016.

 

Of particular note was the performance of the general industrial business, which returned to healthy growth in the first half after three years of declines. The recovery has been broad based, although North American growth rates did not start to strengthen until the final months of the first half.

 

Oil & gas remains a drag on growth although now much less pronounced than in previous periods. The onshore business in North America did register strong growth in the second quarter but subsea continued to decline.

 

Excluding the oil & gas sector, Specialist Technologies revenues increased 10.2% at constant exchange rates. HIP Product Fabrication (HIP PF) and Surface Technology have large portions of their business exposed to the oil & gas sector, and in particular to subsea. Revenues from these technologies were, therefore, down.

 

The recent acquisitions are performing well and are achieving average Group margins although, as expected, the greenfield start-ups are still somewhat below this level. However, the Group's strong operational gearing and the AGI margin expansion programme helped push the Group's headline operating margin1 up to 17.8% (2016: 16.9%). The Group's headline operating profit grew 25.2% to £61.7m (2016: £49.3m). The Group's headline tax rate was reduced to 25.5% (2016: 27.5%) and is now expected to increase gradually from this reduced base. The net impact of these movements has been to drive first half headline earnings per share up 29% to 23.6p (2016: 18.3p).

 

The Group continues to maintain tight control over capital expenditure as well as costs. Net capital expenditure in the first half was £29.7m (2016: £31.0m), which equates to 1.0 times depreciation (2016: 1.2 times). The Group has a number of areas of increasing prospects for superior return on investments, particularly in the Specialist Technology arena. Engineering and project management resources are being increased to take advantage of this and a higher level of capital investment is expected to be achieved going forward. In keeping with these prospects, growth projects involving capital investment of £36m were approved in the first half.

 

The improved profitability, as well as tight control of working capital, resulted in free cash flow increasing to £42.1m in the first half (2016: £20.9m). Net cash at the half year was £17.7m (2016: net debt £5.5m).

 

The main strands of the Group's strategy are the drive for operational efficiency and margin expansion in the more mature parts of the business; expansion of the Group's footprint in the rapid growth countries; bolt-on acquisitions in classical heat treatment where the Group's target investment returns can be achieved more quickly than greenfield investment alone; and the focus on growth in the higher value-added businesses, particularly the Specialist Technologies. The validity of this consistent strategy is clear with significant progress now apparent across all aspects.

 

1 Headline operating margin is defined as headline operating profit as a percentage of revenue.

 

 

MARKETS

 

Overall civil aerospace revenues were up 4.4%1, led by strong growth in the UK, while defence (predominantly a North American market for the Group) was down on the same period last year.

 

Revenues from the energy sector were 4.1%1 lower, with the oil & gas sector continuing to register a decline compared with the first half of 2016, when oil & gas revenues were still falling. A bright spot in oil & gas was in our North American onshore business, which showed strong growth in the second quarter. Growth in industrial gas turbine and other power generation revenues was not able to fully offset the oil & gas decline.

 

Bodycote achieved revenue growth of 15.5%1 in the car and light truck sector as new programmes, especially using Specialist Technologies, continue to build. Revenues in the volatile heavy truck market were up in the second quarter to register overall positive growth in the first half although heavy truck remains a small part of the Group's business.

 

Group revenues in the general industrial sector increased 11.8%1 in the first half, with growth across all of the Group's key territories. With general industrial revenues representing 39% of Group revenues, this change in trend is an important contributor to the Group's growth.

 

Growth in the emerging markets was also strong with revenues increasing by 24.5%1. Macro-economic demand has improved here but most of Bodycote's growth has come from the investment in greenfield sites in these territories.

 

1 At constant exchange rates.

 

 

BUSINESS REVIEW

 


Half year to 30 June


Revenue


Headline
operating profit


Headline
operating margin


2017

£m

2016

£m


2017

£m

2016

£m


2017

%

2016

%

ADE

136.1


121.9


30.7


27.4


22.6


22.5

AGI

209.6


169.1


36.9


27.9


17.6


16.5


345.7


291.0


67.6


55.3


19.6


19.0

Central costs

-


-


(5.9)


(6.0)


-


-

Total

345.7


291.0


61.7


49.3


17.8


16.9

 

Aerospace, Defence & Energy (ADE)

Revenues for the ADE business were £136.1m in the six months to June 2017 compared with £121.9m in 2016, an increase of 11.6%. At constant exchange rates revenues increased 2.1%.

 

Headline operating profit1 was £30.7m (2016: £27.4m), an increase of 12.0%, including a 9.9% increase resulting from favourable foreign currency movements. The headline operating margin increased slightly from 22.5% to 22.6%.

 

Net capital expenditure was £10.8m (2016: £10.3m), representing a spend rate of 1.0 times depreciation (2016: 1.0 times). The Group continued to invest in additional aerospace capacity, with investments in new facilities in Poland and France, and expansion of existing facilities in the UK.

 

Average capital employed for the period was £258.3m (2016: £242.7m).

 

Automotive & General Industrial (AGI)

Revenues for the AGI business were £209.6m in the first half of 2017, compared with £169.1m in 2016, an increase of 24.0%. Revenues increased 12.8% at constant exchange rates.

 

Headline operating profit1 was £36.9m (2016: £27.9m), an increase of 32.3%, including an 11.5% increase due to favourable foreign currency movements. Headline operating margin improved from 16.5% to 17.6%.

 

Net capital expenditure was £16.2m (2016: £16.6m) representing a spend rate of 0.9 times depreciation (2016: 1.1 times). This included further investments in Mexico and Czech Republic. The Group continues to invest in its Specialist Technologies and other high value-added processes in developed markets.

 

Average capital employed for the period was £372.6m (2016: £325.8m).

 

1 Headline operating profit is reconciled to operating profit in note 2. Bodycote plants do not exclusively supply services to customers of a given market sector (see note 2).

 

 

FINANCIAL OVERVIEW

 


Half year to 30 June


2017

£m


2016

£m

Revenue

345.7


291.0

Headline operating profit

61.7


49.3

Amortisation of acquired intangible fixed assets

(2.3)


(2.2)

Operating profit

59.4


47.1

Net finance charge

(1.2)


(1.2)

Profit before taxation

58.2


45.9

 

Revenue for the half year was £345.7m (2016: £291.0m), an increase of 18.8% compared to the same period last year. At constant exchange rates, revenue increased 8.3% (£24.2m). Favourable foreign exchange rate movements resulted in a £30.5m positive effect.

 

Headline operating profit increased to £61.7m (2016: £49.3m) and headline operating margin increased to 17.8% (2016: 16.9%). At constant exchange rates, headline operating profit increased £6.6m (13.4%).

 

The amortisation of acquired intangible assets arises from acquisitions in prior years. The charge has increased to £2.3m (2016: £2.2m).

 

Accordingly, operating profit increased to £59.4m (2016: £47.1m) and operating margin was 17.2% (2016: 16.2%).

 

The net finance charge for the Group was £1.2m, in line with 2016.

 

Taxation

The tax charge in the first half of 2017 was £14.6m, compared to a charge of £12.6m for the same period of 2016. The effective tax rate was 25.1% (2016: 27.5%).

 

The headline tax rate, being stated before accounting for exceptional items and amortisation of goodwill and acquired intangibles, is 25.5% in the first six months of 2017 (2016: 27.5%). A number of the Group's key markets have rates of corporation tax above the Group average. Future profitability growth in these markets, therefore, is likely to place some upward pressure on the Group's blended corporation tax rate.

 

Earnings per share

Basic headline earnings per share from operations for the half year were 23.6p (2016: 18.3p). Basic earnings per share from operations for the half year were 22.9p (2016: 17.5p). Diluted earnings per share were 22.9p (2016: 17.5p).

 

 

Cash flow


Half year to 30 June


2017

£m


2016

£m

Headline operating profit

61.7


49.3

Add back non-cash items:




 Depreciation and amortisation

29.4


25.9

 Impairment of fixed assets

0.4


0.2

 Share-based payments

2.7


1.6

 Profit on disposal of property, plant and equipment

(0.1)


(0.1)

Headline EBITDA1

94.1


76.9

Net capital expenditure

(29.7)


(31.0)

Net working capital movement

(4.5)


(7.9)

Headline operating cash flow

59.9


38.0

Cash cost of restructuring

(2.3)


(4.3)

Operating cash flow

57.6


33.7

Interest

(1.2)


(0.9)

Taxation

(14.3)


(11.9)

Free cash flow2

42.1


20.9

 

1  Earnings before interest, tax, depreciation, amortisation, impairment, profit or loss on disposal of property, plant and equipment and share-based payments.

2  Free cash flow is defined as net cash from operating activities of £73.0m (2016: £52.8m) less net capital expenditure of £29.7m (2016: £31.0m) and net interest paid of £1.2m (2016: £0.9m).

 

Free cash flow for the period was £42.1m compared to £20.9m in the first six months of 2016. The increase is mainly a result of the increase in headline EBITDA and lower restructuring cash outflows.

 

The net working capital outflow for the six month period amounted to £4.5m (2016: £7.9m). Receivables in the first half increased £9.8m (2016: £3.6m) as a result of increased trade and the normal seasonally higher revenues in May and June in comparison to November and December. Receivable days at 30 June 2017 are 61 days (31 December 2016: 63 days and 30 June 2016: 63 days). Payables increased £4.0m (2016: £6.3m decrease) and inventory decreased £0.5m (2016: £2.2m).

 

The utilisation of restructuring provisions resulted in a cash outflow of £2.3m (2016: £4.3m).

 

The Group continued to manage carefully its capital expenditure programme and is focused on growth in the higher value-added businesses and in particular the Specialist Technologies. Net capital expenditure for the first half was £29.7m (2016: £31.0m) and the ratio to depreciation was 1.0 times (2016: 1.2 times). The Group continues to invest in maintaining its assets to a high quality, as well as investing in the implementation of a new ERP system.

 

Income taxes paid during the first six months at £14.3m were £2.4m greater than the same period last year, reflecting the higher tax charge and timing of payments made in various tax jurisdictions.

 

Net debt

Group net cash at 30 June 2017 was £17.7m (31 December 2016 net cash: £1.1m and 30 June 2016 net debt: £5.5m). No loans were drawn under the committed facilities at 30 June 2017, compared to £5.0m at 31 December 2016 and £7.4m at 30 June 2016. The Group continues to be able to borrow at competitive rates and therefore currently deems this to be the most effective means of funding.

 

Borrowing facilities

The Group is financed by a mix of cash flows from operations, short-term borrowings, longer-term loans and finance leases. The Group's funding policy aims to ensure continuity of finance at reasonable cost, based on committed and uncommitted facilities and loans from several sources over a spread of maturities.

 

On 3 April 2017, the Group extended the £230m Revolving Credit Facility for five years to April 2022. At 30 June 2017, the Group had the following drawings and headroom under the committed facility:

Facility

Expiry date

Facility

£m

Facility utilisation

£m

Facility headroom

£m








£230m Revolving Credit

3 April 2022

230.0


-


230.0

 

Dividend

The Board has declared an interim dividend of 5.3p (2016: 5.0p) which represents an increase of 6.0% over the prior year. The interim dividend will be paid on 3 November 2017 to all shareholders on the register at the close of business on 6 October 2017. 

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The directors have reconsidered the principal risks and uncertainties of the Group. The outcome of the Brexit negotiations is not expected to have a material transactional impact on the Group as customers are served locally and cross-border trading is minimal. The risk of a wider macro-economic effect as a result of the UK leaving the European Union is included as an element of the Group's existing market risk. Accordingly, the directors do not consider that the principal risks and uncertainties of the Group have significantly changed since the publication of the Annual Report for the year ended 31 December 2016. The risks and associated risk management processes, including financial risks, can be found on pages 24, 25, 26, 109 and 110 of the 2016 Annual Report, which is available at www.bodycote.com. The risks referred to and which could have a material impact on the Group's performance for the remainder of the current financial year relate to:

 

·      Markets;

·      Loss of key customers;

·      Competitor action;

·      Safety and health;

·      Service quality;

·      Major disruption at a facility;

·      Information technology projects;

·      Regulatory and legislative compliance;

·      Liquidity;

·      Interest rate fluctuation; and

·      Currency exchange rate fluctuation.

 

 

GOING CONCERN

 

As stated in note 1 to the condensed financial statements, the directors have formed a judgement, at the time of approving the condensed financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the condensed financial statements.

 

 

SUMMARY AND OUTLOOK

 

Bodycote achieved strong revenue growth in the first half, with good momentum in virtually all parts of the Group. Notably, the General Industrial business, which represents almost 40% of Group revenues, experienced a broad based recovery after over three years of decline. Automotive and Aerospace also moved ahead.

 

The growth strategy of bolt-on acquisitions and greenfield investment contributed 5.5% of the 8.3% constant currency growth. Investment in new projects has been stepped up.

 

The high margin Specialist Technologies continue to perform strongly and the margin expansion programme in European AGI is seeing further success.

 

The positive momentum achieved in the first half is expected to continue. While our business, by its nature, has limited forward visibility, the Board now expects the full year result to be towards the upper end of market expectations1.

 

S.C. Harris
Group Chief Executive
27 July 2017

 

D. Yates
Chief Financial Officer
27 July 2017

 

1  Company compiled analysts' estimates of full year headline operating profit range from £106.5m to £118.9m.

 

 

RESPONSIBILITY STATEMENT

 

We confirm to the best of our knowledge:

 

(a)   the condensed consolidated set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting;

 

(b)   the Interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

 

(c)   the Interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

 

By order of the Board,

 

S.C. Harris
Group Chief Executive
27 July 2017

 

D. Yates
Chief Financial Officer
27 July 2017

 

 

CAUTIONARY STATEMENT

 

This Interim management report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The Interim management report should not be relied on by any other party or for any other purpose.

 

The Interim management report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

 

 

Unaudited condensed consolidated income statement

 

Year ended 31 Dec

2016



Half year to 30 June 2017

Half year to 30 June 2016

Note

£m



£m

£m








600.6


Revenue

345.7

291.0

2

(505.5)


Cost of sales and overheads

(286.3)

(243.9)


95.1


Operating profit prior to exceptional items

59.4

47.1


(0.6)


Acquisition costs

-

-


94.5


Operating profit

59.4

47.1

2

-


Investment revenue

-

0.1


(2.6)


Finance costs

(1.2)

(1.3)


91.9


Profit before taxation

58.2

45.9


(24.9)


Taxation

(14.6)

(12.6)

4

67.0


Profit for the period

43.6

33.3




Attributable to:




67.0


Equity holders of the parent

43.5

33.3


-


Non-controlling interests

0.1

-


67.0



43.6

33.3




Earnings per share



5

Pence



Pence

Pence








35.2


Basic

22.9

17.5


35.2


Diluted

22.9

17.5


 

All activities have arisen from continuing operations.

 

 

Unaudited condensed consolidated statement of comprehensive income

 

Year ended

31 Dec

2016



Half year to

30 June

2017

Half year to

30 June

2016

£m



£m

£m






67.0


Profit for the period

43.6

33.3



Items that will not be reclassified to profit or loss:



(5.0)


Actuarial gains/(losses) on defined benefit pension schemes

0.3

0.4

1.0


Tax on items not reclassified

-

(0.7)

(4.0)


Total items that will not be reclassified to profit or loss

0.3

(0.3)



 

Items that may be reclassified subsequently to profit or loss:



65.5


Exchange (losses)/gains on translation of overseas operations

(2.3)

48.5

(2.2)


Cumulative exchange differences recycled to profit or loss on disposal of businesses/Group reorganisation

-

-

63.3


Total items that may be reclassified subsequently to profit or loss

(2.3)

48.5

59.3


Other comprehensive (expense)/income for the period

(2.0)

48.2






126.3


Total comprehensive income for the period

41.6

81.5



Attributable to:



126.3


Equity holders of the parent

41.5

81.4

-


Non-controlling interests

0.1

0.1

126.3



41.6

81.5

 

 

Unaudited condensed consolidated balance sheet

 

As at

31 Dec

2016




As at

30 June 2017

As at

30 June 2016

Note

£m




£m

£m




Non-current assets





160.9


Goodwill


158.8

146.5


45.8


Other intangible assets


45.2

37.8


509.0


Property, plant and equipment


504.6

477.2


-


Other investments


-

0.3


32.5


Deferred tax assets


32.7

32.8


0.4


Trade and other receivables


1.2

0.3


748.6




742.5

694.9




Current assets





16.6


Inventories


16.4

19.3


0.1


Derivative financial instruments


-

0.1


19.0


Current tax assets


21.0

30.5


126.3


Trade and other receivables


135.8

119.7


12.0


Cash and bank balances


20.0

10.7


1.8


Assets held for sale


2.6

1.7


175.8




195.8

182.0


924.4


Total assets


938.3

876.9




Current liabilities





133.5


Trade and other payables


132.9

119.0


36.5


Current tax liabilities


39.1

40.7


0.1


Obligations under finance leases


-

-


5.8


Borrowings


2.3

10.8


-


Derivative financial instruments


0.1

-


11.7


Provisions


10.0

8.9

3

187.6




184.4

179.4


(11.8)


Net current assets/(liabilities)


11.4

2.6




Non-current liabilities





5.0


Borrowings


-

5.4


21.5


Retirement benefit obligations


21.9

16.2


68.8


Deferred tax liabilities


66.9

69.2


8.8


Provisions


8.4

9.7

3

4.4


Other payables


4.4

2.9


108.5




101.6

103.4


296.1


Total liabilities


286.0

282.8


628.3


Net assets


652.3

594.1




Equity





33.1


Share capital


33.1

33.1


177.1


Share premium account


177.1

177.1


(8.0)


Own shares


(7.3)

(8.2)


133.9


Other reserves


135.9

135.1


57.5


Translation reserves


55.2

42.6


234.3


Retained earnings


257.8

213.9


627.9


Equity attributable to equity holders of the parent


651.8

593.6


0.4


Non-controlling interests


0.5

0.5


628.3


Total equity


652.3

594.1


 

 

Unaudited condensed consolidated cash flow statement

 

Year ended

31 Dec

2016




Half year to 30 June 2017

Half year to 30 June 2016

Note

£m




£m

£m









125.9


Net cash from operating activities


73.0

52.8

7



Investing activities





(64.7)


Purchases of property, plant and equipment


(28.2)

(28.5)


7.6


Proceeds on disposal of property, plant and equipment and intangible assets


1.7

0.7


(6.0)


Purchases of intangible fixed assets


(3.2)

(3.2)


(23.7)


Acquisition of businesses


(5.2)

-


0.3


Disposal of sundry investments


-

-


1.9


Disposal of businesses


-

-


(84.6)


Net cash used in investing activities


(34.9)

(31.0)




Financing activities





-


Interest received


-

0.1


(2.3)


Interest paid


(1.2)

(1.0)


(48.1)


Dividends paid


(20.5)

(38.6)


(2.3)


Repayments of bank loans


(5.0)

-


(0.1)


Payments of obligations under finance leases


-

(0.1)


5.0


New bank loans raised


-

7.3


(47.8)


Net cash used in financing activities


(26.7)

(32.3)


(6.5)


Net increase/(decrease) in cash and cash equivalents


11.4

(10.5)


12.4


Cash and cash equivalents at beginning of period


6.2

12.4


0.3


Effect of foreign exchange rate changes


0.1

0.1


6.2


Cash and cash equivalents at end of period


17.7

2.0

7

 

 

Unaudited condensed consolidated statement of changes in equity

 


Share capital

Share premium account

Own shares

Other reserves

Translation reserves

Retained earnings

Equity attributable to equity holders of the parent

Non-controlling interests

Total equity


£m

£m

£m

£m

£m

£m

£m

£m

£m

Half year to 30 June 2017










1 January 2017

33.1

177.1

(8.0)

133.9

57.5

234.3

627.9

0.4

628.3

Net profit for the period

-

-

-

-

-

43.5

43.5

0.1

43.6

Exchange differences on translation of overseas operations

-

-

-

-

(2.3)

-

(2.3)

-

(2.3)

Actuarial gains on defined benefit pension schemes net of deferred tax

-

-

-

-

-

0.3

0.3

-

0.3

Total comprehensive income for the period

-

-

-

-

(2.3)

43.8

41.5

0.1

41.6

Acquired in the period/settlement of share options

-

-

0.7

(0.7)

-

-

-

-

-

Share-based payments

-

-

-

2.7

-

-

2.7

-

2.7

Deferred tax on share-based payment transactions

-

-

-

-

-

0.2

0.2

-

0.2

Dividends paid

-

-

-

-

-

(20.5)

(20.5)

-

(20.5)

30 June 2017

33.1

177.1

(7.3)

135.9

55.2

257.8

651.8

0.5

652.3

Half year to 30 June 2016









1 January 2016

33.1

177.1

(9.3)

134.1

(5.8)

220.0

549.2

0.4

549.6

Net profit for the period

-

-

-

-

-

33.3

33.3

-

33.3

 

Exchange differences on translation of overseas operations

-

-

-

-

48.4

-

48.4

0.1

48.5

Actuarial losses on defined benefit pension schemes net of deferred tax

-

-

-

-

-

(0.3)

(0.3)

-

(0.3)

Total comprehensive income for the period

-

-

-

-

48.4

33.0

81.4

0.1

81.5

Acquired in the period/settlement of share options

-

-

1.1

(0.6)

-

(0.5)

-

-

-

Share-based payments

-

-

-

1.6

-

-

1.6

-

1.6

Dividends paid

-

-

-

-

-

(38.6)

(38.6)

-

(38.6)

30 June 2016

33.1

177.1

(8.2)

135.1

42.6

213.9

593.6

0.5

594.1

Year ended 31 December 2016










1 January 2016

33.1

177.1

(9.3)

134.1

(5.8)

220.0

549.2

0.4

549.6

Net profit for the year

-

-

-

-

-

67.0

67.0

-

67.0

Exchange differences on translation of overseas operations

-

-

-

-

65.5

-

65.5

-

65.5

Cumulative exchange differences recycled to profit or loss on disposal of businesses/Group reorganisation

-

-

-

-

(2.2)

-

(2.2)

-

(2.2)

Actuarial losses on defined benefit pension schemes net of deferred tax

-

-

-

-

-

(4.0)

(4.0)

-

(4.0)

Total comprehensive income for the year

-

-

-

-

63.3

63.0

126.3

-

126.3

Acquired in the year/settlement of share options

-

-

1.3

(0.7)

-

(0.6)

-

-

-

Share-based payments

-

-

-

0.5

-

-

0.5

-

0.5

Dividends paid

-

-

-

-

-

(48.1)

(48.1)

-

(48.1)

31 December 2016

33.1

177.1

(8.0)

133.9

57.5

234.3

627.9

0.4

628.3

 

Included in other reserves is the capital redemption reserve arising on redemption of the Group's B shares of £129.8m (2016: £129.8m) and the share-based payment reserve of £5.3m (2016: £4.4m).

 

 

Notes to the condensed consolidated financial information

 

1.   Accounting policies

 

Basis of preparation

This condensed set of financial statements for the half year ended 30 June 2017 has been prepared in accordance with IAS 34 Interim Financial Reporting.

 

The Interim management report has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) as adopted by the European Union and in accordance with those disclosed in the Annual Report for the year ended 31 December 2016, which was filed with the Registrar of Companies on 30 May 2017.

 

Going concern

In determining the basis of preparation for the Interim management report, the directors have considered the Group's business activities, together with the factors likely to affect its future development, performance and position which are set out in the Financial overview. This includes an overview of the Group's financial position, cash flows, liquidity position and borrowing facilities.

 

The Group meets its working capital requirements through a combination of committed and uncommitted facilities and overdrafts. The overdrafts and uncommitted facilities are repayable on demand but the committed facilities are due for renewal as set out below. There is sufficient headroom in the committed facility covenants to assume that these facilities can be operated as contracted for the foreseeable future.

 

On 3 April 2017, the Group extended the £230m Revolving Credit Facility for five years to April 2022. The committed facilities as at 30 June 2017 were as follows:

 

·      £230m Revolving Credit Facility maturing 3 April 2022

 

The Group's forecasts and projections, which cover a period of at least 12 months from the date of approval of this Interim management report, taking account of reasonable potential changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities.

 

The directors have reviewed forecasts and projections for the Group's markets and services, assessing the committed facility and financial covenant headroom, central liquidity and the Group's ability to access further funding. The directors also reviewed downside sensitivity analysis over the forecast period, thereby taking into account the uncertainties arising from the current economic environment. Following this review, the directors have formed a judgement, at the time of approving the condensed financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the condensed financial statements.

 

Changes in accounting policies

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

 

No new or revised standards adopted in the current period have had a material impact on the Group's financial statements.

 

 

2.   Business and geographical segments

 

The Group has 188 locations across the world serving a range of market sectors with various thermal processing services. The range and type of services offered is common to all market sectors.

 

In accordance with IFRS 8 Operating Segments, the segmentation of Group activity reflects the way the Group is managed by the chief operating decision maker, being the Group Chief Executive, who on a monthly basis reviews the operating performance of six operating segments, split between the Aerospace, Defence & Energy (ADE) and Automotive & General Industrial (AGI) business areas, as follows:

 

·      ADE - Western Europe;

·      ADE - North America;

·      ADE - Emerging markets;

·      AGI - Western Europe;

·      AGI - North America; and

·      AGI - Emerging markets.

 

The split of operating segments by geography reflects the divisional reporting structure of the Group.

 

In accordance with the aggregation criteria of IFRS 8, the operating segments are aggregated into the Group's two key business areas, ADE and AGI, the split being driven by customer behaviour and requirements. Customers in the ADE segment tend to operate and purchase more globally and have long supply chains, whilst customers in the AGI segment tend to purchase more locally and have shorter supply chains.

 

Bodycote plants do not exclusively supply services to customers of a given market sector. The allocation of plants between ADE and AGI is therefore derived by reference to the preponderance of markets served.

 

 


Half year to 30 June 2017

Group

ADE

£m

AGI

£m

Central

costs and eliminations

£m

Consol-

idated

£m

Revenue





Total revenue

136.1

209.6

-

345.7

Result





Headline operating profit prior to share-based payments and unallocated central costs

31.6

38.6

-

70.2

Share-based payments (including social charges)

(0.9)

(1.7)

(0.7)

(3.3)

Unallocated central costs

-

-

(5.2)

(5.2)

Headline operating profit/(loss)

30.7

36.9

(5.9)

61.7

Amortisation of acquired intangible fixed assets

(0.8)

(1.5)

-

(2.3)

Segment result

29.9

35.4

(5.9)

59.4

Finance costs




(1.2)

Profit before taxation




58.2

Taxation




(14.6)

Profit for the period




43.6

 

Inter-segment sales are not material.

 

The Group does not rely on any individual major customers.

 


Half year to 30 June 2017

Aerospace, Defence & Energy

Western Europe

£m

North America

£m

Emerging markets

£m

Total

ADE

£m

Revenue





Total revenue

61.8

73.6

0.7

136.1

Result





Headline operating profit prior to share-based payments

13.4

18.0

0.2

31.6

Share-based payments (including social charges)

(0.4)

(0.5)

-

(0.9)

Headline operating profit

13.0

17.5

0.2

30.7

Amortisation of acquired intangible fixed assets

(0.2)

(0.6)

-

(0.8)

Segment result

12.8

16.9

0.2

29.9

 

 


Half year to 30 June 2017

Automotive & General Industrial

Western Europe

 £m

North America

£m

Emerging markets

 £m

Total

AGI

£m

Revenue





Total revenue

129.6

54.7

25.3

209.6

Result





Headline operating profit prior to share-based payments

25.1

6.4

7.1

38.6

Share-based payments (including social charges)

(1.2)

(0.3)

(0.2)

(1.7)

Headline operating profit

23.9

6.1

6.9

36.9

Amortisation of acquired intangible fixed assets

(0.2)

(1.3)

-

(1.5)

Segment result

23.7

4.8

6.9

35.4

 

 


Half year to 30 June 2016

Group

ADE

£m

AGI

£m

Central

costs and

eliminations

 £m

Consol-

idated

£m

Revenue





Total revenue

121.9

169.1

-

291.0

Result





Headline operating profit prior to share-based payments and unallocated central costs

27.9

28.6

-

56.5

Share-based payments (including social charges)

(0.5)

(0.7)

(0.5)

(1.7)

Unallocated central costs

-

-

(5.5)

(5.5)

Headline operating profit/(loss)

27.4

27.9

(6.0)

49.3

Amortisation of acquired intangible fixed assets

(0.8)

(1.4)

-

(2.2)

Segment result

26.6

26.5

(6.0)

47.1

Investment revenue




0.1

Finance costs




(1.3)

Profit before taxation




45.9

Taxation




(12.6)

Profit for the period




33.3

 

 

 

Half year to 30 June 2016

Aerospace, Defence & Energy

Western Europe

£m

North America

£m

Emerging markets

£m

Total

ADE

£m

Revenue





Total revenue

55.9

65.5

0.5

121.9

Result





Headline operating profit/(loss) prior to share-based payments

11.5

16.6

(0.2)

27.9

Share-based payments (including social charges)

(0.2)

(0.3)

-

(0.5)

Headline operating profit/(loss)

11.3

16.3

(0.2)

27.4

Amortisation of acquired intangible fixed assets

(0.1)

(0.7)

-

(0.8)

Segment result

11.2

15.6

(0.2)

26.6

 

 


Half year to 30 June 2016

Automotive & General Industrial

Western Europe

 £m

North America

£m

Emerging markets

 £m

Total

AGI

£m

Revenue





Total revenue

104.4

45.6

19.1

169.1

Result





Headline operating profit prior to share-based payments

17.3

6.7

4.6

28.6

Share-based payments (including social charges)

(0.5)

(0.1)

(0.1)

(0.7)

Headline operating profit

16.8

6.6

4.5

27.9

Amortisation of acquired intangible fixed assets

(0.1)

(1.3)

-

(1.4)

Segment result

16.7

5.3

4.5

26.5

 

 


Year ended 31 December 2016

Group

ADE

£m

AGI

£m

Central costs and eliminations £m

Consol-idated

£m

Revenue





Total revenue

250.9

349.7

-

600.6

Result





Headline operating profit prior to share-based payments and unallocated central costs

56.3

57.9

-

114.2

Share-based payments (including social charges)

(0.7)

0.6

(0.6)

(0.7)

Unallocated central costs

-

-

(13.9)

(13.9)

Headline operating profit/(loss)

55.6

58.5

(14.5)

99.6

Amortisation of acquired intangible fixed assets

(1.5)

(3.0)

-

(4.5)

Operating profit/(loss) prior to exceptional items

54.1

55.5

(14.5)

95.1

Acquisition costs

-

(0.6)

-

(0.6)

Segment result

54.1

54.9

(14.5)

94.5

Finance costs




(2.6)

Profit before taxation




91.9

Taxation




(24.9)

Profit for the year




67.0

 

 


Year ended 31 December 2016

Aerospace, Defence & Energy

Western Europe

£m

North America

£m

Emerging markets

£m

Total

ADE

£m

Revenue





Total revenue

115.1

134.7

1.1

250.9

Result





Headline operating profit/(loss) prior to share-based payments

24.0

32.7

(0.4)

56.3

Share-based payments (including social charges)

(0.2)

(0.5)

-

(0.7)

Headline operating profit/(loss)

23.8

32.2

(0.4)

55.6

Amortisation of acquired intangible fixed assets

(0.3)

(1.2)

-

(1.5)

Segment result

23.5

31.0

(0.4)

54.1

 

 


Year ended 31 December 2016

Automotive & General Industrial

Western Europe

£m

North America

£m

Emerging markets

£m

Total

AGI

£m

Revenue





Total revenue

214.9

94.3

40.5

349.7

Result





Headline operating profit prior to share-based payments

36.8

10.7

10.4

57.9

Share-based payments (including social charges)

0.4

0.1

0.1

0.6

Headline operating profit

37.2

10.8

10.5

58.5

Amortisation of acquired intangible fixed assets

(0.4)

(2.6)

-

(3.0)

Operating profit prior to exceptional items

36.8

8.2

10.5

55.5

Acquisition costs

(0.4)

(0.2)

-

(0.6)

Segment result

36.4

8.0

10.5

54.9

 

 

Alternative performance measures (APMs)

Bodycote uses various APMs, in addition to those reported under IFRS, as management believe these measures enable users of the financial statements to assess the underlying trading performance of the business. The APMs used include headline operating profit, headline earnings per share, headline profit before taxation, headline operating cash flow and free cash flow, together with current measures of revenue restated at constant exchange rates. These measures reflect the underlying performance of the business as they exclude the impact of amortisation of acquired intangible assets, exceptional items and the impact of foreign exchange movements.

 

The constant exchange rate comparison uses the current year reported segmental information, stated in the relevant functional currency, and translates the results into its presentational currency using the prior year's monthly exchange rates.

 

APMs are defined and reconciled to the IFRS statutory measure as follows:

 

·      Headline operating profit and headline profit before taxation are defined in the Financial Highlights section;

·      Headline operating cash flow is reconciled in the Financial Overview;

·      Headline earnings per share is reconciled in note 5;

·      Free cash flow is defined and reconciled in the Financial Overview; and

·      Revenue and headline operating profit at constant exchange rates are reconciled to revenue and headline operating profit in the table below.

 


Half year to 30 June 2017


ADE

£m

AGI

£m

Central

costs and eliminations

£m

Consol-

idated

£m






Revenue

136.1

209.6

-

345.7

Constant exchange rates adjustment

(11.7)

(18.8)

-

(30.5)

Revenue at constant exchange rates

124.4

190.8

-

315.2






Headline operating profit

30.7

36.9

(5.9)

61.7

Constant exchange rates adjustment

(2.7)

(3.2)

0.1

(5.8)

Headline operating profit at constant exchange rates

28.0

33.7

(5.8)

55.9

 

 

3.   Provisions


Restructuring

£m

Restructuring environmental

£m

Environmental

£m

Total

£m






1 January 2017

6.7

6.6

7.2

20.5

Increase in provision

-

-

1.3

1.3

Release of provision

(0.3)

-

-

(0.3)

Utilisation of provision

(1.6)

(0.7)

(0.2)

(2.5)

Exchange difference

(0.1)

(0.2)

(0.3)

(0.6)

30 June 2017

4.7

5.7

8.0

18.4

Included in current liabilities




10.0

Included in non-current liabilities




8.4





18.4

 

The restructuring provision relates to the costs associated with the closure of a number of Heat Treatment sites.

 

The Group provides for the costs of environmental remediation that have been identified, either as part of acquisition due diligence, or in other circumstances where remediation by the Group is required. This provision is reviewed annually and is separated into restructuring environmental and environmental to identify separately environmental provisions relating to restructuring programmes from those arising in the ordinary course of business.

 

The majority of cash outflows in respect of these liabilities are expected to occur within five years.

 

Whilst the Group's use of chlorinated solvents and other hazardous chemicals continues to reduce, the Group remains exposed to contingent liabilities in respect of environmental remediation liabilities. In particular, the Group could be subjected to regulatory or legislative requirements to remediate sites in the future. However, it is not possible at this time to determine whether and to what extent any liabilities exist, other than for those recognised above. Therefore no provision is recognised in relation to these items.

 

 

4.   Taxation

 

Year ended 31 Dec

 2016

£m


Half year to

30 June

2017

£m

Half year to

30 June

2016

 £m





24.9

Current tax - charge for the period

15.3

12.6

2.2

Current tax - adjustments in respect of prior periods

-

-

(2.2)

Deferred tax

(0.7)

-

24.9


14.6

12.6

 

The rate of tax for the interim period is 25.1% (2016: 27.5%) of the profit before tax.

 

 

5.   Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

 

Year ended

31 Dec

2016

£m


Half year to

30 June

2017

 £m

Half year to

30 June

2016

£m


Earnings



67.0

Earnings for the purpose of basic earnings per share being net profit attributable to equity holders of the parent

43.5

33.3






Number of shares



Number


Number

Number

190,166,794

Weighted average number of ordinary shares for the purposes of basic earnings per share

190,274,928

190,141,575


Effect of dilutive potential ordinary shares:



-

 Share options

-

-

190,166,794

Weighted average number of ordinary shares for the purposes of diluted earnings per share

190,274,928

190,141,575






Earnings per share



Pence


Pence

Pence

35.2

Basic

22.9

17.5

35.2

Diluted

22.9

17.5






Headline earnings



£m


£m

£m

67.0

Net profit attributable to equity holders of the parent

43.5

33.3


Add back:



2.8

 Amortisation of acquired intangible fixed assets (net of tax)

1.5

1.6

0.5

 Acquisition costs (net of tax)

-

-

70.3

Headline earnings

45.0

34.9






Headline earnings per share



Pence


Pence

Pence

37.0

Basic

23.6

18.3

37.0

Diluted

23.6

18.3

 

 

6.   Dividends

Amounts recognised as distributions to equity holders in the period:

Year ended 31 Dec

 2016

£m


Half year to

30 June

2017

£m

Half year to

30 June

2016

 £m





19.6

Final dividend for the year ended 31 December 2015 of 10.3p per share

-

19.6

19.0

Special dividend for the year ended 31 December 2015 of 10.0p per share

-

19.0

9.5

Interim dividend for the year ended 31 December 2016 of 5.0p per share

-

-

-

Final dividend for the year ended 31 December 2016 of 10.8p per share

20.5

-

48.1


20.5

38.6


Proposed interim dividend for the year ended 31 December 2017 of 5.3p (2016: 5.0p) per share

10.1

9.5

 

The proposed interim dividend was approved by the Board on 27 July 2017 and has not been included as a liability in these condensed financial statements.

 

 

7.   Notes to the cash flow statement

Year ended

31 Dec

2016


Half year to 30 June 2017

Half year to 30 June 2016

£m


£m

£m





67.0

Profit for the period

43.6

33.3


Adjustments for:



-

Investment revenue

-

(0.1)

2.6

Finance costs

1.2

1.3

24.9

Taxation

14.6

12.6

54.1

Depreciation of property, plant and equipment

28.8

25.5

5.6

Amortisation of intangible assets

2.9

2.6

(4.5)

Profit on disposal of property, plant and equipment

(0.1)

(0.1)

0.5

Share-based payments

2.7

1.6

5.1

Impairment of fixed assets

0.4

0.2

(0.1)

Profit on sale of businesses

-

-

155.2

EBITDA*

94.1

76.9

5.5

Decrease in inventories

0.5

2.2

(4.1)

Increase in receivables

(9.8)

(3.6)

(6.7)

Increase/(decrease) in payables

4.0

(6.3)

(3.6)

Decrease in provisions

(1.5)

(4.5)

146.3

Cash generated by operations

87.3

64.7

(20.4)

Income taxes paid

(14.3)

(11.9)

125.9

Net cash from operating activities

73.0

52.8

 

* Earnings before interest, tax, depreciation, amortisation, impairment, profit or loss on disposal of property, plant and equipment and share-based payments.

 

Cash and cash equivalents comprise:

12.0

Cash and bank balances

20.0

10.7

(5.8)

Bank overdrafts (included in borrowings)

(2.3)

(8.7)

6.2


17.7

2.0

 

 

8.   Related party transactions

 

Transactions between the Company and its wholly owned subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed.

 

 

9.   General information

 

The comparative information for the year ended 31 December 2016 contained within these condensed financial statements does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. Those accounts have been reported on by the Group's auditor and delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

Copies of this report and the last Annual Report are available from the Group Company Secretary, Bodycote plc, Springwood Court, Springwood Close, Tytherington Business Park, Macclesfield, Cheshire SK10 2XF, and can each be downloaded or viewed via the Group's website at www.bodycote.com. Copies of this report have also been submitted to the UK Listing Authority and will shortly be available at the UK Listing Authority's Document Viewing Facility at 25 The North Colonnade, Canary Wharf, London E14 5HS (Telephone: +44 (0)207 066 1000).

 

 

Independent review report to Bodycote plc

 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated cash flow statement, the condensed consolidated statement of changes in equity and related notes 1 to 9. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as adopted by the European Union.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Deloitte LLP

Statutory Auditor

London, United Kingdom

27 July 2017

 

 

Company information

 

Financial calendar

 

Interim dividend for 2017

 3 November 2017

Results for 2017

February 2018

Annual General Meeting

May 2018

Final dividend for 2017

June 2018

Interim results for 2018

July 2018

Interim dividend for 2018

November 2018

 

Shareholder enquiries

Enquiries on the following administrative matters can be addressed to the Company's registrars at Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. Telephone: 0871 664 0300 (calls cost 12p per minute plus your phone company's access charge). If you are outside the UK, please call +44 (0)371 664 0300. Lines are open 9.00am until 5.30pm, Monday to Friday. Fax: +44 (0)1484 600 911; and email shareholderenquiries@capita.co.uk.

 

·      Change of address

·      Stock transfer form including guidance notes

·      Dividend mandates

·      ShareGift donation coupon

 

Forms for these matters can be downloaded from the registrars' website at www.signalshares.com, where shareholders can also check their holdings and details. If you have not previously registered for this service, you will require your investor code, which is located on your share certificate or dividend confirmation.

 

Shareholder dealing service

Information on a low cost share dealing service offered by our registrars is available from Capita on 0371 664 0445 or at www.capitadeal.com. Calls are charged at the standard geographical rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. The service is open between 9.00am and 5.30pm Monday to Friday excluding public holidays in England and Wales.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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