REG - Bodycote PLC - Interim results for the six months to 30 June 2022
29/07/2022 07:00
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RNS Number : 1688U Bodycote PLC 29 July 2022
www.bodycote.com
Bodycote plc
Interim results for the six months to 30 June 2022
Strong revenue growth; FY expectations unchanged
Financial summary
% Change
Half year to Half year to % Constant
30 June 2022 30 June 2021 Change Currency
Revenue £358.5 m £312.9 m 14.6% 14.1%
Headline operating profit(1) £50.5 m £48.7 m 4% 6%
Headline operating margin(1) 14.1 % 15.6 %
Net debt(1,5) £57.5 m £69.6 m
Basic headline earnings per share(1,2) 19.1 p 18.5 p 3%
Interim dividend per share 6.4 p 6.2 p
Additional statutory measures
Half year to Half year to
30 June 2022 30 June 2021
Operating profit £45.0 m £43.4 m
Profit after tax £32.5 m £31.5 m
Net cash from operating activities £61.0 m £78.2 m
Basic earnings per share 16.9 p 16.4 p
Highlights
· Revenues up 14.6% to £358.5m (14.1% at constant currency)
· Pricing and surcharges successfully mitigating inflation and drove
approximately 10% revenue growth
· Headline Operating Profit up 6%(3) to £50.5m
· Net debt(5) of £57m
· Full year expectations unchanged
Commenting, Stephen Harris, Group Chief Executive, said:
"I am happy to confirm that in line with our announcement last year we have
now submitted emission reduction targets to the Science Based Targets
initiative committing to a 28% reduction in absolute emissions by 2030.
The Group performed well in the first half. Revenues were up 14.6%,
benefiting from price increases and energy surcharges which we have
successfully passed on to our customers in response to the cost inflation we
have experienced. We have produced strong revenue growth(4) in the majority
of our markets with Civil Aerospace revenues up 30%, General Industrial
revenues up 19% and Emerging Markets revenues up 22%. Automotive revenues
declined 4%, although the significant daily demand volatility that we saw in
April and May is now stabilising and we have managed to contain the impact on
operating efficiency to modest proportions.
The price increases implemented across the business, along with the decisive
management actions we have taken over the past two years, including the £30m
annualised cost savings achieved from the 2020 restructuring programme,
position us well to adapt to changes in market conditions. Our strong balance
sheet also allows us to take advantage of opportunities as they arise.
While there are obvious geopolitical uncertainties, as matters stand today, we
see the prospect of volume growth in each of our key market sectors and
geographies and we anticipate making progress in the second half."
1 The headline performance measures represent the statutory results
excluding certain non-operational items. These are deemed alternative
performance measures under the Financial Reporting Council (FRC) guidelines.
Please refer to the alternative performance measures at the end of this report
for a reconciliation to the nearest IFRS equivalent.
2 A detailed earnings per share reconciliation is provided in note 5.
3 At constant currency.
4 At organic constant currency.
5 Net debt excludes lease liabilities
END
Interim Results Presentation
Bodycote will be presenting its results via webcast at 9.00 am UK BST on 29
July 2022. Please find the following instructions to connect to the
presentation and audio:
Webcast URL:
https://bodycote.com/half-year-results2022
(https://bodycote.com/half-year-results2022)
For dial-in only:
Participant dial-in numbers are:
United Kingdom: 0800 640 6441
UK local: 0203 936 2999
All other locations: +44 203 936 2999
Participant Access Code: 455343
An audiocast and presentation will be available from 9.00am at
www.bodycote.com (http://www.bodycote.com) in the investor section from 29
July 2022.
For further information, please contact:
Bodycote plc
Stephen Harris, Group Chief Executive
Dominique Yates, Chief Financial Officer
Tel: +44 1625 505 300
FTI Consulting
Richard Mountain
Susanne Yule
Tel: +44 203 727 1340
Overview
The Group performed well in the first half with revenues increasing 14.6% to
£358.5m (H1 2021: £312.9m). At constant currency, revenues increased 14.1%.
Almost 10% of this revenue growth was derived from price increases and energy
surcharges which we have successfully implemented in response to the cost
inflation we have experienced.
Headline operating profit was £50.5m (H1 2021: £48.7m), representing a 6%
increase versus last year at constant currency. Statutory operating profit
increased from £43.4m to £45.0m. There were several factors influencing
operating profit performance.
As previously reported, there has been a lag in being able to pass on the
impact of cost inflation to customers, as the pricing is a response to
experienced increases. In the strongly inflationary environment of the first
half, with another step up in energy inflation seen after the Russian invasion
of Ukraine, this lag effect reduced headline operating profit by approximately
£5m. We are pleased to report that, by the end of the first half, we are now
fully covering the experienced inflationary impact through our price increases
and energy surcharges.
We saw unprecedented daily demand volatility through April and May,
particularly in Automotive. This volatility was driven by ongoing supply chain
issues and was exacerbated by disruption from COVID-19 shutdowns in China and
the invasion of Ukraine. Managing labour costs (which represent almost half of
our total costs) in the face of changes in demand is critical to maintaining
profitability and, while we have shown that we are able to adapt to shifts in
demand rapidly, the unprecedentedly large daily demand fluctuations witnessed
during the second quarter led to some plant level inefficiency. The fact that
the impact of this was only approximately £2m is testament to the
effectiveness of our management team in addressing this challenge. As we enter
the second half, we are seeing demand stabilising.
These two factors more than offset the additional £5m of incremental cost
savings benefit from the 2020 restructuring programme achieved in the first
half. So we are now realising the full £30m of annualised cost savings from
the 2020 restructuring programme, £20m of which was already delivered last
year.
Overall, therefore, we are pleased with our headline operating profit growth.
The headline operating margin was 14.1% (H1 2021: 15.6%), with a decline
versus last year entirely due to the dilutive impact of the increases to
revenues from price rises and energy surcharges which only cover cost
increases.
Cash flows were impacted by higher trade receivables from the increase in
revenue, but, with net debt at £57m, Bodycote's financial leverage is at very
low levels and we have plenty of available liquidity under our £251m
Revolving Credit Facility.
The following reflects organic constant currency growth rates versus the
comparable period last year, unless stated otherwise.
Market Sectors
General Industrial revenues (including energy revenues) increased by 19% to
£181.4m in the period, with volume growth across all of our geographies. The
Industrial Machinery, Agriculture and to a certain extent, Construction,
segments are primarily driven by capital investment decisions. These enjoyed
good volume growth, which lends further support to our view that a capital
expenditure cycle is ongoing, having been held back for a number of years. The
Tooling segment is a lead indicator for the Automotive sector and volumes in
this segment also increased during the
first half.
Civil Aerospace revenues increased by 30% to £65.8m. Both Airbus and Boeing
have increased new plane production, particularly in narrow body aircraft, and
it is noteworthy that Airbus plans on shipping more A320s in 2022 than it did
in 2019 (700 in 2022 vs. 640 in 2019). They intend to ramp production to 900
aircraft by 2025. Global air freight tonnage is now well above pre-COVID
levels and continues to grow robustly. Air passenger travel is also returning
strongly, particularly for short-haul flights where passenger numbers are fast
approaching pre-pandemic levels. All of this provides us with confidence that
we will see continued growth in our Civil Aerospace business. Defence revenues
are yet to pick up, although we would expect them to do so following the
announced increases in spending by many countries in response to the Russian
invasion of Ukraine. These are expected to start coming through in 2023.
Automotive revenues declined by 4% to £88.6m in the period, as vehicle
production continued to be hampered by supply chain issues, which have been
exacerbated by COVID-19 shutdowns in China. Significant pent-up demand for new
vehicles remains, however, and there is an expectation that H2 will show
volume growth. IHS forecasts H2 sequential vehicle production in Europe and
North America to be growing in high single figures, with 2023 growing by
double figures.
Specialist Technologies
Specialist Technologies' revenues grew 10% to £109m, representing 30% of
Group revenues. It should be noted that our Specialist Technologies are
typically lower energy, lower emission technologies and the boost to revenues
from energy surcharges was considerably lower. Longer term, therefore, higher
energy prices should help drive volume growth for the technologies which, in a
number of cases, are a substitute for higher energy, higher emissions
Classical Heat Treatment alternatives.
Given the higher margins that we achieve within our Specialist Technologies,
they contributed 39% of the Group's headline operating profit, although it
should be noted that Specialist Technologies' profits are disproportionately
impacted by Long Term Agreements with customers, where our ability to pass on
increases is delayed.
Emerging Markets
Emerging Markets represented 12% of Group revenues, growing 22% in the period,
with strong growth in General Industrial revenues. The Emerging Markets have
significant exposure to the Automotive market and the decline in this market
together with the lockdowns in China in the second quarter weakened the
overall growth in the Emerging Markets.
Science Based Targets
Bodycote has submitted emission reduction targets to the Science Based Targets
initiative committing to a 28% reduction in absolute emissions by 2030. We
have been working on energy efficiency and carbon reduction for many years,
and we have multiple projects underway across the organisation in order to
meet these targets.
It is worth reiterating that Bodycote is not only reducing its own carbon
emissions but is also helping to reduce global carbon emissions even further.
By virtue of aggregating multiple customers' work, we run at higher average
fill rates than our customers are able to working individually. We continually
drive energy consumption down. As a result, we operate far more efficiently
than our customers and are able to process their components with as much as
60% less carbon emissions than they can do themselves.
In addition, not only do our Specialist Technologies give our customers'
components superior attributes (making them last longer, which of itself
contributes to sustainability and lower emissions), but also those
technologies that are substitutes for Classical Heat Treatment are lower
emission technologies. So growing our Specialist Technologies business and
converting our customers to these technologies further contributes to lower
overall emissions.
Energy Security
Given the historic dependence of a number of European countries on natural gas supplies from Russia, there is concern over the stability of supplies to a number of key European markets, particularly to Germany.
As part of our strategy, we have been moving away from processes that are most typically gas-fired. Today, three-quarters of our profits in Europe are generated from electrically powered processes. While the precise direct and indirect consequences of any disruption to supplies and eventual rationing are uncertain, it is likely that we would see our customers weight their production and supply chains towards markets that have greater energy security. We have a stronger market position in the surrounding markets than we do in Germany, and we also have spare capacity. So any shift in production from Germany could disproportionately benefit us elsewhere.
Earnings
The increase in headline operating profit to £50.5m (H1 2021: £48.7m)
translated into an increase in headline earnings per share to 19.1p in the
first half (H1 2021: 18.5p).
In terms of statutory measures, statutory operating profit was £45.0m (H1
2021: £43.4m). Basic earnings per share were 16.9p (H1 2021: 16.4p).
Dividend
The Board has declared an interim dividend for 2022 of 6.4p (2021: 6.2p) which
will be paid on 4 November 2022 to all shareholders on the register at close
of business on 7 October 2022.
Summary and outlook
Civil Aerospace revenue grew strongly in the half and we should continue to
see good growth in demand as the original equipment manufacturers (OEMs) ramp
up their new build programmes and passenger numbers continue to grow. General
Industrial volumes and revenue were also robust and, given the breadth of end
markets and geographies underpinning this business, we should see continued
demand momentum in the second half. Automotive volumes declined, as supply
chain issues continued to hamper OEM production, but there is significant
pent-up demand for new vehicles, and volumes are expected to grow in the
second half.
The significant daily demand volatility that we saw in April and May is now
stabilising and we have managed to contain the impact on operating efficiency
to modest proportions. The price increases implemented across the business,
along with the decisive management actions we have taken over the past two
years, including the £30m annualised cost savings achieved from the 2020
restructuring programme, position us well to both adapt to changes in market
conditions. Our strong balance sheet also allows us to take advantage of
opportunities as they arise.
While there are obvious geopolitical uncertainties, as matters stand today, we
see the prospect of volume growth in each of our key market sectors and
geographies and we anticipate making progress in the second half.
Business review
The following review reflects constant currency growth rates versus the
comparable period last year unless stated otherwise.
The AGI divisions
Revenue for the first half of the year was £209.6m, 10% higher than last year
(9% at actual rates), entirely reflecting price increases to offset cost
inflation.
Headline operating profit was £35.0m (H1 2021: £38.9m), affected by the lag
effect on pricing versus the impact of cost inflation, as well as
inefficiencies associated with the demand volatility experienced in our
automotive business. Statutory operating profit was £33.7m (H1 2021:
£37.1m).
Net capital expenditure was £13.2m (H1 2021: £11.8m). We will continue to
invest in profitable programmes which will deliver growth and margin
improvements.
The ADE divisions
Revenue for the first half of the year was £148.9m, an increase of 20% (24%
at actual rates), reflecting good revenue growth in Civil Aerospace and
General Industrial revenues. Headline operating profit was £23.3m, (H1 2021:
£17.6m), while statutory operating profit grew to £19.6m (H1 2021:
£14.3m).
Net capital expenditure in the period was £7.7m (H1 2021: £3.9m). Investment
for growth will continue where there is a compelling business case,
particularly in support of our Specialist Technologies.
Financial overview
Half year to Half year to
30 June 2022 30 June 2021
£m £m
Revenue 358.5 312.9
Headline operating profit 50.5 48.7
Amortisation of acquired intangible assets (4.8) (5.1)
Acquisition costs (0.7) (0.2)
Exceptional items - -
Operating profit 45.0 43.4
Net finance charge (3.4) (2.9)
Profit before taxation 41.6 40.5
Taxation charge (9.1) (9.0)
Profit for the period 32.5 31.5
Group revenue in the first half of 2022 was £358.5m, an increase of 14.6% at
actual rates, 14.1% at constant currency. Headline operating profit for the
six months increased by 4% to £50.5m (H1 2021: £48.7m), with headline
operating margin decreasing to 14.1% (H1 2021: 15.6%). Statutory operating
profit rose to £45.0m (H1 2021: £43.4m).
Finance charge
The net finance charge was £3.4m (H1 2021: £2.9m), with interest rates
having increased. During the first half, the Group successfully extended its
£251m Revolving Credit Facility by one year, to May 2027. The facility was
drawn by £90.8m as at 30 June 2022 (30 June 2021: £98.7m).
Taxation
The tax charge in the first half of 2022 was £9.1m compared with a tax charge
of £9.0m for the same period in 2021. The effective tax rate was 21.9% (H1
2021: 22.2%).
The headline tax rate, being stated before accounting for amortisation
of acquired intangibles, acquisition costs and exceptional items, was 22.2%
(H1 2021: 22.5%).
Earnings per share
Basic headline earnings per share for the half year were 19.1p (H1 2021:
18.5p) and basic earnings per share were 16.9p (H1 2021: 16.4p).
Cash flow
Half year to Half year to Year ended
30 June 2022 30 June 2021 31-Dec-21
£m £m £m
Headline operating profit 50.5 48.7 94.8
Depreciation and amortisation 36.6 37.7 73.4
Income from associate prior to disposal - - (0.1)
Loss on disposal of associate - - 0.4
Profit on disposal of fixed assets (0.5) (2.3) -
Headline EBITDA 86.6 84.1 168.5
Net maintenance capital expenditure (24.5) (14.3) (43.1)
Net working capital movement (18.1) 4.1 (3.4)
Headline operating cash flow 44.0 73.9 122.0
Restructuring costs (4.3) (8.1) (2.3)
Finance costs (2.6) (2.7) (5.2)
Tax (5.3) (2.7) (9.5)
Free cash flow 31.8 60.4 105.0
Expansionary capital expenditure (7.2) (10.3) (15.6)
Ordinary dividend (26.3) (37.0) (49.0)
Acquisition spend (0.7) (58.5) (65.4)
Own shares purchased less SBP and others 2.9 1.7 4.7
Decrease/(Increase) in net debt 0.5 (43.7) (20.3)
Opening net debt (116.3) (98.1) (98.1)
Foreign exchange movements (5.8) 1.9 2.0
Closing net debt (121.6) (139.9) (116.4)
IFRS 16 lease liabilities 64.1 70.3 64.5
Net debt excluding lease liabilities (57.5) (69.6) (51.9)
The Group's underlying cash generation remained strong in the first half.
Headline operating cash flow declined to £44.0m (H1 2021: £73.7m), with the
decline versus last year due to a large working capital outflow, mainly as a
result of higher receivables from the increased revenue, with maintenance
capital expenditure also returning to more 'normal' levels. The statutory
measure, net cash from operating activities, declined to £61.0m (H1 2021:
£78.2m).
Free cash flow in the period was £31.8m (H1 2021: £60.2m). Net debt
(excluding lease liabilities) increased by £5.6m in the half to £57.5m after
paying £26.3m of dividends to shareholders and investing £7.2m in
expansionary capital expenditure.
The Group remains focused on careful cash management.
Principal risks and uncertainties
The Directors have reviewed the principal risks and uncertainties of the
Group. The Directors consider that the principal risks and uncertainties of
the Group published in the Annual Report for the year ended 31 December 2021
remain appropriate and the risks and associated risk management processes,
including financial risks, can be found on pages 29-33 and 125-127 of the 2021
Annual Report, which is available at www.bodycote.com
(http://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;
· Competitor action;
· Safety and health;
· Climate change;
· Service quality;
· Contract review;
· Loss of key accreditations;
· Major disruption at a facility;
· Machine downtime;
· Information technology and cybersecurity; and
· Regulatory and legislative compliance.
Going concern
As described in the condensed consolidated financial statements, the Directors
have formed a judgement, at the time of approving the condensed consolidated
financial statements, that there is a reasonable expectation that the Group
has adequate resources to continue in operational existence for at least the
next 12 months. In making this judgement they have considered the current and
plausible impact of macro-economic factors, including the war in Ukraine,
energy and price inflation, global supply chain impacts and the ongoing
COVID-19 impacts.
For this reason, the Directors continue to adopt the going concern basis in
preparing the condensed consolidated financial statements.
Responsibility statement
We confirm to the best of our knowledge that:
(a) the condensed consolidated set of financial statements has been
prepared in accordance with UK adopted IAS 34 Interim Financial Reporting;
(b) the Interim results 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 results include 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 D. Yates
Group Chief Executive Chief Financial Officer
29 July 2022 29 July 2022
Cautionary statement
These Interim results have 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 results should not be relied on
by any other party or for any other purpose.
These Interim results contain 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.
Independent review report to Bodycote plc
Report on the condensed consolidated half year financial statements
Our conclusion
We have reviewed Bodycote plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Interim results 2022 of
Bodycote plc for the 6 month period ended 30 June 2022 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
What we have reviewed
The interim financial statements comprise:
· the unaudited condensed consolidated balance sheet as at 30 June
2022;
· the unaudited condensed consolidated income statement and the
unaudited condensed consolidated statement of comprehensive income for the
period then ended;
· the unaudited condensed consolidated cash flow statement for the
period then ended;
· the unaudited condensed consolidated statement of changes in
equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim results 2022 of
Bodycote plc have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, 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, 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.
We have read the other information contained in the Interim results 2022 and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim results 2022, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Interim results 2022 in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the Interim results 2022, including
the interim financial statements, the directors are responsible for assessing
the group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Interim results 2022 based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
29 July 2022
Unaudited condensed consolidated income statement
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m Note £m £m
615.8 Revenue 1 358.5 312.9
(533.2) Cost of sales and overheads excluding exceptional items (312.9) (269.5)
1.2 Net impairment (losses)/gains on financial assets (0.6) -
83.8 Operating profit prior to exceptional items 1 45.0 43.4
- Exceptional items 2 - -
83.8 Operating profit 45.0 43.4
0.3 Finance income 0.1 0.1
(6.6) Finance charge (3.5) (3.0)
77.5 Profit before taxation 41.6 40.5
(17.5) Taxation charge 3 (9.1) (9.0)
60.0 Profit for the year 32.5 31.5
Attributable to:
59.5 Equity holders of the parent 32.2 31.2
0.5 Non-controlling interests 0.3 0.3
60.0 32.5 31.5
Earnings per share 5
Pence Pence Pence
31.2 Basic 16.9 16.4
31.2 Diluted 16.9 16.4
All activities have arisen from continuing operations.
Unaudited condensed consolidated statement of comprehensive income
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m Note £m £m
60.0 Profit for the year 32.5 31.5
Items that will not be reclassified to profit or loss:
1.7 Actuarial gains on defined benefit pension schemes 0.1 0.2
0.1 Tax on items that will not be reclassified - -
1.8 Total items that will not be reclassified to profit or loss 0.1 0.2
Items that may be reclassified subsequently to profit or loss:
(14.8) Exchange gains/(losses) on translation of overseas operations 47.3 (15.6)
0.5 Movements on hedges of net investments 10 (2.9) 1.9
0.5 Movements on cash flow hedges - -
(13.8) Total items that may be reclassified subsequently to profit or loss 44.4 (13.7)
(12.0) Other comprehensive income/(expense) for the year 44.5 (13.5)
48.0 Total comprehensive income for the year 77.0 18.0
Attributable to:
48.2 Equity holders of the parent 76.8 17.9
(0.2) Non-controlling interests 0.2 0.1
48.0 77.0 18.0
Unaudited condensed consolidated balance sheet
As at As at As at
31 Dec 2021 30 June 2022 30 June 2021
£m Note £m £m
Non-current assets
213.9 Goodwill 6 225.7 212.9
108.1 Other intangible assets 116.2 103.1
489.3 Property, plant and equipment 510.2 497.9
57.6 Right-of-use assets 57.3 64.3
- Investment in associate - 3.9
2.2 Deferred tax assets 2.4 2.5
1.6 Trade and other receivables 1.3 1.7
872.7 913.1 886.3
Current assets
19.3 Inventories 24.8 16.1
20.6 Current tax assets 20.2 19.8
117.0 Trade and other receivables 151.5 114.5
39.3 Cash and bank balances 36.2 31.5
0.5 Derivative financial instruments 10 - -
0.4 Assets held for sale 0.3 1.3
197.1 233.0 183.2
1,069.8 Total assets 1,146.1 1,069.5
Current liabilities
110.0 Trade and other payables 128.9 111.8
34.0 Current tax liabilities 36.7 36.3
91.7 Borrowings 93.7 101.3
12.9 Lease liabilities 12.7 13.3
14.4 Provisions 7 10.2 18.3
263.0 282.2 281.0
(65.9) Net current liabilities (49.2) (97.8)
Non-current liabilities
51.6 Lease liabilities 51.4 57.0
13.9 Retirement benefit obligations 14.3 15.5
47.0 Deferred tax liabilities 50.3 41.7
7.4 Provisions 7 8.1 8.7
1.5 Other payables 1.1 1.5
121.4 125.2 124.4
384.4 Total liabilities 407.4 405.4
685.4 Net assets 738.7 664.1
Equity
33.1 Share capital 33.1 33.1
177.1 Share premium account 177.1 177.1
(6.2) Own shares (5.2) (6.3)
137.5 Other reserves(1) 136.5 133.5
23.8 Translation reserves(1) 71.2 24.4
319.4 Retained earnings 325.1 301.3
684.7 Equity attributable to equity holders of the parent 737.8 663.1
0.7 Non-controlling interests 0.9 1.0
685.4 Total equity 738.7 664.1
1 A reclassification of £1.0m has been made as at 31 December 2021 to
Other reserves from Translation reserves to ensure consistency with the
Statement of Changes in Equity.
Unaudited condensed consolidated cash flow statement
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m Note £m £m
144.3 Net cash from operating activities 8 61.0 78.2
Investing activities
(45.1) Purchases of property, plant and equipment (24.5) (24.4)
11.7 Proceeds on disposal of property, plant and equipment and intangible assets 1.9 6.0
(6.9) Purchases of other intangibles assets (5.3) (2.3)
1.5 Proceeds from disposal of investment in an associate - -
(66.0) Acquisition of businesses, net of cash acquired - (58.3)
0.3 Interest received 0.1 0.1
(104.5) Net cash used in investing activities (27.8) (78.9)
Financing activities
(5.5) Interest paid (2.7) (2.9)
(49.0) Dividends paid 4 (26.3) (37.0)
(14.4) Principal elements of lease payments (6.9) (7.2)
155.5 Drawdown of bank loans 17.0 75.6
(116.9) Repayments of bank loans (19.0) (27.9)
(30.3) Net cash (used in)/generated from financing activities (37.9) 0.6
9.5 Net (decrease)/increase in cash and cash equivalents (4.7) (0.1)
29.2 Cash and cash equivalents at beginning of year 37.9 29.2
(0.8) Effect of foreign exchange rate changes 0.1 (0.2)
37.9 Cash and cash equivalents at end of year 8 33.3 28.9
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
1 January 2022 33.1 177.1 (6.2) 137.5 23.8 319.4 684.7 0.7 685.4
Profit for the year - - - - - 32.2 32.2 0.3 32.5
Exchange differences on translation of overseas operations - - - - 47.4 - 47.4 (0.1) 47.3
Movements on hedges of net investments - - - (2.9) - - (2.9) - (2.9)
Actuarial gains on defined benefit pension schemes net of deferred tax - - - - - 0.1 0.1 - 0.1
Total comprehensive income for the year - - - (2.9) 47.4 32.3 76.8 0.2 77.0
Acquired in the year/settlement of share options - - 1.0 (1.0) - (0.2) (0.2) - (0.2)
Share-based payments - - - 2.9 - - 2.9 - 2.9
Deferred tax on share-based payment transactions - - - - - (0.1) (0.1) - (0.1)
Dividends - - - - - (26.3) (26.3) - (26.3)
30 June 2022 33.1 177.1 (5.2) 136.5 71.2 325.1 737.8 0.9 738.7
1 January 2021 33.1 177.1 (6.9) 132.6 37.9 306.7 680.5 0.9 681.4
Profit for the year - - - - - 31.2 31.2 0.3 31.5
Exchange differences on translation of overseas operations - - - - (15.4) - (15.4) (0.2) (15.6)
Movements on hedges of net investments - - - - 1.9 - 1.9 - 1.9
Actuarial gains on defined benefit pension schemes net of deferred tax - - - - - 0.2 0.2 - 0.2
Total comprehensive income for the year - - - - (13.5) 31.4 17.9 0.1 18.0
Acquired in the year/settlement of share options - - 0.6 (0.8) - 0.1 (0.1) - (0.1)
Share-based payments - - - 1.7 - - 1.7 - 1.7
Deferred tax on share-based payment transactions - - - - - 0.1 0.1 - 0.1
Dividends - - - - - (37.0) (37.0) - (37.0)
30 June 2021 33.1 177.1 (6.3) 133.5 24.4 301.3 663.1 1.0 664.1
1 January 2021 33.1 177.1 (6.9) 132.6 37.9 306.7 680.5 0.9 681.4
Profit for the year - - - - - 59.5 59.5 0.5 60.0
Exchange differences on translation of overseas operations - - - - (14.1) - (14.1) (0.7) (14.8)
Movements on hedges of net investments - - - 0.5 - - 0.5 - 0.5
Movements on cash flow hedges - - - 0.5 - - 0.5 - 0.5
Actuarial gains on defined benefit pension schemes net of deferred tax - - - - - 1.8 1.8 - 1.8
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
Total comprehensive income for the year - - - 1.0 (14.1) 61.3 48.2 (0.2) 48.0
Acquired in the year/settlement of share options - - 0.7 (0.8) - 0.1 - - -
Share-based payments - - - 4.7 - - 4.7 - 4.7
Deferred tax on share-based payment transactions - - - - - 0.3 0.3 - 0.3
Dividends - - - - - (49.0) (49.0) - (49.0)
31 December 2021 33.1 177.1 (6.2) 137.5 23.8 319.4 684.7 0.7 685.4
Included in other reserves is a capital redemption reserve of £129.8m (31
December 2021: £129.8m; 30 June 2021 £129.8m) and a share-based payments
reserve of £7.9m (31 December 2021: £4.7m; 30 June 2021: £2.9m). The
capital redemption reserve arose from B shares which were converted into
deferred shares in 2008 and 2009, and as a result, £129.8m was transferred
from retained earnings to a capital redemption reserve.
The own shares reserve represents the cost of shares in Bodycote plc purchased
in the market. At 30 June 2022, 642,544 (31 December 2021: 775,962; 30 June
2021: 779,717) ordinary shares of 17 3/11p each were held by the Bodycote
Employee Benefit Trust to satisfy share-based payments under the Group's
incentive schemes.
Notes to the condensed consolidated financial information
Accounting policies
Basis of preparation
These condensed consolidated financial statements for the half year ended 30
June 2022 have been prepared in accordance with the UK adopted International
Accounting Standard 34, 'Interim financial reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the UK's Financial Conduct
Authority (FCA).
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements for the year ended 31
December 2021, which were prepared in accordance with UK-adopted international
accounting standards and with the requirements of the Companies Act 2006 as
applicable to companies reporting under these standards.
The financial information does not constitute statutory accounts as defined by
section 434 of the UK Companies Act 2006. A copy of the statutory accounts for
the year ended 31 December 2021 has been delivered to the Registrar of
Companies. The auditors have reported on those accounts; their reports were
(i) unqualified and (ii) did not contain a statement under section 498 (2) or
(3) of the UK Companies Act 2006. These interim financial statements have been
reviewed, not audited.
In preparing the interim condensed consolidated financial statements
management has considered the impact of climate change, particularly in the
context of the disclosures included in the Strategic Report of the Annual
Report for the year ended 31 December 2021. These considerations did not have
a material impact on the financial reporting judgements and estimates nor on
the Director's going concern assessment of the Group.
The Group is not significantly affected by timing differences in its
operations. As such, seasonality has had no material impact on the preparation
of these condensed consolidated financial statements and notes.
Going concern
In determining the basis of preparation for the Group's condensed consolidated
financial statements, the Directors have considered the Group's business
activities, together with the factors likely to affect its future development,
performance and position. The financial overview included in these Interim
results provides a summary of the Group's financial position, cash flows,
liquidity position and borrowings.
The current and plausible impact of macro-economic factors, including the war
in Ukraine, energy and price inflation, the ongoing COVID-19 impacts and
global supply chain impacts on the Group's activities on revenue, profits and
cashflows have been considered in preparing the going concern assessment. The
Group has modelled a base case, which reflects the Directors' current
expectations of future trading in addition to potential severe but plausible
impacts on revenues, profits and cash flows in a downside scenario as well as
an even more severe, but highly improbable 'stress test' case.
The base case scenario was built upon the budgeting and forecasting processes
for 2022 and extended up to the end of December 2023. This scenario shows an
improvement in performance in both revenue and profits for 2022 and 2023
compared to 2021. The Group's record of cash conversion was used to estimate
the cash generation and level of net debt over that period. Management then
established a severe but plausible downside scenario which assumes a
significant decline in revenues and profits broadly consistent with the
decline experienced during the COVID-19 pandemic, with a significant revenue
shortfall of around 25% below the base case modelled through to the end of
2023. A 'stress test' scenario was also modelled, entailing a 50% reduction in
revenues, which is deemed highly improbable.
In performing the scenarios, the assessment has considered both liquidity and
compliance with the Group's covenants. The key covenants attached to the
Group's Revolving Credit Facility relate to financial gearing (net debt to
EBITDA) and interest cover, which are measured on a pre-IFRS 16 basis. The
maximum financial gearing ratio permitted under the covenants is 3.0x (with a
one-time acquisition spike at 3.5x) and the minimum interest cover ratio
permitted is 4.0x. In the base case, the severe but plausible downside
scenario and the 'stress test' case, the Group continues to maintain
sufficient liquidity and meets its gearing and interest cover covenants under
the Revolving Credit Facility with substantial headroom in the base case and
severe but plausible scenarios.
The Group meets its working capital requirements through a combination of
committed and uncommitted facilities and overdrafts. For the purposes of the
going concern assessment, the Directors have only taken into account the
capacity under existing committed facilities, being predominantly the Group's
Revolving Credit Facility.
In May 2022, the Group extended its £250.9m Revolving Credit Facility by one
year to now mature in May 2027. The Group's committed facilities at 30 June
2022 totalled £164.7m while uncommitted facilities totalled £56.5m. At 30
June 2022, the Group's Revolving Credit Facility had drawings of £90.8m (31
December 2021: £90.3m. 30 June 2021: £98.7m) and the Group's net debt was
£57.5m (31 December 2021: £51.9m, 30 June 2021: £69.8m). The liquidity
headroom was £200.9m (31 December 2021: £202.8m, 30 June 2021: £172.7m)
excluding uncommitted facilities.
Following this assessment, the Directors have formed a judgement, at the time
of approving the financial statements, that there are no material
uncertainties that cast doubt on the Group's going concern status and that it
is a reasonable expectation that the Group has adequate resources to continue
in operational existence for at least the next 12 months. For this reason, the
Directors continue to adopt the going concern basis in preparing the condensed
consolidated financial statements.
Changes in accounting policies
The same accounting policies, presentation and methods of computation are
followed in the condensed set of consolidated financial statements as applied
in the Group's latest annual audited financial statements, except as set out
below.
In determining the tax charge for the interim period under IAS 34, the Group
has applied the forecast annual effective corporate income tax rate to the
pre-tax income for the six month period.
The Group's latest annual audited financial statements set out the key sources
of estimation uncertainty and the critical judgements that were made in
preparing those financial statements, which related to the assumptions (in
particular the discount rate and mortality rates) used to account for
retirement benefit pension schemes under IAS 19 (revised), the recognition of
tax provisions and the decision to not recognise an asset in relation to the
surplus on the UK defined benefit pension scheme. There have been no changes
to these key sources of estimation uncertainty or these critical judgements
since year end.
The Group has operations in Turkey which as of 30 June 2022 is considered a
hyperinflationary economy and is subject to IAS 29 Financial Reporting in
Hyperinflationary Economies. The Group has considered the impact of applying
IAS 29 to the condensed consolidated financial statements and has concluded
that the impact is not material and it has therefore not been applied.
1. Business and geographical segments
The Group has more than 165 facilities 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 regularly reviews the operating
performance of six operating segments, split between the Aerospace, Defence
& Energy (ADE) and Automotive & General Industrial (AGI) business
areas, as follows:
¾ ADE - Western Europe;
¾ ADE - North America;
¾ ADE - Emerging Markets;
¾ AGI - Western Europe;
¾ AGI - North America; and
¾ AGI - Emerging Markets.
The split of operating segments by geography reflects the business reporting
structure of the Group. We have also presented combined results of our two key
business areas, ADE and AGI. The split being driven by customer behaviour and
requirements, geography, and services provided. 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. Allocations of plants between ADE and AGI are therefore derived
by reference to the preponderance of markets served.
Half year to 30 June 2022
ADE AGI Central costs and eliminations Consolidated
30 June 2022 30 June 2022 30 June 2022 30 June 2022
Group £m £m £m £m
Revenue
Total revenue 148.9 209.6 - 358.5
Result
Headline operating profit(1) prior to share-based payments and unallocated 24.2 35.8 - 60.0
central costs
Share-based payments (including social charges)(2) (0.9) (0.8) (1.0) (2.7)
Unallocated central costs - - (6.8) (6.8)
Headline operating profit/(loss) 23.3 35.0 (7.8) 50.5
Amortisation of acquired intangible assets (3.4) (1.4) - (4.8)
Acquisition costs - - (0.7) (0.7)
Operating profit/(loss) prior to exceptional items 19.9 33.6 (8.5) 45.0
Exceptional items (0.3) 0.1 0.2 -
Segment result 19.6 33.7 (8.3) 45.0
Finance income 0.1
Finance costs (3.5)
Profit before taxation 41.6
Taxation (9.1)
Profit for the year 32.5
1 Headline operating profit is an alternative performance measure and is
defined in the APM section.
2 The IFRS 2 share based payment charge in the period ended 30 June 2022
was £2.9m (31 December 2021: £4.7m; 30 June 2021 £1.7m) plus £0.2m credit
(31 December 2021: £0.3m charge; 30 June 2021 £0.2m charge) for social
security charges.
Inter-segment sales are not material in either year.
The Group does not have any one customer that contributes more than 10% of
revenue.
Half year to 30 June 2022
Western Europe North America Emerging markets Total ADE
30 June 2022 30 June 2022 30 June 2022 30 June 2022
Aerospace, Defence & Energy £m £m £m £m
Revenue
Total revenue 65.7 79.9 3.3 148.9
Result
Headline operating profit prior to share-based payments 10.8 13.3 0.1 24.2
Share-based payments (including social charges) (0.1) (0.8) - (0.9)
Headline operating profit 10.7 12.5 0.1 23.3
Amortisation of acquired intangible assets (0.2) (3.2) - (3.4)
Operating profit prior to exceptional items 10.5 9.3 0.1 19.9
Exceptional items 0.5 (0.8) - (0.3)
Segment result 11.0 8.5 0.1 19.6
Half year to 30 June 2022
Western Europe North America Emerging markets Total AGI
30 June 2022 30 June 2022 30 June 2022 30 June 2022
Automotive & General Industrial £m £m £m £m
Revenue
Total revenue 119.9 49.5 40.2 209.6
Result
Headline operating profit prior to share-based payments 24.5 3.7 7.6 35.8
Share-based payments (including social charges) (0.4) (0.4) - (0.8)
Headline operating profit 24.1 3.3 7.6 35.0
Amortisation of acquired intangible assets (0.2) (1.0) (0.2) (1.4)
Operating profit prior to exceptional items 23.9 2.3 7.4 33.6
Exceptional items 0.2 (0.1) - 0.1
Segment result 24.1 2.2 7.4 33.7
Half year to 30 June 2021
ADE AGI Central costs and eliminations Consolidated
30 June 2021 30 June 2021 30 June 2021 30 June 2021
Group £m £m £m £m
Revenue
Total revenue 120.4 192.5 - 312.9
Result
Headline operating profit prior to share-based payments and unallocated 17.9 39.4 - 57.3
central costs
Share-based payments (including social charges)(2) (0.3) (0.5) (1.1) (1.9)
Unallocated central costs - - (6.7) (6.7)
Headline operating profit/(loss) 17.6 38.9 (7.8) 48.7
Amortisation of acquired intangible assets (3.3) (1.8) - (5.1)
Acquisition costs - - (0.2) (0.2)
Segment result 14.3 37.1 (8.0) 43.4
Finance income 0.1
Finance costs (3.0)
Profit before taxation 40.5
Taxation (9.0)
Profit for the year 31.5
Half year to 30 June 2021
Western Europe North America Emerging markets Total ADE
30 June 2021 30 June 2021 30 June 2021 30 June 2021
Aerospace, Defence & Energy £m £m £m £m
Revenue
Total revenue 52.3 66.3 1.8 120.4
Result
Headline operating profit prior to share-based payments 9.6 8.5 (0.2) 17.9
Share-based payments (including social charges) (0.1) (0.2) - (0.3)
Headline operating profit/(loss) 9.5 8.3 (0.2) 17.6
Amortisation of acquired intangible assets - (3.3) - (3.3)
Segment result 9.5 5.0 (0.2) 14.3
Half year to 30 June 2021
Western Europe North America Emerging markets Total AGI
30 June 2021 30 June 2021 30 June 2021 30 June 2021
Automotive & General Industrial £m £m £m £m
Revenue
Total revenue 113.8 43.3 35.4 192.5
Result
Headline operating profit prior to share-based payments 25.6 4.2 9.6 39.4
Share-based payments (including social charges) (0.3) (0.1) (0.1) (0.5)
Headline operating profit 25.3 4.1 9.5 38.9
Amortisation of acquired intangible assets (0.3) (1.3) (0.2) (1.8)
Segment result 25.0 2.8 9.3 37.1
Year ended 31 December 2021
ADE AGI Central costs and eliminations Consolidated
31 Dec 2021 31 Dec 2021 31 Dec 2021 31 Dec 2021
Group £m £m £m £m
Revenue
Total revenue 245.6 370.2 - 615.8
Result
Headline operating profit prior to share-based payments and unallocated 45.2 72.5 - 117.7
central costs
Share-based payments (including social charges)(2) (1.0) (3.0) (1.0) (5.0)
Unallocated central costs - - (17.9) (17.9)
Headline operating profit/(loss) 44.2 69.5 (18.9) 94.8
Amortisation of acquired intangible assets (6.7) (3.6) - (10.3)
Acquisition costs (0.5) - (0.2) (0.7)
Operating profit/(loss) prior to exceptional items 37.0 65.9 (19.1) 83.8
Exceptional items (4.2) (0.6) 4.8 -
Segment result 32.8 65.3 (14.3) 83.8
Finance income 0.3
Finance costs (6.6)
Profit before taxation 77.5
Taxation (17.5)
Profit for the year 60.0
Year ended 31 December 2021
Western Europe North America Emerging markets Total ADE
31 Dec 2021 31 Dec 2021 31 Dec 2021 31 Dec 2021
Aerospace, Defence & Energy £m £m £m £m
Revenue
Total revenue 105.3 136.0 4.3 245.6
Result
Headline operating profit prior to share-based payments 21.7 23.3 0.2 45.2
Share-based payments (including social charges) (0.4) (0.6) - (1.0)
Headline operating profit 21.3 22.7 0.2 44.2
Amortisation of acquired intangible assets - (6.7) - (6.7)
Acquisition costs (0.5) - - (0.5)
Operating profit prior to exceptional items 20.8 16.0 0.2 37.0
Exceptional items (1.7) (2.5) - (4.2)
Segment result 19.1 13.5 0.2 32.8
Year ended 31 December 2021
Western Europe North America Emerging markets Total AGI
31 Dec 2021 31 Dec 2021 31 Dec 2021 31 Dec 2021
Automotive & General Industrial £m £m £m £m
Revenue
Total revenue 217.0 85.3 67.9 370.2
Result
Headline operating profit prior to share-based payments 47.8 7.9 16.8 72.5
Share-based payments (including social charges) (1.8) (0.5) (0.7) (3.0)
Headline operating profit 46.0 7.4 16.1 69.5
Amortisation of acquired intangible assets (0.5) (2.7) (0.4) (3.6)
Operating profit prior to exceptional items 45.5 4.7 15.7 65.9
Exceptional items (0.3) (0.1) (0.2) (0.6)
Segment result 45.2 4.6 15.5 65.3
2. Exceptional items
In 2020, the Group announced an organisational restructuring initiative which
was driven by a combination of both macroeconomic uncertainties and longer
term automobile and aerospace market structural shifts. A number of plants
were closed as a result of these restructuring activities. The related costs
were recorded as exceptional items in line with the Group's accounting policy
for exceptional items. Exceptional losses from the sale of property associated
with the restructuring programme in the period were £0.2m (31 December 2021:
gain of £4.8m; 30 June 2021: £nil). A breakdown of exceptional items is
shown in the table below:
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
(2.7) Severance and redundancy release (0.5) (0.3)
5.5 Net (reversal)/impairment of assets (0.4) -
1.9 Site closure costs 0.8 0.3
(4.8) Losses/(gains) on sales of property, plant and equipment recognised in 0.2 -
exceptional items
0.1 Environmental provisions (credit)/charge - see note 7 (0.1) -
- Total exceptional items - -
Asset impairments of £0.4m have been reversed subsequent to the sale of
property that formed part of the 2020 restructuring program.
Further details of this restructuring programme are outlined in the 2021
Annual Report. At 30 June 2022, £6.2m was held as provisions relating to the
exceptional restructuring programme. Refer to note 7 for more information.
3. Taxation charge
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
18.9 Current taxation - charge for the year 10.4 9.1
(5.9) Current taxation - adjustments in respect of previous years (1.0) 0.1
4.5 Deferred tax (0.3) (0.2)
17.5 Total taxation charge 9.1 9.0
The headline rate of tax for the six months ended 30 June 2022 was 22.2% (31
December 2021: 22.3%; 30 June 2021: 22.5%) of the headline operating profit
before tax. The effective tax rate was 21.9% (31 December 2021: 22.5%; 30 June
2021: 22.2%).
4. Dividends
Amounts recognised as distributions to equity holders in the period:
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
Amounts recognised as distributions to equity holders in the year:
11.4 Interim dividend for the year ended 31 December 2020 of 6.0p per share - 11.4
25.7 Final dividend for the year ended 31 December 2020 of 13.4p per share - 25.6
11.9 Interim dividend for the year ended 31 December 2021 of 6.2p per share - -
- Final dividend for the year ended 31 December 2021 of 13.8p per share 26.3 -
49.0 26.3 37.0
Interim dividend for the year ended 31 December 2022 of 6.4p per share 12.2
The interim dividend was declared by the Board on 29 July 2022 and has not
been included as a liability in these condensed consolidated financial
statements.
The dividends are waived on shares held by the Bodycote Employee Benefit Trust.
5. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
Earnings
59.5 Earnings for the purpose of basic earnings per share being net profit 32.2 31.2
attributable to equity holders of the parent
Number Number Number
Number of shares
190,651,774 Weighted average number of ordinary shares for the purpose of basic earnings 190,744,285 190,624,409
per share
Effect of dilutive potential ordinary shares:
79,678 Shares subject to performance conditions(1) 7,647 -
192,117 Shares subject to vesting conditions 185,487 123,076
190,923,569 Weighted average number of ordinary shares for the purpose of diluted earnings 190,937,419 190,747,485
per share
Pence Pence Pence
Earnings per share:
31.2 Basic 16.9 16.4
31.2 Diluted(1) 16.9 16.4
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
Headline earnings
59.5 Net profit attributable to equity holders of the parent 32.2 31.2
Add back:
7.8 Amortisation of acquired intangible assets (net of tax) 3.6 3.8
1.0 Acquisition costs (net of tax) 0.6 0.2
68.3 Headline earnings 36.4 35.2
Pence Pence Pence
Headline earnings per share:
35.8 Basic 19.1 18.5
35.8 Diluted(1) 19.1 18.5
1 As at 30 June 2022, 31 December 2021 and 30 June 2021, in accordance with IAS 33, the related performance conditions for most open plans have not been met resulting in nil dilution of earnings per share.
6. Goodwill
As at As at As at
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
Cost
276.3 At 1 January 274.5 276.3
(1.8) Exchange differences 12.3 (2.7)
274.5 Total cost 286.8 273.6
Accumulated impairment
60.8 At 1 January 60.6 60.9
(0.2) Exchange differences 0.5 (0.2)
60.6 Total accumulated impairment 61.1 60.7
213.9 Carrying amount 225.7 212.9
Goodwill acquired through business combinations is allocated to the cash
generating units (CGUs) that are expected to benefit from the synergies of the
combination. The recoverable amounts of these CGUs are the higher of fair
value less costs to dispose and value-in-use.
Impairment is monitored at the CGU level which is the same level at which
goodwill is allocated. These CGUs are grouped into the business and
geographical segments as follows:
As at As at As at
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
ADE:
26.8 Western Europe 26.9 26.8
93.2 North America 100.2 92.2
AGI:
27.6 Western Europe 27.8 28.0
54.7 North America 59.1 54.0
11.6 Emerging markets 11.7 11.9
213.9 225.7 212.9
In accordance with IAS 36, the Group tests goodwill at least annually for
impairment, and performs a trigger assessment at the end of each reporting
period to determine if there is any indication of impairment, or more
frequently if there are indicators that goodwill might be impaired. The most
recent impairment test was performed as at 31 December 2021 and no impairment
was identified. As at 30 June 2022, the Group has performed a trigger
assessment to determine whether impairment testing is required on any of its
CGUs. This assessment focused on a review of the year to date performance of
each CGU versus the budget, and also considered the headroom at 31 December
2021 to determine whether it was reasonably possible that the performance of
any CGU in the six months ended 30 June 2022 could result in an impairment if
a full test was performed. Following this review the Directors concluded that
no impairment triggers were identified and consequently no impairment testing
is required as at 30 June 2022.
7. Provisions
Restructuring Restructuring environmental Environmental Legal and operational Total
£m £m £m £m £m
At 1 January 2022 9.0 3.6 6.0 3.2 21.8
Increase in provision 0.8 - - 0.8 1.6
Release of provision (0.5) (0.1) - - (0.6)
Utilisation of provision (4.0) (0.8) (0.5) (0.7) (6.0)
Exchange difference 0.5 0.3 0.5 0.2 1.5
At 30 June 2022 5.8 3.0 6.0 3.5 18.3
Included in current liabilities 10.2
Included in non-current liabilities 8.1
18.3
Included within the above balances as at 30 June 2022 are £12.1m of
non-exceptional provisions which comprised of £1.4m of restructuring
provisions, £1.2m of environmental restructuring provisions and £6.0m of
environmental provisions, and £3.5m of legal and operational provisions which
are unrelated to the Group's 2020 exceptional restructuring programme.
Exceptional restructuring
At 30 June 2022, restructuring provisions of £4.4m (31 December 2021: £7.8m;
30 June 2021: £15.1m) and restructuring environmental provisions of £1.8m
(31 December 2021: £2.4m; 30 June 2021: £2.4m) relate to restructuring
initiatives across North America and Europe announced in 2020. Further details
of this programme can be found in our 2020 and 2021 Annual Report.
At 30 June 2022 £4.7m of the brought forward exceptional restructuring
provision was utilised in order to carry out planned activities which were
mainly focused on employee severance and redundancy (£1.7m), costs associated
with closing plants (£2.3m) and the remediation of environmental issues
(£0.7m). The majority of the remaining cash outflows on these activities are
expected to occur within 2022.
Management has performed a review of the restructuring activities in order to
determine the best estimate of future expenditure required to settle the
present obligations and the relating timing. This assessment resulted in small
movements to the existing provision which have been recognised as exceptional
costs/income on the basis that they relate to the exceptional restructuring
programme announced in 2020. Refer to note 2.
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 any
liabilities exist or could be reliably estimated other than for those
recognised above. Therefore no provision is recognised in relation to these
items.
8. Notes to the cash flow statement
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
60.0 Profit for the year 32.5 31.5
Adjustments for:
(0.3) Finance income (0.1) (0.1)
6.6 Finance costs 3.5 3.0
17.5 Taxation charge 9.1 9.0
83.8 Operating profit 45.0 43.4
Adjustments for:
58.0 Depreciation of property, plant and equipment recognised in operating profit 29.3 29.8
0.6 Depreciation on mothballed sites due to restructuring recognised in - -
exceptional items
13.6 Depreciation of right-of-use assets 6.5 6.9
12.1 Amortisation of other intangible assets 5.7 6.1
(4.8) Profit on disposal of property, plant and equipment recognised in operating (0.6) (2.3)
profit
- Loss on disposal of property, plant and equipment recognised in exceptional 0.2 -
items
4.7 Share-based payments 2.9 1.7
(0.1) Income from associate prior to disposal - (0.2)
0.4 Loss on disposal of associate - -
5.5 Impairment (reversal) of property, plant and equipment and other assets (0.4) -
recognised in exceptional items
173.8 EBITDA (See definition in APM section) 88.6 85.4
(2.7) Increase in inventories (4.7) (0.9)
(1.6) Increase in receivables (27.4) (1.2)
1.9 Increase in payables 11.2 6.7
(17.6) Decrease in provisions (1.6) (9.1)
153.8 Cash generated by operations 66.1 80.9
(9.5) Income taxes paid (5.3) (2.7)
- Settlement of derivatives 0.2 -
144.3 Net cash from operating activities 61.0 78.2
As at As at As at
2021 2022 2021
£m £m £m
Cash and cash equivalents comprise:
39.3 Cash and bank balances 36.2 31.5
(1.4) Bank overdrafts (included in borrowings) (2.9) (2.6)
37.9 33.3 28.9
9. Related party transactions
Transactions between subsidiaries of the Group, which are related parties to
each other, have been eliminated on consolidation and are not disclosed in
this note. Information on the remuneration of the Board of Directors, who are
considered key management personnel of the Group, is disclosed in note 27 to
the consolidated financial statements in the 2021 Annual Report.
10. Financial Instruments
In accordance with IFRS 7 Financial Instruments: Disclosures, the Group's
financial instruments are considered to be classified as level 2 and level 3
instruments. Fair value measurements are those derived from inputs other than
quoted prices which are defined as level 1.
There have been no transfers of assets or liabilities between levels of the
fair value hierarchy in the period ended 30 June 2022. The carrying values of
financial instruments at amortised cost as presented in the condensed
consolidated financial statements approximate their fair values.
The Group uses foreign currency forward contracts in the management of its
exchange rate exposures. The contracts are primarily denominated in the
currencies of the Group's principal markets. The gains recognised in the
condensed consolidated income statement on the contracts which matured in 2022
amounted to £nil (31 December 2021: £nil;
30 June 2021: £nil). The unrealised gains and losses were not material in
either 2022 or 2021.
The following summarises the aggregate notional amount (aggregate face value)
of all open contracts and their related fair values for the period 30 June
2022:
Contractual or notional amount Fair value Contractual or notional amount Fair value Contractual or notional amount Fair value
30 June 2022 30 June 2022 30 June 2021 30 June 2021 31 Dec 2021 31 Dec 2021
£m £m £m £m £m £m
Currency forward foreign exchange contracts (Level 2) 1.2 - 0.3 - - -
Cross currency interest rate swap (Level 2) 17.2 - - - 25.8 0.5
In accordance with IFRS 7 Financial Instruments Disclosures, fair value is
determined using quoted forward exchange rates and yield curves derived from
quoted interest rates matching maturities of the contracts.
All forward foreign exchange contracts are due within one year.
The Group's interest rate risk is primarily in relation to its floating rate
borrowings. From time-to-time the Group will use interest rate derivative
contracts to manage its exposure to interest rate movements within Group
policy. At the balance sheet date, the Group has a cross currency interest
rate swap which has been classified as a level 2 instrument with a fair value
of £nil (31 December 2021: £0.5m; 30 June 2021: £nil) which is due to
terminate on 30 June 2023. The cross currency interest rate swap is combined
with the GBP Revolving Credit Facility and designated as the hedging
instrument for the EUR Net Investment Hedge. The hedged item is identified as
the carrying amount of the Group's net investment in two foreign operations.
Hedge ineffectiveness may occur due to differences in the critical terms
between the loans as set out in the Net Investment Hedge section below and the
interest rate swaps. There was no material ineffectiveness in relation to
interest rate swaps recorded in the periods ended 30 June 2022 and 2021.
The Group continues to draw on the Revolving Credit Facility (RCF) as this was
used to partly fund the Ellison acquisition in 2020 and the related deferred
payments in 2021. The related loans are denominated in US dollars and euro,
combined with a euro cross-currency interest rate swap. The amounts are
designated as net investment hedges to the net assets of certain subsidiaries
of the Group with a matching functional currency on a 1:1 ratio.
The foreign exchange loss of £2.9m on translation on the hedging instruments
to GBP at the end of the reporting period is recognised in other comprehensive
income and accumulated in other reserves in shareholders' equity. There was no
ineffectiveness to be recorded from the net investment hedges.
11. Contingent liabilities
The Group is subject to certain legal proceedings, claims, complaints and
investigations arising out of the ordinary course of business. These may
include tax audits across jurisdictions in which the company operates, and
legal proceedings may include, but are not limited to, alleged breach of
contract and alleged breach of environmental, competition, securities and
health and safety laws. The Group may not be insured fully, or at all, in
respect of such risks. The Group cannot predict the outcome of individual
legal actions or claims or complaints or investigations. The Group may settle
litigation or regulatory proceedings prior to a final judgment or
determination of liability. The Group may do so to avoid the cost, management
efforts or negative business, regulatory or reputational consequences of
continuing to contest liability, even when it considers it has valid defences
to liability. The Group considers that no material loss is expected to result
from these legal proceedings, claims, complaints and investigations. Provision
is made for all liabilities that are expected to materialise through legal and
tax claims against the Group.
Alternative performance measures - APMs
Bodycote uses various APMs, in addition to those reported under IFRS, as
management consider these measures enable users of the financial statements to
assess the headline trading performance of the business. These APMs of
financial performance, position or cash flows are not defined or specified
according to International Financial Reporting Standards (IFRS) and are
defined below and, where relevant, are reconciled to IFRS measures. APMs are
prepared on a consistent basis for all periods presented in this report.
The APMs used include headline operating profit, headline operating margin,
headline profit before taxation, EBITDA, headline EBITDA, organic sales,
headline operating cash flow, free cash flow, headline operating cash
conversion, free cash flow conversion, headline tax charge, headline tax rate,
headline earnings per share (EPS), net debt and net debt plus lease
liabilities. These measures reflect the headline trading performance of the
business as they exclude certain non-operational items, exceptional items,
acquisition costs and the amortisation of acquired intangible assets. The
Group also uses revenue growth percentages adjusted for the impact of foreign
exchange movements, where appropriate, to better represent the trading
performance of the business. The measures described above are also used in the
targeting process for executive and management annual bonuses (headline
operating profit and headline operating cash flow) and share schemes (headline
EPS).
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. Expansionary capital expenditure is defined as capital
expenditure invested to grow the Group's business.
Headline operating profit
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
83.8 Operating profit 45.0 43.4
Add back:
10.3 Amortisation of acquired intangibles 4.8 5.1
0.7 Acquisition costs 0.7 0.2
- Exceptional items - -
94.8 Headline operating profit 50.5 48.7
Headline operating margin
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
94.8 Headline operating profit 50.5 48.7
615.8 Revenue 358.5 312.9
15.4% Headline operating margin 14.1% 15.6%
Headline profit before taxation
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
77.5 Profit before taxation 41.6 40.5
Add back:
10.3 Amortisation of acquired intangibles 4.8 5.1
0.7 Acquisition costs 0.7 0.2
- Exceptional items - -
88.5 Headline profit before taxation 47.1 45.8
EBITDA and Headline EBITDA (Earnings Before Interest, Taxation, Depreciation,
and Amortisation)
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
83.8 Operating profit 45.0 43.4
83.7 Depreciation and amortisation 41.5 42.8
0.6 Depreciation on mothballed sites due to restructuring recognised in - -
exceptional items
5.5 Impairment (reversal)/charge of property, plant and equipment and other assets (0.4) -
- recognised in exceptional items
(4.8) Profit on disposal of property, plant and equipment (0.6) (2.3)
- Profit on disposal of property, plant and equipment recognised in exceptional 0.2 -
items
4.7 Share-based payments 2.9 1.7
(0.1) Income from associate prior to disposal - (0.2)
0.4 Loss on disposal of associate - -
173.8 EBITDA 88.6 85.4
0.7 Acquisition costs 0.7 0.2
(1.3) Exceptional items, excluding impairments 0.2 -
(4.7) Share-based payments (2.9) (1.7)
168.5 Headline EBITDA 86.6 83.9
27.4% Headline EBITDA margin 24.2% 26.8%
Organic sales
Excludes revenues from acquisitions in the current and comparative period to
provide a like-for-like comparison:
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
615.8 Total revenue 358.5 312.9
(32.8) Less adjustments for revenue from acquisitions (4.8) (15.7)
583.0 Total organic revenue 353.7 297.2
Headline operating cash flow
Year ended 31 Dec 2021 Half year to Half year to
30 June 2022
30 June 2021
£m £m £m
168.5 Headline EBITDA 86.6 83.9
Less:
(43.1) Net maintenance capital expenditure (24.5) (14.3)
(3.4) Net working capital movement (18.1) 4.1
122.0 Headline operating cash flow 44.0 73.7
Free cash flow
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
122.0 Headline operating cash flow 44.0 73.7
Less:
(2.3) Restructuring cash flows (4.3) (8.1)
(9.5) Income taxes paid (5.3) (2.7)
(5.2) Interest paid (2.6) (2.7)
105.0 Free cash flow 31.8 60.2
Headline operating cash conversion
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
122.0 Headline operating cash flow 44.0 73.7
94.8 Headline operating profit 50.5 48.7
128.7% Headline operating cash conversion 87.1% 151.4%
Free cash flow conversion
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
105.0 Free cash flow 31.8 60.2
94.8 Headline operating profit 50.5 48.7
110.8% Free cash flow conversion 63.0% 123.6%
Headline tax charge
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
17.5 Tax charge 9.1 9.0
2.5 Tax on amortisation of acquired intangibles 1.2 1.3
(0.3) Tax charge/(credit) on exceptional items and acquisition costs 0.1 -
19.7 Headline tax charge 10.4 10.3
Headline tax rate
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
19.7 Headline tax charge 10.4 10.3
88.5 Headline profit before taxation 47.1 45.8
22.3% Headline tax rate 22.2% 22.5%
Headline earnings per share
A detailed reconciliation is provided in note 5 of the condensed consolidated
financial statements.
Net debt and net debt plus lease liabilities
Year ended Half year to Half year to
31 Dec 2021 30 June 2022 30 June 2021
£m £m £m
39.3 Cash and bank balances 36.2 31.5
(1.4) Bank overdrafts (included in borrowings) (2.9) (2.6)
0.5 Derivative financial instruments - -
(90.3) Bank loans (included in borrowings) (90.8) (98.7)
(51.9) Net debt (57.5) (69.8)
(64.5) Lease liabilities (64.1) (70.3)
(116.4) Net debt plus lease liabilities (121.6) (140.1)
Revenue and headline operating profit at constant currency
Reconciled to revenue and headline operating profit in the table below:
Half year to 30 June 2022
ADE AGI Central cost Consolidated
and eliminations
£m £m £m £m
Revenue 148.9 209.6 - 358.5
Constant currency exchange rates adjustment (4.3) 2.8 - (1.5)
Revenue at constant currency 144.6 212.4 - 357.0
Headline operating profit 23.3 35.0 (7.8) 50.5
Constant currency exchange rates adjustment (0.8) 1.4 0.3 0.9
Headline operating profit at constant currency 22.5 36.4 (7.5) 51.4
Company information
Financial calendar
Results for 2022 March 2023
Annual General Meeting May 2023
Final dividend for 2022 June 2023
Interim results for 2023 July 2023
Interim dividend for 2023 November 2023
Shareholder enquiries
Enquiries on the following administrative matters can be addressed to the
Company's registrars at Equiniti Limited, Aspect House, Spencer Road, Lancing,
West Sussex BN99 6DA. Telephone 0333 207 5951 (+44 333 207 5951 if calling
from outside the UK). Lines open 8:30am to 5.30pm (UK time), Monday to Friday
excluding public holidays in England and Wales); Email: Log on to
help.shareview.co.uk (http://help.shareview.co.uk) (from here you will be able
to email your query securely).
· Change of address
· Stock transfer form including guidance notes
· Dividend mandates
· ShareGift donation coupon
Forms for some of these matters can be downloaded from the registrars' website
www.shareview.co.uk (http://www.shareview.co.uk) . Shareholders can easily
access and maintain their shareholding online by registering at
www.shareview.co.uk (http://www.shareview.co.uk) . To register, shareholders
will require their shareholder reference number which was recently provided.
Shareholder dealing service
For information on the share dealing service offered by Equiniti Limited,
telephone 0345 603 7037 (+44 345 603 7037 if calling from outside the UK).
Lines open 8.00am to 4.30pm (UK time), Monday to Friday excluding public
holidays in England and Wales). Please either telephone Equiniti or look
online at www.shareview.co.uk (http://www.shareview.co.uk) for the up to date
commission rates.
General information
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 FCA Electronic Submission System
which is situated at: https://data.fca.org.uk/#/nationalstoragemechanism
(https://data.fca.org.uk/#/nationalstoragemechanism) .
Bodycote plc
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
United Kingdom
SK10 2XF
Tel: +44 1625 505 300
Fax: +44 1625 505 313
Email: info@bodycote.com
© Bodycote plc 2022
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