TIDMBOY
RNS Number : 8658T
Bodycote PLC
23 July 2020
Bodycote plc
Results for the six months to 30 June 2020
Strong cost control and excellent cash generation
Financial highlights
Half year Half year
to to % Change
30 June 30 June Constant
2020 2019 % Change Currency
Revenue GBP306.7m GBP366.5m -16.3% -16.6%
------------------------------------- ---------- ---------- -------- ---------
Headline operating profit(1) GBP37.8m GBP66.9m -43% -43%
------------------------------------- ---------- ---------- -------- ---------
Return on sales(2) 12.3% 18.3%
------------------------------------- ---------- ---------- -------- ---------
Headline profit before taxation(1) GBP35.0m GBP64.7m -46% -45%
------------------------------------- ---------- ---------- -------- ---------
Exceptional restructuring costs(3) GBP(32.1)m -
------------------------------------- ---------- ---------- -------- ---------
Free cash flow(2) GBP69.7m GBP44.6m 56%
------------------------------------- ---------- ---------- -------- ---------
Basic headline earnings per share(4) 14.2p 25.6p -45%
------------------------------------- ---------- ---------- -------- ---------
Statutory results
Half year Half year
to to
30 June 30 June
2020 2019
Operating (loss)/profit GBP(1.0)m GBP64.4m
-------------------------------- --------- ----------
(Loss)/profit before taxation GBP(3.8)m GBP62.2m
-------------------------------- --------- ----------
Basic (loss)/earnings per share (1.3)p 24.7p
-------------------------------- --------- ----------
Highlights
-- Results significantly impacted by pandemic related downturn
-- Immediate cost saving initiatives implemented; H1 operational gearing(5) at 42%
-- Restructuring activities stepped up, yielding permanent
future annualised cost savings of GBP58m
-- Excellent free cash flow of GBP69.7m, net debt GBP23.6m (pre IFRS16)
-- 2019 deferred dividend of 13.3p to be paid in September
-- Decision on 2020 interim dividend to be made in due course
Commenting, Stephen Harris, Group Chief Executive said:
"The safety of all our employees, customers and suppliers has
been at the forefront of all we have undertaken in recent months as
the pandemic has progressed. I would particularly like to thank all
Bodycote employees for their commitment and outstanding efforts to
serve our customers throughout this period.
In terms of business performance, Bodycote reacted swiftly to
the sharp revenue declines arising from the pandemic related
downturn. Most cost elements have been reduced in line with sales
which has yielded a resilient operating margin of 12.3%. Moreover,
the excellent free cash flow performance is testament to the cash
generative nature of our business. The organisational restructuring
programme announced in March has been expanded and accelerated and
will permanently reduce operating expenses by around 10%. This
allows good profits to be achieved at lower volumes and should
enable margin expansion beyond historical levels when revenues
ultimately return to normal.
The immediate outlook varies by sector and is difficult to
predict for obvious reasons. Bodycote benefits from its geographic
and sector diversification, and its strong business model. We
remain focused on strong cash and cost discipline and we expect to
continue to generate sustainably attractive returns for our
shareholders".
1 The headline performance measures represent the statutory
results excluding certain non-operational items. These are deemed
alternative performance measures under the European Securities and
Markets Authority guidelines. Please refer to note 2 for a
reconciliation to the IFRS equivalent.
2 A detailed reconciliation of return on sales and free cash
flow are provided in note 2.
3 Detail is provided in note 4.
4 A detailed reconciliation is provided in note 7.
5 Operational gearing is the differential in headline operating
profit divided into the differential in revenue on a like-for-like
constant currency basis.
Interim Results Presentation
Bodycote will be presenting our results via webcast at 08.30am
UK GMT on 23 July 2020. Please find the following instructions to
connect to the video and audio:
Webcast URL:
https://www.investis-live.com/bodycote/5f08c07b7b676e1e004b3302/ebdh
For dial-in only:
Participant dial-in number from the United Kingdom: 020 3936
2999
(all other locations + 44 20 3936 2999).
Participant Access Code: 446797
An audiocast and presentation will be available from 9.30am at
www.bodycote.com on the Company's website in the investor section
from 23 July 2020.
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
Overview
Bodycote reported a decline in revenue of 16.3% to GBP306.7m (H1
2019: GBP366.5m). At constant currency, revenue declined 16.6% .
Headline operating profit of GBP37.8m was achieved, compared to
GBP66.9m in the same period last year.
Bodycote's performance in the first half was dominated by the
sharp impact of the pandemic related demand reductions which
started in the third week of March. Until this point activity
levels had been unaffected.
Second quarter revenues on a like-for-like basis were 33% below
those in the prior year, reflecting the impact of shutdowns at our
customers' locations.
On the balance sheet, we ended the half year with net debt
(excluding lease liabilities) of GBP23.6m, which is actually lower
than net debt at the equivalent interim stage last year. This
reflects excellent free cash flow generation in the half of
GBP69.7m (H1 2019: GBP44.6m), once again demonstrating the Group's
cash generative qualities.
Matching resources to demand is a core skill in Bodycote, and to
this end the annual planning cycle always includes contingency
plans to cater for demand shocks. In addition, a comprehensive site
and capacity review was completed in late 2019 as part of the
strategic planning process and a restructuring programme initiated
in Q1. These factors meant that Bodycote was well placed to move
quickly to adjust to the significant fall in demand in Q2.
Immediate cost savings have been achieved, amounting to c.GBP7m
per month. In part, these savings are the result of the lay-off of
797 FTEs (14% of the workforce), with a further 619 on short term
lay-off (11% of the workforce). Some GBP2.3m in government
subsidies have been received around the world to support the
temporary lay-offs, although UK government support is being repaid.
In addition to these actions, work has been temporarily
consolidated into fewer sites to optimise equipment utilisation and
efficiency and discretionary spending has been significantly
reduced.
The organisational restructuring that was announced in March has
been accelerated and expanded. The closure of eighteen plants is
underway, thirteen in Europe (ten Automotive and three Aerospace),
four plants in the USA (three Automotive and one Aerospace) and one
General Industrial plant in Eastern Europe. In contrast, three new
greenfield facilities will open in H2, replacing outdated
facilities that are part of the closures. The programme, once
completed, will result in the permanent reduction of 1,008 FTEs
representing 17% of the workforce and yield annualised savings of
GBP58m from the beginning of 2021.
The cost reduction actions achieved in the first half have
resulted in operational gearing 1 to be restricted to 42%. The
operating margin for the period was a resilient 12.3%
The exceptional income statement charge for restructuring in the
first half was GBP32.1m, including the provision of GBP 20.1 m of
cash costs, most of which will be paid during the second half.
Statutory operating profit declined to a loss of GBP1.0m (H1 2019:
statutory operating profit was GBP64.4m).
Market sectors, Specialist Technologies and Emerging Markets
The following reflects constant currency growth rates versus the
comparable period last year unless stated otherwise. The focus of
the commentary for the market sectors is on the recent development
of business post the start of the pandemic, using second quarter
performance as a proxy.
All parts of Bodycote's business have been impacted
significantly by the downturn.
Many automotive OEMs announced demand related plant shutdowns in
Q2 and sales volumes of new vehicles fell sharply. There are signs
that inventory throughout the automotive supply chain has been run
down to low levels. Bodycote automotive revenues were down 53% in
the second quarter. As time has progressed, demand for new vehicles
is recovering from this very low base. This is particularly true
for SUVs and Light trucks in North America where production
rebounds are being helped by low fuel prices. European recovery is
lagging that in North America with the Asia focused supply chains
being the first areas of growth.
Our civil aerospace business also saw significant declines, with
organic revenues in the first half down 20% (down 36% in the second
quarter). Civil air traffic levels are currently at a fraction of
the levels prior to the downturn, leading to lower demand for
aftermarket parts. In addition, Boeing and Airbus have both
announced significant reductions in the production of new planes,
leading to similar levels of reductions in aircraft engine
production, where Bodycote's business is primarily concentrated.
All of this is taking some time to work its way through the supply
chain, so that the prospects for civil aerospace revenues are
likely to deteriorate further in the short term. As demand for air
travel recovers over time, a mix change away from wide-body
aircraft production and towards narrow-body aircraft is expected,
playing to Bodycote's strengths. Bodycote has a much larger amount
of revenue per narrow-body LEAP engine than it did of the
predecessor CFM56 engine, and now achieves approximately the same
amount of value per engine, irrespective of whether it is a smaller
engine destined for a narrow-body or a larger engine for a
wide-body platform. The number of engines produced for both
wide-body and narrow-body platforms in total is expected to
overtake 2019 levels some time in 2023/24. Preliminary estimates of
revenue passenger
kilometres (RPKs) suggest 2019 levels will be surpassed in
2023/24 as well. We remain confident, therefore, that the mid-term
market dynamics for civil aerospace are positive for Bodycote.
1 Operational gearing is the differential in headline operating
profit divided into the differential in revenue on a like-for-like
constant currency basis.
The General Industrial (GI) market that Bodycote serves is
highly diversified, which offers some protection to revenues in a
downturn. Some segments declined strongly (for example tooling
declined 20%) while others fared much better such as medical, which
grew 2%. Overall, the first half revenues in GI were down 12%, with
Q2 revenues declining 19%. GI revenues are now starting to
recover.
Exacerbated by the significant drop in oil prices and the
associated declining rig count, revenues in our onshore oil and gas
business in North America were weak. Industrial Gas Turbine (IGT)
revenues also declined, while subsea revenues fared better, as they
typically relate to much longer investment lead times. Overall,
energy revenues were down 16% in the first half, with a 26% decline
in the second quarter.
Specialist Technologies' revenues continue to grow in prominence
in the Group and accounted for 27% of revenues during the first
half, declining 8% over this period last year. Excluding the
positive impact of Ellison revenues, total Specialist Technologies'
revenues declined 16%, outperforming the equivalent Classical Heat
Treatment revenue decline of 21%. Indeed, this outperformance was
achieved despite the considerable impact on our automotive focused
Low Pressure Carburising (LPC) business due to production stops
from automotive OEM customers.
Following the completion of the acquisition of Ellison Surface
Technologies on 3 April, integration of this business is
progressing smoothly. Nonetheless, revenues have been impacted by
production cuts on a number of key aerospace engine platforms.
Emerging markets' revenues declined 7% during the first half,
outperforming the rest of the business. Our business in China was
impacted earlier than other countries by the pandemic but has since
recovered well, actually registering 8% revenue growth in the
second quarter. Elsewhere, our Mexican and Eastern European
businesses were hit hard by automotive OEM production
shutdowns.
Profits and earnings
Profitability and margins were significantly impacted by the
revenue downturn that we experienced from the third week of March
onwards. As a result, headline operating profit fell to GBP37.8m
(H1 2019: GBP66.9m).
This headline operating profit was achieved despite the
immediate, unpredictable and volatile nature of the revenue decline
in Q2. Moreover, included within the business' cost base is
c.GBP1.7 m of additional net costs related to the pandemic such as
personal protective equipment, costs incurred as a result of people
working remotely, costs associated with excess sickness rates, and
net costs to the business from employees on temporary lay-off. In
some jurisdictions parents who could not work because their
children were kept home from school were obliged to claim sickness
benefits.
At 22.5%, the Group's headline tax rate is in line with guidance
given at the time of our full year results back in March (H1 2019:
24.4%). Basic headline earnings per share were 14.2p (H1 2019:
25.6p).
In terms of statutory measures, after the restructuring costs,
acquisition costs and amortisation of acquired intangible assets
there was a statutory operating loss of GBP1.0m (H1 2019: operating
profit of GBP64.4m). Basic loss per share was 1.3p (H1 2019:
earnings of 24.7p).
Dividend
In April, amidst the uncertainty of the depth and duration of
the impact of COVID-19 and the associated restrictions, the Board
announced that it would be keeping the 2019 final dividend payment
under review. In light of management's strong reaction to the
downturn, which has allowed the business to remain profitable and
cash generative throughout this period, the Board has decided that
a deferred dividend for 2019 of 13.3 p will now be paid on 25
September 2020 to all shareholders on the register at close of
business on 28 August 2020.
The decision on an interim dividend for 2020 will be made in due
course.
Summary and outlook
Bodycote reacted swiftly to the sharp revenue declines arising
from the pandemic related downturn. Most cost elements have been
reduced in line with sales which has yielded a resilient operating
margin of 12.3%. Moreover, the excellent free cash flow performance
is testament to the cash generative nature of our business. The
organisational restructuring programme announced in March has been
expanded and accelerated and will permanently reduce operating
expenses by around 10%. This allows good profits to be achieved at
lower volumes and should enable margins to exceed historical levels
when revenues recover.
The immediate outlook varies by sector and is difficult to
predict for obvious reasons. Bodycote benefits from its geographic
and sector diversification, and its strong business model. We
remain focused on strong cash and cost discipline and expect to
continue to generate sustainably attractive returns for our
shareholders.
Business review
The following review reflects constant currency growth rates
versus the comparable period last year, unless stated
otherwise.
The ADE divisions
Revenue for the first half of the year was GBP135.8m, a decrease
of 11% compared to last year (10% at actual rates). Excluding the
GBP7.2m revenue contribution from Ellison in the second quarter
post completion of its acquisition, organic ADE revenues fell 16%
in the first half and 28% in the second quarter, reflecting the
revenue declines in the civil aerospace and energy sectors.
Headline operating profit was GBP27.1m, (H1 2019: GBP37.9m),
declining as a result of the lower revenues. Statutory operating
profit fell to GBP16.2m (H1 2019: GBP37.4m), including GBP6.1m of
restructuring charges.
Net capital expenditure in the period was GBP8.5m (H1 2019:
GBP11.1m). Investment for growth will continue where there is a
compelling business case, particularly in support of our Specialist
Technologies.
The AGI divisions
Revenue for the first half of the year was GBP170.9m, 20% lower
than last year (21% at actual rates). Revenues in the second
quarter were 35% lower than last year, reflecting the sharp
downturn in the automotive sector, while general industrial
revenues held up somewhat better.
Headline operating profit was GBP14.4m (H1 2019: GBP35.4m),
lower as a result of the declining revenues. Statutory operating
profit fell to a loss of GBP13.5m (H1 2019: GBP33.8m), reflecting
GBP26.0m of restructuring charges.
Net capital expenditure was GBP15.3m (H1 2019: GBP16.4m). We
will continue to invest in profitable programmes which will deliver
growth and margin improvements.
Financial overview
Half year to 30 June
----------------------
2020 2019
GBPm GBPm
Revenue 306.7 366.5
------------------------------------------- ---------- ----------
Headline operating profit 37.8 66.9
Exceptional items (32.1) -
Amortisation of acquired intangible assets (4.7) (2.1)
Acquisition costs (2.0) (0.4)
------------------------------------------- ---------- ----------
Operating (loss)/profit (1.0) 64.4
Net finance charge (2.8) (2.2)
------------------------------------------- ---------- ----------
(Loss)/profit before taxation (3.8) 62.2
Taxation 1.5 (15.2)
------------------------------------------- ---------- ----------
(Loss)/profit for the period (2.3) 47.0
------------------------------------------- ---------- ----------
Group revenue in the first half of 2020 was GBP306.7m, a
decrease of 16.3% at actual rates (16.6% at constant currency).
Headline operating profit for the six months decreased by 43.5% to
GBP37.8m (H1 2019: GBP66.9m), with return on sales declining to
12.3% (H1 2019: 18.3%). The Group incurred a GBP32.1m restructuring
charge (helping to reduce the Group's annualised cost base by
GBP58m) in light of the reduced revenue outlook. There were also
acquisition costs associated with the completion of Ellison Surface
Technologies and increased amortisation of intangible assets, as we
began to amortise the Ellison intangible assets in the second
quarter. Consequently, statutory operating profit fell to a loss
of
GBP1.0m (H1 2019: GBP64.4m).
Finance charge
The net finance charge was GBP2.8m (H1 2019: GBP2.2m), with the
increase reflecting higher net debt following completion of the
Ellison transaction on 3 April.
During the second quarter, the Group negotiated an 'amend and
extend' to its previous Revolving Credit Facility, which was
concluded on 27 May. As a result, the Group now has a GBP250m
Revolving Credit Facility, which expires in May 2025. As at 30
June, the facility was drawn by GBP46.1m (30 June 2019:
GBP30m).
Taxation
As a result of the statutory loss, there was a tax credit in the
first half of 2020 of GBP1.5m (H1 2019: tax charge of GBP15.2m). In
line with previous guidance, the headline tax rate, being stated
before accounting for amortisation of acquired intangibles,
acquisition costs, and exceptional restructuring costs, was 22.5%
(H1 2019: 24.4%).
Earnings per share
Basic headline earnings per share for the half year were 14.2p
(H1 2019: 25.6p). Basic statutory loss per share was 1.3p (H1 2019:
earnings of 24.7p).
Cash flow
Half Year to Half Year to Year end
GBPm 30 June 2020 30 June 2019 31 December 2019
-------------------------------------------------- ------------------ ------------------ -------------------
Post Pre Post Pre Post Pre
IFRS 16 IFRS 16 IFRS 16 IFRS 16 IFRS 16 IFRS 16
Headline operating profit 37.8 36.6 66.9 65.7 134.9 132.6
Depreciation and amortisation 41.0 33.7 39.0 31.7 79.6 65.1
Impairment of property, plant & equipment 0.4 0.4 - - - -
Income from associates (0.2) (0.2) (0.2) (0.2) (0.2) (0.2)
Profit on disposal of property, plant & equipment 0.1 0.1 - - (4.4) (4.4)
-------------------------------------------------- -------- -------- -------- -------- --------- --------
Headline EBITDA 79.1 70.6 105.7 97.2 209.9 193.1
Net maintenance capital expenditure (22.3) (19.5) (32.7) (25.1) (50.2) (39.1)
Net working capital movement 24.7 24.7 (13.3) (13.3) (4.2) (4.2)
-------------------------------------------------- -------- -------- -------- -------- --------- --------
Headline operating cash flow 81.5 75.8 59.7 58.8 155.5 149.8
Restructuring (3.0) (3.0) (1.2) (1.2) (3.2) (3.2)
Financing costs (2.2) (1.1) (2.1) (0.9) (4.5) (2.1)
Tax (6.6) (6.6) (11.8) (11.8) (24.7) (24.7)
-------------------------------------------------- -------- -------- -------- -------- --------- --------
Free cash flow 69.7 65.1 44.6 44.9 123.1 119.8
Expansionary capital expenditure (12.9) (12.4) (15.6) (15.6) (32.2) (32.2)
Ordinary dividend - - (25.2) (25.2) (36.8) (36.8)
Acquisition spend (97.2) (94.1) (28.6) (22.7) (29.0) (22.9)
Special dividend - - (38.1) (38.1) (38.1) (38.1)
Own shares purchased less SBP and others (0.9) (0.9) (4.8) (5.0) (4.9) (4.9)
-------------------------------------------------- -------- -------- -------- -------- --------- --------
(Reduction) in net cash (41.3) (42.3) (67.7) (61.7) (17.9) (15.1)
Opening net (debt)/cash (58.5) 20.9 (44.1) 36.2 (44.1) 36.2
Foreign exchange movements (6.8) (2.2) - - 3.5 (0.2)
-------------------------------------------------- -------- -------- -------- -------- --------- --------
Closing net (debt)/cash (106.6) (23.6) (111.8) (25.5) (58.5) 20.9
-------------------------------------------------- -------- -------- -------- -------- --------- --------
The Group's cash flow generation in the first half was again
strong. This was a result of careful cash management, coupled with
the benefit of a significant working capital inflow, mainly
resulting from lower trade receivables associated with the lower
revenues. Consequently, free cash flow in the first half of
GBP69.7m actually exceeded free cash flow in the equivalent period
last year.
Net debt
Group net debt excluding lease liabilities was GBP23.6m, lower
than the equivalent number last year (30 June 2019: GBP25.5m),
while Group net debt (including lease liabilities) at 30 June 2020
was also lower at GBP106.6m (30 June 2019: GBP111.8m), after having
spent GBP94m on the acquisition of Ellison Surface Technologies in
April.
Principal risks and uncertainties
The directors have reconsidered the principal risks and
uncertainties of the Group, particularly in relation to COVID-19.
The directors consider that the principal risks and uncertainties
of the Group published in the Annual Report for the year ended 31
December 2019 remain appropriate, however, the majority have been
impacted to a certain extent by COVID-19. The risks and associated
risk management processes, including financial risks, can be found
on pages 27-30 and 118-121 of the 2019 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;
-- Environment;
-- Service quality;
-- Major disruption at a facility;
-- Capital projects;
-- Information Technology projects; and
-- Regulatory and legislative compliance.
COVID-19
The COVID-19 pandemic has brought considerable change to the
risk landscape in the first half of the year, increasing the impact
of many of the Group's principal risks and creating uncertainty in
how the future risk landscape will unfold. The Group has
re-assessed all of its principal risks and, where necessary,
management have implemented further mitigation activities as
highlighted in the 'Market sectors, Specialist Technologies, and
Emerging Markets' section above. COVID-19 has significantly
impacted Bodycote customers in many sectors with Automotive
revenues down in the second quarter while Aerospace customers,
Boeing and Airbus, announced significant reductions in the
production of new planes, where Bodycote's civil aerospace business
is primarily concentrated.
COVID-19 has resulted in limited direct disruption to most of
our facilities in terms of inability to operate, as they provide
essential services and continued to operate. In the small number of
cases where there has been an impact, the Group's existing business
continuity framework has helped minimise the impact on customers.
COVID-19 also had the potential to be a significant health and
safety risk to our employees. To help safeguard our employees, the
Group responded proactively in closing office facilities ahead of
any local requirements to do so, supporting remote working where
possible. Additional precautions have also been adopted in our
facilities, with new SHE guidance including temperature checks,
appropriate PPE, and social distancing measures. The Group will
continue to monitor the changing risk landscape and to respond as
required.
Going concern
As described in note 1 to 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 the foreseeable
future. In making this judgement, they have considered the impacts
of current and severe but plausible consequences arising from
COVID-19 to the Group's activities. 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 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 D. Yates
Group Chief Executive Chief Financial Officer
23 July 2020 23 July 2020
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 Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm Note GBPm GBPm
---------- ------------------------------------------- ---- ------------ ------------
719.7 Revenue 3 306.7 366.5
(590.5) Cost of sales and overheads (275.5) (301.8)
(0.6) Net impairment losses on financial assets (0.1) (0.3)
---------- ------------------------------------------- ---- ------------ ------------
128.6 Operating profit prior to exceptional items 31.1 64.4
- Exceptional items 4 (32.1) -
---------- ------------------------------------------- ---- ------------ ------------
128.6 Operating (loss)/profit 3 (1.0) 64.4
0.2 Finance income 0.1 0.2
(4.9) Finance costs (2.9) (2.4)
---------- ------------------------------------------- ---- ------------ ------------
123.9 (Loss)/profit before taxation (3.8) 62.2
(29.9) Taxation credit/(charge) 5 1.5 (15.2)
---------- ------------------------------------------- ---- ------------ ------------
94.0 (Loss)/profit for the period (2.3) 47.0
---------- ------------------------------------------- ---- ------------ ------------
Attributable to:
93.8 Equity holders of the parent (2.4) 46.9
0.2 Non-controlling interests 0.1 0.1
---------- ------------------------------------------- ---- ------------ ------------
94.0 (2.3) 47.0
---------- ------------------------------------------- ---- ------------ ------------
(Loss)/earnings per share 7
Pence Pence Pence
49.4 Basic (1.3) 24.7
49.2 Diluted (1.3) 24.7
---------- ------------------------------------------- ---- ------------ ------------
All activities have arisen from continuing operations.
Unaudited condensed consolidated statement of comprehensive
income
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
---------- ------------------------------------------------------------------- ------------ --------------
94.0 (Loss)/profit for the period (2.3) 47.0
Items that will not be reclassified to profit or loss:
(2.0) Actuarial (losses)/gains on defined benefit pension schemes (0.3) 0.3
0.9 Tax on items that will not be reclassified - -
---------- ------------------------------------------------------------------- ------------ --------------
(1.1) 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:
(26.4) Exchange gains/(losses) on translation of overseas operations 30.6 0.4
- Movements on hedges of net investments (1.2) -
---------- ------------------------------------------------------------------- ------------ --------------
(26.4) Total items that may be reclassified subsequently to profit or loss 29.4 0.4
(27.5) Other comprehensive income/(expense) for the period 29.1 0.7
---------- ------------------------------------------------------------------- ------------ --------------
66.5 Total comprehensive income for the period 26.8 47.7
---------- ------------------------------------------------------------------- ------------ --------------
Attributable to:
66.4 Equity holders of the parent 26.8 47.6
0.1 Non-controlling interests - 0.1
---------- ------------------------------------------------------------------- ------------ --------------
66.5 26.8 47.7
---------- ------------------------------------------------------------------- ------------ --------------
Unaudited condensed consolidated balance sheet
Restated(1)
As at As at As at
31 Dec 30 June 30 June
2019 2020 2019
GBPm Note GBPm GBPm
------- --------------------------------------------------- ---- -------- -----------
Non-current assets
169.8 Goodwill 8 225.0 174.5
42.6 Other intangible assets 127.2 46.5
534.5 Property, plant and equipment 557.7 550.0
73.3 Right-of-use assets 75.5 79.8
4.2 Investment in associate 4.2 4.3
6.1 Deferred tax assets 6.4 8.2
1.2 Trade and other receivables 2.4 1.3
------- --------------------------------------------------- ---- -------- -----------
831.7 998.4 864.6
------- --------------------------------------------------- ---- -------- -----------
Current assets
14.8 Inventories 18.3 16.2
- Derivative financial instruments 0.1 -
15.7 Current tax assets 16.7 8.5
142.9 Trade and other receivables 128.7 156.5
22.0 Cash and bank balances 23.9 12.5
- Assets held for sale - 1.8
------- --------------------------------------------------- ---- -------- -----------
195.4 187.7 195.5
------- --------------------------------------------------- ---- -------- -----------
1,027.1 Total assets 1,186.1 1,060.1
------- --------------------------------------------------- ---- -------- -----------
Current liabilities
127.4 Trade and other payables 194.1 125.4
31.2 Current tax liabilities 23.9 31.0
1.1 Borrowings 47.5 38.0
13.4 Lease liabilities 14.5 13.5
4.0 Provisions 9 20.6 5.0
------- --------------------------------------------------- ---- -------- -----------
177.1 300.6 212.9
------- --------------------------------------------------- ---- -------- -----------
18.3 Net current (liabilities)/assets (112.9) (17.4)
------- --------------------------------------------------- ---- -------- -----------
Non-current liabilities
66.0 Lease liabilities 68.5 72.8
17.9 Retirement benefit obligations 19.7 16.8
48.6 Deferred tax liabilities 52.7 45.6
9.5 Provisions 9 10.7 11.4
2.2 Other payables 2.1 2.5
------- --------------------------------------------------- ---- -------- -----------
144.2 153.7 149.1
------- --------------------------------------------------- ---- -------- -----------
321.3 Total liabilities 454.3 362.0
------- --------------------------------------------------- ---- -------- -----------
705.8 Net assets 731.8 698.1
------- --------------------------------------------------- ---- -------- -----------
Equity
33.1 Share capital 33.1 33.1
177.1 Share premium account 177.1 177.1
(11.6) Own shares (8.2) (11.6)
136.7 Other reserves 133.0 141.8
37.9 Translation reserves 67.4 64.6
331.8 Retained earnings 328.6 292.3
------- --------------------------------------------------- ---- -------- -----------
705.0 Equity attributable to equity holders of the parent 731.0 697.3
0.8 Non-controlling interests 0.8 0.8
705.8 Total equity 731.8 698.1
------- --------------------------------------------------- ---- -------- -----------
(1) A reconciliation of the restatement has been provided in
note 12.
Unaudited condensed consolidated cash flow statement
Restated1
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm Note GBPm GBPm
---------- --------------------------------------------------------------------- ---- ------------ -------------
177.3 Net cash from operating activities 11 75.5 80.1
---------- --------------------------------------------------------------------- ---- ------------ -------------
Investing activities
(77.7) Purchases of property, plant and equipment (33.3) (41.0)
Proceeds on disposal of property, plant and equipment and intangible
7.4 assets 1.8 0.2
(1.0) Purchases of other intangibles (0.2) (0.3)
(19.1) Acquisition of businesses, net of cash acquired 10 (66.1) (19.6)
---------- --------------------------------------------------------------------- ---- ------------ -------------
(90.4) Net cash used in investing activities (97.8) (60.7)
---------- --------------------------------------------------------------------- ---- ------------ -------------
Financing activities
0.2 Interest received 0.3 0.2
(4.7) Interest paid (2.5) (2.1)
(74.9) Dividends paid 6 - (63.3)
(14.4) Principal elements of lease payments (7.6) (7.2)
(6.0) Own shares purchased (0.5) (6.0)
35.0 Drawdown of bank loans 46.1 35.0
(37.3) Repayments of bank loans (11.9) (5.0)
---------- --------------------------------------------------------------------- ---- ------------ -------------
(102.1) Net cash generated/(used) in financing activities 23.9 (48.4)
---------- --------------------------------------------------------------------- ---- ------------ -------------
(15.2) Net increase/(decrease) in cash and cash equivalents 1.6 (29.0)
36.2 Cash and cash equivalents at beginning of period 20.9 36.2
(0.1) Effect of foreign exchange rate changes - (0.2)
---------- --------------------------------------------------------------------- ---- ------------ -------------
20.9 Cash and cash equivalents at end of period 11 22.5 7.0
---------- --------------------------------------------------------------------- ---- ------------ -------------
1 In the June 2019 comparatives the presentation of share-based
payments in the cash flow has been amended to present share-based
payments as an operating cash flow item, instead of a financing
cash flow item consistent with the treatment in the 2019 Annual
Report.
Unaudited condensed consolidated statement of changes in
equity
Equity
attributable
Share to equity Non-
Share premium Own Other Translation Retained holders of controlling Total
capital account shares reserves reserves earnings the parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
Half year to 30
June 2020
1 January 2020 33.1 177.1 (11.6) 136.7 37.9 331.8 705.0 0.8 705.8
Net loss for the
period - - - - - (2.4) (2.4) 0.1 (2.3)
Exchange
differences on
translation of
overseas
operations - - - - 30.7 - 30.7 (0.1) 30.6
Movements on
hedges of net
investments - - - - (1.2) - (1.2) - (1.2)
Actuarial losses
on defined
benefit pension
schemes net of
deferred tax - - - - - (0.3) (0.3) - (0.3)
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
Total
comprehensive
income/(loss) for
the period - - - - 29.5 (2.7) 26.8 - 26.8
Acquired in the
period/settlement
of share options - - 3.4 (3.4) - (0.6) (0.6) - (0.6)
Share-based
payments - - - (0.3) - - (0.3) - (0.3)
Deferred tax on
share-based
payment
transactions - - - - - 0.1 0.1 - 0.1
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
30 June 2020 33.1 177.1 (8.2) 133.0 67.4 328.6 731.0 0.8 731.8
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
Half year to 30
June 2019
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
1 January 2019(1) 33.1 177.1 (14.8) 141.4 64.2 317.6 718.6 0.7 719.3
Net profit for the
period - - - - - 46.9 46.9 0.1 47.0
Exchange
differences on
translation of
overseas
operations - - - - 0.4 - 0.4 - 0.4
Actuarial losses
on defined
benefit pension
schemes net of
deferred tax - - - - - 0.3 0.3 - 0.3
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
Total
comprehensive
income for the
period - - - - 0.4 47.2 47.6 0.1 47.7
Acquired in the
period/settlement
of share options - - 3.2 (0.8) - (9.2) (6.8) - (6.8)
Share-based
payments - - - 1.2 - - 1.2 - 1.2
Deferred tax on
share-based
payment
transactions - - - - - (0.2) (0.2) - (0.2)
Dividends paid - - - - - (63.1) (63.1) - (63.1)
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
Balance at 30 June
2019 33.1 177.1 (11.6) 141.8 64.6 292.3 697.3 0.8 698.1
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
Year ended 31
December 2019
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
1 January 2019(1) 33.1 177.1 (14.8) 141.4 64.2 317.6 718.6 0.7 719.3
Net profit for the
year - - - - - 93.8 93.8 0.2 94.0
Exchange
differences on
translation of
overseas
operations - - - - (26.3) - (26.3) (0.1) (26.4)
Actuarial losses
on defined
benefit pension
schemes net of
deferred tax - - - - - (1.1) (1.1) - (1.1)
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
Total
comprehensive
income for the
year - - - - (26.3) 92.7 66.4 0.1 66.5
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
Acquired in the
year/settlement
of share options - - 3.2 (5.8) - (3.4) (6.0) - (6.0)
Share-based
payments - - - 1.1 - - 1.1 - 1.1
Deferred tax on
share-based
payment
transactions - - - - - (0.4) (0.4) - (0.4)
Dividends paid - - - - - (74.7) (74.7) - (74.7)
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
Balance at 31
December 2019 33.1 177.1 (11.6) 136.7 37.9 331.8 705.0 0.8 705.8
------------------ -------- -------- ------- --------- ----------- --------- ------------ ----------- -------
(1) The 1 January 2019 opening retained earnings has been
restated by GBP0.5m to reflect the impact of the IFRS16 and the
recognition of deferred tax assets as presented in the 2019 annual
report.
Included in other reserves is a capital redemption reserve of
GBP129.8m (31 December 2019: GBP129.8m; 30 June 2019: GBP129.8m)
and a share-based payments reserve of GBP2.4m (31 December 2019:
GBP6.1m; 30 June 2019: GBP11.2m). The capital redemption reserve
arose from B shares which were converted into deferred shares in
2008 and 2009, and as a result, GBP129.8m 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 2020, 1,012,786 (31
December 2019: 1,405,555; 30 June 2019: 1,405,555) 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
1. Accounting policies
Basis of preparation
These condensed consolidated financial statements for the half
year ended 30 June 2020 have been prepared in accordance with the
Disclosure Guidance and Transparency Rules of the UK Financial
Conduct Authority and with International Accounting Standard 34,
'Interim financial reporting', as adopted by the European Union.
These condensed consolidated financial statements should be read in
conjunction with the Annual Report for the year ended 31 December
2019, which was prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union and
filed with the Registrar of Companies on 8 June 2020.
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 2019 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.
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 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 section of this Interim report includes a
summary of the Group's financial position, cash flows, liquidity
position and borrowing facilities. The impact of COVID-19 on the
Group's performance in the six months to 30 June 2020 is further
described in the Interim management report.
The current and plausible future impact of COVID-19 on the
Group's activities and performance has been considered by the Board
of directors in preparing its going concern assessment. Whilst the
situation is uncertain and evolving, the Group has modelled
potential severe but plausible impacts on revenues, profits and
cash flows in its assessment. In preparing its assessment, the
directors have considered the actual impact that COVID-19 has had
on the business since the beginning of the outbreak and the related
decline in revenues. Second quarter revenues on a like-for-like
basis were 33% below those in the prior year, reflecting the impact
of shutdowns at the Group's customers' locations. This decline was
used to establish a severe but plausible downside scenario under
which the crisis would have a prolonged impact, with a significant
revenue shortfall compared with 2019 actuals through to the end of
2020, and a continued (albeit smaller) decline compared with 2019
actuals extending to the end of 2021. The Group's record of cash
conversion during recent months was used to estimate the cash
generation and level of net debt over that period, with the cost
reduction achieved in the first half resulting in operational
gearing of 42%. Operational gearing is the differential in headline
operating profit divided into the differential in revenue on a
like-for-like constant currency basis.
The Group meets its working capital requirements through a
combination of committed and uncommitted facilities and overdrafts.
For the purpose of the going concern assessment, the directors have
only taken into account the capacity under existing committed
facilities, being the Group's Revolving Credit Facility. The
Group's uncommitted facilities totalled GBP59m as at 30 June
2020.
On 27 May 2020, the Group extended and increased the borrowing
base of the Revolving Credit Facility for five years to May 2025.
The committed facilities at 30 June 2020 were this GBP250m
Revolving Credit Facility maturing on 27 May 2025. At 30 June 2020,
the Group's Revolving Credit Facility had drawings of GBP46.1m (31
December 2019: GBPnil; 30 June 2019: GBP30.0m).
The key covenants attached to the Group's Revolving Credit
Facility relate to gearing and interest cover, which are measured
on a pre-IFRS 16 basis. The maximum gearing ratio permitted under
the covenants is 3.5x and the minimum interest cover ratio
permitted is 4x. In the downside scenario modelled, the Group
continues to maintain sufficient liquidity and meets its gearing
and interest cover covenants under the Revolving Credit
Facility.
In addition to its modelled downside going concern scenario, the
Board has reverse stress tested the model to determine the extent
of downturn which would result in a breach of covenants. Assuming
similar levels of cash conversion as seen in recent months since
the outbreak occurred, a monthly revenue decline compared with 2019
actuals, well in excess of that experienced in any month in the
first six months of 2020, would need to persist throughout the
going concern period for a covenant breach to occur, which is
considered very unlikely. This stress test also does not
incorporate certain mitigating actions or cash preservation
responses, which the Group would implement in the event of a severe
and extended revenue decline.
Following its assessment, the directors have formed a judgement,
at the time of approving the condensed consolidated 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 the foreseeable future. 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 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, historically the Group has applied the forecast annual
effective corporate income tax rate to the pre-tax income for the
six month period. As a result of increased uncertainty due to the
current COVID-19 pandemic, management determined that the actual
tax charge for the six months ended 30 June 2020, excluding the
impact of one-off items, represented its best estimate of the
annual effective income tax rate to be used in calculating the tax
charge for this period. No adjustments have been made to prior
period comparatives.
As a result of the COVID-19 pandemic, the Group has benefitted
from GBP2.3m (31 December 2019: GBPnil; 30 June 2019: GBPnil) of
government assistance across its divisions in the form of job
retention schemes and grants for furloughed employees. In line with
IAS 20, this income is recognised in the income statement at the
date at which the conditions attached to receipt of such assistance
have been met, in the period it becomes receivable. This income is
presented net against the staff costs included in cost of sales and
overheads in the condensed consolidated income statement.
In accordance with IFRS 7, the Group has made the following
additions to its accounting policies to reflect hedging activity in
the current reporting period:
The Group uses foreign currency debt to hedge its exposure to
changes in the underlying net assets of overseas operations arising
from foreign exchange rate movements.
The Group maintains documentation of the relationship between
the hedged item and the hedging instrument at the inception of a
hedging transaction together with the risk management objective and
the strategy underlying the designated hedge. The Group also
documents its assessment, both at the inception of the hedging
relationship and subsequently on an ongoing basis, of the
effectiveness of the hedge in offsetting movements in the fair
values or cash flows of the hedged items.
With respect to IFRS 9, the Group's activities at the reporting
date constitute a net investment hedge. To the extent the hedge is
effective, changes in the fair value of the hedging instrument
arising from the hedged risk are recognised in the condensed
consolidated statement of comprehensive income and accumulated in
the hedging and translation reserve. The gain or loss relating to
any ineffective portion is recognised immediately in the condensed
consolidated income statement and is included in other operating
expenses.
Note 14 sets out the details and fair values of the instruments
used for hedging purposes.
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)
used to account for retirement benefit schemes under IAS 19
(revised), the decision not to recognize an asset in relation to
the surplus on the UK defined benefit scheme and the recognition of
tax provisions. There have been no changes to these key sources of
estimation uncertainty or these critical judgments since year
end.
In light of COVID-19, the directors have considered other areas
of judgement and estimation, including expected credit loss
provisioning and fair value measurements. As described further in
note 8, the Group has also performed an impairment test across all,
except two of its CGUs with no impairments identified. The
directors have concluded that any updates to the estimates
associated with these areas of the interim financial statements are
not expected to result in a material change in the next 12 months
and, therefore, are not key sources of estimation uncertainty.
2. 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 underlying 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, return on
sales, headline profit before taxation, EBITDA, headline EBITDA,
headline tax charge, headline tax rate, headline earnings per share
(EPS), headline operating cash flow, free cash flow, net debt/cash,
and net debt plus lease liabilities. These measures reflect the
underlying 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
underlying performance of the business. The measures described
above are also used in the targeting process for executive and
management annual bonuses (headline operating profit, headline
operating cash flow) and share schemes (headline EPS and return on
capital employed). In the 2019 Annual Report the Group made changes
to the presentation of headline EBITDA and its cash flow related
APMs to present share-based payments as an operating cash flow
item, instead of a financing cash flow item. The Group has restated
the half year to 30 June 2019 in accordance with the changes
adopted.
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.
APMs are defined and reconciled to the IFRS statutory measure as
follows:
Headline operating profit
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
---------- ------------------------------------ ------------ ------------
128.6 Statutory operating (loss)/profit (1.0) 64.4
Add back:
- Exceptional items 32.1 -
4.6 Amortisation of acquired intangibles 4.7 2.1
1.7 Acquisition costs 2.0 0.4
---------- ------------------------------------ ------------ ------------
134.9 Headline operating profit 37.8 66.9
---------- ------------------------------------ ------------ ------------
Return on sales
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
---------- ------------------------- ------------ ------------
134.9 Headline operating profit 37.8 66.9
719.7 Revenue 306.7 366.5
---------- ------------------------- ------------ ------------
18.7% Return on sales 12.3% 18.3%
---------- ------------------------- ------------ ------------
Headline profit before taxation
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
---------- ------------------------------------ ------------ ------------
123.9 (Loss)/profit before taxation (3.8) 62.2
Add back:
- Exceptional items 32.1 -
4.6 Amortisation of acquired intangibles 4.7 2.1
1.7 Acquisition costs 2.0 0.4
---------- ------------------------------------ ------------ ------------
130.2 Headline profit before taxation 35.0 64.7
---------- ------------------------------------ ------------ ------------
EBITDA and headline EBITDA (Earnings Before Interest, Taxation,
Depreciation and Amortisation)
Restated
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
---------- ---------------------------------------------------------- ------------ -------------
128.6 Operating (loss)/profit (1.0) 64.4
84.2 Depreciation and amortisation 45.8 41.1
- Impairment of property, plant and equipment 12.3 -
(4.4) Loss/(profit) on disposal of property, plant and equipment 0.1 -
1.1 Share-based payments (0.3) 1.2
(0.2) Income from associate (0.2) (0.2)
---------- ---------------------------------------------------------- ------------ -------------
209.3 EBITDA 56.7 106.5
- Exceptional items 20.1 -
1.7 Acquisition costs 2.0 0.4
(1.1) Share-based payments 0.3 (1.2)
---------- ---------------------------------------------------------- ------------ -------------
209.9 Headline EBITDA 79.1 105.7
---------- ---------------------------------------------------------- ------------ -------------
Headline tax charge
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
----------- ------------------------------------------- ------------ -------------
29.9 Tax (credit)/charge (1.5) 15.2
1.1 Tax on amortisation of acquired intangibles 1.2 0.6
- Tax on exceptional items 8.2 -
----------- ------------------------------------------- ------------ -------------
31.0 Headline tax charge 7.9 15.8
----------- ------------------------------------------- ------------ -------------
Headline tax rate
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
----------- ------------------------------- ------------ -------------
31.0 Headline tax charge 7.9 15.8
130.2 Headline profit before taxation 35.0 64.7
----------- ------------------------------- ------------ -------------
23.8% Headline tax rate 22.5% 24.4%
----------- ------------------------------- ------------ -------------
Headline earnings per share
A detailed reconciliation is provided in note 7.
Headline operating cash flow
Restated
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
---------- ----------------------------------- ------------ -------------
209.9 Headline EBITDA 79.1 105.7
---------- ----------------------------------- ------------ -------------
Less:
(50.2) Net maintenance capital expenditure (22.3) (32.7)
(4.2) Net working capital movement 24.7 (13.3)
---------- ----------------------------------- ------------ -------------
155.5 Headline operating cash flow 81.5 59.7
---------- ----------------------------------- ------------ -------------
Free cash flow
Restated
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
---------- ---------------------------- ------------ -------------
155.5 Headline operating cash flow 81.5 59.7
Less:
(3.2) Restructuring cash flows (3.0) (1.2)
(24.7) Income taxes paid (6.6) (11.8)
(4.5) Interest paid (2.2) (2.1)
---------- ---------------------------- ------------ -------------
123.1 Free cash flow 69.7 44.6
---------- ---------------------------- ------------ -------------
Net debt and net debt plus lease liabilities
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
----------- ---------------------------------------- ------------ -------------
22.0 Cash and bank balances 23.9 12.5
(1.1) Bank overdrafts (included in borrowings) (1.4) (5.5)
- Bank loans (included in borrowings) (46.1) (30.0)
- Debt acquired (included in borrowings) - (2.5)
----------- ---------------------------------------- ------------ -------------
20.9 Net (debt)/cash (23.6) (25.5)
(79.4) Lease liabilities (83.0) (86.3)
----------- ---------------------------------------- ------------ -------------
(58.5) Net debt plus lease liabilities (106.6) (111.8)
----------- ---------------------------------------- ------------ -------------
Revenue and headline operating profit/(loss) at constant
exchange rates
Reconciled to revenue and headline operating profit in the table
below.
Half year to 30 June 2020
---------------------------------------------
Central costs and
ADE AGI eliminations Consolidated
GBPm GBPm GBPm GBPm
------------------------------------------------------------ ----- ----- ----------------- ------------
Revenue 135.8 170.9 - 306.7
Constant exchange rates adjustment (1.6) 0.4 - (1.2)
------------------------------------------------------------ ----- ----- ----------------- ------------
Revenue at constant exchange rates 134.2 171.3 - 305.5
------------------------------------------------------------ ----- ----- ----------------- ------------
Headline operating profit/(loss) 27.1 14.4 (3.7) 37.8
Constant exchange rates adjustment (0.3) 0.9 (0.1) 0.5
------------------------------------------------------------ ----- ----- ----------------- ------------
Headline operating profit/(loss) at constant exchange rates 26.8 15.3 (3.8) 38.3
------------------------------------------------------------ ----- ----- ----------------- ------------
3. Business and geographical segments
The Group has more than 185 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:
-- 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
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 2020
----------------------------------------------
Central costs and
ADE AGI eliminations Consolidated
Group GBPm GBPm GBPm GBPm
---------------------------------------------------------------------- ----- ------ ----------------- ------------
Revenue
Total revenue 135.8 170.9 - 306.7
---------------------------------------------------------------------- ----- ------ ----------------- ------------
Result
---------------------------------------------------------------------- ----- ------ ----------------- ------------
Headline operating profit prior to share-based payments and
unallocated central costs 27.2 14.5 - 41.7
Share-based payments (including social security charges) (0.1) (0.1) 0.5 0.3
Unallocated central costs - - (4.2) (4.2)
---------------------------------------------------------------------- ----- ------ ----------------- ------------
Headline operating profit/(loss) 27.1 14.4 (3.7) 37.8
Amortisation of acquired intangible assets (2.8) (1.9) - (4.7)
Acquisition costs (2.0) - - (2.0)
---------------------------------------------------------------------- ----- ------ ----------------- ------------
Operating profit/(loss) prior to exceptional items 22.3 12.5 (3.7) 31.1
Exceptional items (6.1) (26.0) - (32.1)
Segment result 16.2 (13.5) (3.7) (1.0)
---------------------------------------------------------------------- ----- ------ ----------------- ------------
Finance income 0.1
Finance costs (2.9)
---------------------------------------------------------------------- ----- ------ ----------------- ------------
Loss before taxation (3.8)
Taxation credit 1.5
---------------------------------------------------------------------- ----- ------ ----------------- ------------
Loss for the period (2.3)
---------------------------------------------------------------------- ----- ------ ----------------- ------------
Inter-segment sales are not material.
The Group does not have any one customer that contributes more
than 10% of revenue.
Half year to 30 June 2020
-----------------------------------------------------
North
Western Europe America Emerging markets Total ADE
Aerospace, Defence & Energy GBPm GBPm GBPm GBPm
--------------------------------------------------------- -------------- -------- ---------------- ---------
Revenue
--------------------------------------------------------- -------------- -------- ---------------- ---------
Total revenue 57.2 78.1 0.5 135.8
--------------------------------------------------------- -------------- -------- ---------------- ---------
Result
Headline operating profit prior to share-based payments 11.9 15.2 0.1 27.2
Share-based payments (including social security charges) (0.1) - - (0.1)
--------------------------------------------------------- -------------- -------- ---------------- ---------
Headline operating profit 11.8 15.2 0.1 27.1
Amortisation of acquired intangible assets - (2.8) - (2.8)
Acquisition costs - (2.0) - (2.0)
--------------------------------------------------------- -------------- -------- ---------------- ---------
Operating profit prior to exceptional items 11.8 10.4 0.1 22.3
Exceptional items (4.5) (1.6) - (6.1)
--------------------------------------------------------- -------------- -------- ---------------- ---------
Segment result 7.3 8.8 0.1 16.2
--------------------------------------------------------- -------------- -------- ---------------- ---------
Half year to 30 June 2020
-----------------------------------------------------
North
Western Europe America Emerging markets Total AGI
Automotive & General Industrial GBPm GBPm GBPm GBPm
--------------------------------------------------------------- -------------- -------- ---------------- ---------
Revenue
Total revenue 102.0 41.2 27.7 170.9
--------------------------------------------------------------- -------------- -------- ---------------- ---------
Result
Headline operating profit/(loss) prior to share-based payments 11.5 (2.0) 5.0 14.5
Share-based payments (including social security charges) (0.1) - - (0.1)
--------------------------------------------------------------- -------------- -------- ---------------- ---------
Headline operating profit/(loss) 11.4 (2.0) 5.0 14.4
Amortisation of acquired intangible assets (0.3) (1.4) (0.2) (1.9)
Acquisition costs - - - -
--------------------------------------------------------------- -------------- -------- ---------------- ---------
Operating profit/(loss) prior to exceptional items 11.1 (3.4) 4.8 12.5
Exceptional items (17.0) (8.5) (0.5) (26.0)
--------------------------------------------------------------- -------------- -------- ---------------- ---------
Segment result (5.9) (11.9) 4.3 (13.5)
--------------------------------------------------------------- -------------- -------- ---------------- ---------
Half year to 30 June 2019
----------------------------------------------------------
ADE AGI Central costs and eliminations Consolidated
Group GBPm GBPm GBPm GBPm
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Revenue
Total revenue 151.1 215.4 - 366.5
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Result
Headline operating profit prior to share-based payments
and unallocated central costs 38.3 35.9 - 74.2
Share-based payments (including social security charges) (0.4) (0.5) (0.5) (1.4)
Unallocated central costs - - (5.9) (5.9)
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Headline operating profit/(loss) 37.9 35.4 (6.4) 66.9
Amortisation of acquired intangible assets (0.5) (1.6) - (2.1)
Acquisition costs - - (0.4) (0.4)
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Segment result 37.4 33.8 (6.8) 64.4
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Finance income 0.2
Finance costs (2.4)
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Profit before taxation 62.2
Taxation (15.2)
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Profit for the period 47.0
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Half year to 30 June 2019
-----------------------------------------------------
North
Western Europe America Emerging markets Total ADE
Aerospace, Defence & Energy GBPm GBPm GBPm GBPm
--------------------------------------------------------- -------------- -------- ---------------- ---------
Revenue
Total revenue 72.3 78.2 0.6 151.1
--------------------------------------------------------- -------------- -------- ---------------- ---------
Result
Headline operating profit prior to share-based payments 18.3 19.9 0.1 38.3
Share-based payments (including social security charges) (0.1) (0.3) - (0.4)
--------------------------------------------------------- -------------- -------- ---------------- ---------
Headline operating profit 18.2 19.6 0.1 37.9
Amortisation of acquired intangible assets - (0.5) - (0.5)
--------------------------------------------------------- -------------- -------- ---------------- ---------
Segment result 18.2 19.1 0.1 37.4
--------------------------------------------------------- -------------- -------- ---------------- ---------
Half year to 30 June 2019
-----------------------------------------------------
North
Western Europe America Emerging markets Total AGI
Automotive & General Industrial GBPm GBPm GBPm GBPm
--------------------------------------------------------- -------------- -------- ---------------- ---------
Revenue
Total revenue 129.3 55.5 30.6 215.4
--------------------------------------------------------- -------------- -------- ---------------- ---------
Result
Headline operating profit prior to share-based payments 23.2 5.6 7.1 35.9
Share-based payments (including social security charges) (0.2) (0.2) (0.1) (0.5)
--------------------------------------------------------- -------------- -------- ---------------- ---------
Headline operating profit 23.0 5.4 7.0 35.4
Amortisation of acquired intangible assets (0.2) (1.4) - (1.6)
Acquisition costs - - - -
--------------------------------------------------------- -------------- -------- ---------------- ---------
Segment result 22.8 4.0 7.0 33.8
--------------------------------------------------------- -------------- -------- ---------------- ---------
Year ended 31 December 2019
----------------------------------------------------------
ADE AGI Central costs and eliminations Consolidated
Group GBPm GBPm GBPm GBPm
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Revenue
Total revenue 301.4 418.3 - 719.7
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Result
Headline operating profit prior to share-based payments
and unallocated central costs 76.8 65.6 - 142.4
Share-based payments (including social security charges) (1.0) 0.3 (0.6) (1.3)
Unallocated central costs - - (6.2) (6.2)
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Headline operating profit/(loss) 75.8 65.9 (6.8) 134.9
Amortisation of acquired intangible assets (1.1) (3.5) - (4.6)
Acquisition costs (1.3) (0.4) - (1.7)
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Segment result 73.4 62.0 (6.8) 128.6
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Finance income 0.2
Finance costs (4.9)
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Profit before taxation 123.9
Taxation (29.9)
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Profit for the year 94.0
---------------------------------------------------------- ----- ----- ------------------------------ ------------
Year ended 31 December 2019
-----------------------------------------------------
North
Western Europe America Emerging markets Total ADE
Aerospace, Defence & Energy GBPm GBPm GBPm GBPm
--------------------------------------------------------- -------------- -------- ---------------- ---------
Revenue
Total revenue 141.3 158.7 1.4 301.4
--------------------------------------------------------- -------------- -------- ---------------- ---------
Result
Headline operating profit prior to share-based payments 35.9 40.6 0.3 76.8
Share-based payments (including social security charges) (0.4) (0.6) - (1.0)
--------------------------------------------------------- -------------- -------- ---------------- ---------
Headline operating profit 35.5 40.0 0.3 75.8
Amortisation of acquired intangible assets - (1.1) - (1.1)
Acquisition costs - (1.3) - (1.3)
--------------------------------------------------------- -------------- -------- ---------------- ---------
Segment result 35.5 37.6 0.3 73.4
--------------------------------------------------------- -------------- -------- ---------------- ---------
Year ended 31 December 2019
--------------------------------------------------------- -----------------------------------------------------
North
Western Europe America Emerging markets Total AGI
Automotive & General Industrial GBPm GBPm GBPm GBPm
--------------------------------------------------------- -------------- -------- ---------------- ---------
Revenue
Total revenue 246.0 107.4 64.9 418.3
--------------------------------------------------------- -------------- -------- ---------------- ---------
Result
--------------------------------------------------------- -------------- -------- ---------------- ---------
Headline operating profit prior to share-based payments 40.5 9.7 15.4 65.6
Share-based payments (including social security charges) 0.6 (0.3) - 0.3
--------------------------------------------------------- -------------- -------- ---------------- ---------
Headline operating profit 41.1 9.4 15.4 65.9
Amortisation of acquired intangible assets (0.4) (2.9) (0.2) (3.5)
Acquisition costs (0.4) - - (0.4)
--------------------------------------------------------- -------------- -------- ---------------- ---------
Segment result 40.3 6.5 15.2 62.0
--------------------------------------------------------- -------------- -------- ---------------- ---------
4. Exceptional items
Restructuring costs of GBP32.1m relate to ongoing initiatives
announced this year in Europe and North America, across AGI
(GBP26.0m) and ADE (GBP6.1m). These exceptional charges relate to
restructuring activities designed to right-size the business driven
by a combination of both macroeconomic uncertainties and longer
term structural shifts. These exceptional costs are a result of
strategic restructuring and are therefore non-recurring. Further
detail of this restructuring programme is outlined in the Interim
management report on page 3.
Restructuring costs include GBP18.8m of restructuring charges,
consisting of GBP10.0m severance and GBP8.8m site closure costs,
GBP1.2m of restructuring environmental provisions (provisions
detailed in note 9) and property plant, and equipment impairments
amounting to GBP12.0m for assets no longer required.
5. Taxation
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
---------- ---------------------------------------------------------- ------------ ------------
24.8 Current taxation - (credit)/charge for the period (2.2) 14.9
(3.9) Current taxation - adjustments in respect of prior periods 0.1 -
9.0 Deferred tax 0.6 0.3
---------- ---------------------------------------------------------- ------------ ------------
29.9 (1.5) 15.2
---------- ---------------------------------------------------------- ------------ ------------
The headline rate of tax for the interim period is 22.5% (31
December 2019: 23.8%; 30 June 2019: 24.4%) of the headline profit
before tax. As a result of increased uncertainty due to the current
COVID-19 pandemic, management determined that the actual tax charge
for the six months ended 30 June 2020, excluding the impact of
one-off items, represented its best estimate of the annual
effective income tax rate to be used in calculating the tax charge
for this period.
6. Dividends
Amounts recognised as distributions to equity holders in the
period:
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
---------- ---------------------------------------------------------------------------- ------------ ------------
25.2 Final dividend for the year ended 31 December 2018 of 13.3p per share - 25.2
38.1 Special dividend for the year ended 31 December 2018 of 20.0p per share - 38.1
11.4 Interim dividend for the year ended 31 December 2019 of 6.0p per share - -
---------- ---------------------------------------------------------------------------- ------------ ------------
74.7 - 63.3
---------- ---------------------------------------------------------------------------- ------------ ------------
Proposed 2019 deferred dividend of 13.3p (2018 final dividend: 13.3p) per
share 25.3 25.2
---------------------------------------------------------------------------- ------------ ------------
As a consequence of the impact of COVID-19, the declared 2019
final dividend of 14.0p per share was deferred and was not
presented for approval at the AGM. The Board has decided a deferred
2019 dividend of 13.3p will be paid in September 2020.
The dividends are waived on shares held by the Bodycote Employee
Benefit Trust.
7. 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 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
------------ ------------------------------------------------------------------------- ------------ ------------
Earnings
(Loss)/earnings for the purpose of basic earnings per share being net
(loss)/profit attributable
93.8 to equity holders of the parent (2.4) 46.9
------------- ------------------------------------------------------------------------ ------------ ------------
Number Number Number
---------------------------------------------------------------------------------------- ------------ ------------
Number of shares
-------------------------------------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares for the purposes of basic
189,921,112 earnings per share 190,205,026 189,804,077
Effect of dilutive potential ordinary shares:
794,287 Shares subject to performance conditions* - -
------------- ------------------------------------------------------------------------ ------------ ------------
Weighted average number of ordinary shares for the purposes of diluted
190,715,399 earnings per share 190,205,026 189,804,077
------------- ------------------------------------------------------------------------ ------------ ------------
* As at 30 June 2020 and 30 June 2019, the related performance
conditions have not been met resulting in nil dilution of earnings
per share.
Pence Pence Pence
(Loss)/earnings per share
49.4 Basic (1.3) 24.7
------- -------------------------------------------------------------- ----- -----
49.2 Diluted (1.3) 24.7
GBPm GBPm GBPm
Headline earnings
93.8 Net (loss)/profit attributable to equity holders of the parent (2.4) 46.9
Add back:
3.5 Amortisation of acquired intangible assets (net of tax) 3.5 1.5
- Exceptional items (net of tax) 23.9 -
1.7 Acquisition costs 2.0 0.4
------- -------------------------------------------------------------- ----- -----
99.0 Headline earnings 27.0 48.8
------- -------------------------------------------------------------- ----- -----
Pence Pence Pence
Headline earnings per share
52.1 Basic 14.2 25.6
------- -------------------------------------------------------------- ----- -----
51.9 Diluted 14.2 25.6
------- -------------------------------------------------------------- ----- -----
8. Goodwill
As at As at As at
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
------- --------------------------------------- -------- --------
Cost
225.2 At 1 January 230.7 225.2
(4.9) Exchange differences 6.8 0.2
10.4 Recognised on acquisition of businesses 48.8 10.4
------- --------------------------------------- -------- --------
230.7 At balance sheet date 286.3 235.9
------- --------------------------------------- -------- --------
Accumulated impairment
61.3 At 1 January 60.9 61.3
(0.4) Exchange differences 0.4 0.1
------- --------------------------------------- -------- --------
60.9 At balance sheet date 61.3 61.4
------- --------------------------------------- -------- --------
169.8 Carrying amount 225.0 174.5
------- --------------------------------------- -------- --------
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. The goodwill arising on the recently acquired Ellison
business has been included in the North America ADE CGU (refer to
note 10) as the synergies arising on the acquisition are expected
to benefit this CGU and the goodwill will, therefore, be monitored
at this level.
Goodwill is allocated to the CGUs as follows:
As at As at As at
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
------- ---------------- -------- --------
ADE:
26.8 Western Europe 27.0 26.9
47.9 North America 98.4 48.5
AGI:
27.6 Western Europe 28.8 28.5
55.5 North America 58.2 58.0
12.0 Emerging markets 12.6 12.6
------- ---------------- -------- --------
169.8 225.0 174.5
------- ---------------- -------- --------
The Group tests goodwill at least annually for impairment, or
more frequently if there are indications that goodwill might be
impaired. In accordance with IAS 36, given the impact that the
COVID-19 pandemic has had on the Group in the first half of the
year, the Group performed an impairment trigger assessment on
goodwill and other assets across all of its CGUs. The results of
this trigger assessment required the Group to perform a full
impairment test on all CGUs with the exception of two CGU's which
did not show signs of impairment based on the trigger assessment
and were therefore not tested at 30 June 2020. No impairment
exercise was performed as at 30 June 2019 as there were no
impairment triggers.
The recoverable amounts of the cash generating units were
determined from value-in-use calculations and are the sum of the
discounted cash flows. The key assumptions for those calculations
include the discount rates and the growth rates in respect of
future cash flows. Growth rates are determined by a combination of
management's forward-looking scenarios for the first five years
together with a further estimate of cash flows into perpetuity
using GDP growth rates based on the historical weighted average
growth in GDP in the respective geographies. The cash flows are
discounted using a pre-tax Weighted Average Cost of Capital (WACC)
which reflects current market assessments of the time value of
money and the risks specific to the cash generating units,
including country risk premium. The pre-tax rates used to discount
the forecast cash flows for each cash generating unit are between
9.7% (31 December 2019: 11.7%) and 11.2% (31 December 2019:
12.7%).
The projected cash flows reflect management's expectation of how
sales and operating profit will develop. In formulating the view on
future cash flows, consideration has been given to various external
data sources on the strength and timing of any expected economic
recovery and industry specific information. Recognising the
uncertainty regarding the near-term future economic outlook, three
projected potential scenarios have been modelled, with a
probability weighting of these scenarios used to forecast 2020
outcomes. These scenarios include declines in the second half of
the year reflecting different eventual outcomes including a second
wave of COVID-19 scenario and different recovery rates on Group
sales. The most pessimistic of these three scenarios sees, for the
three months in H2 2020, revenue declines at a similar level to
those seen in the second quarter, which saw revenues on a
like-for-like basis 33% below those in the prior year, with a
continued (albeit slightly smaller) decline in the rest of the
half. The most optimistic scenario sees revenue declines compared
with 2019 throughout H2 2020, but less significant declines than
experienced in quarter two. The probability weighting attached to
each scenario has no impact on the outcome of the impairment
assessment as the value in the CGUs is largely in later years.
Maintenance capital expenditure projections are based on
historical experience and include expenditure necessary to maintain
the projected cash flows from existing assets. The cash flows are
adjusted for the expected working capital requirements to deliver
sales and the timing of converting operating profits into cash. GDP
growth rates used to determine cash flows for 2024 and into
perpetuity are in the range 2.3% (31 December 2019: 2.3%) to 5.4%
(31 December 2019: 5.4%) depending on the geographical region of
each cash generating unit.
The majority of goodwill is allocated to two of the cash
generating units, being North America ADE and North America AGI.
The long-term growth rates applied to cash flows after 2023 and the
rates used to discount the projected cash flows for these cash
generating units are shown below:
Discount
Goodwill carrying value Long-term growth rate rate
As at As at As at
30 June 30 June 30 June
2020 2020 2020
GBPm % %
---------------------- ----------------------- --------------------- --------
Cash generating unit
North America ADE 98.4 2.8 9.7
North America AGI 58.2 2.8 9.7
---------------------- ----------------------- --------------------- --------
Discount
Goodwill carrying value Long-term growth rate rate
As at As at As at
31 Dec 31 Dec 31 Dec
2019 2019 2019
GBPm % %
---------------------- ----------------------- --------------------- --------
Cash generating unit
North America ADE 47.9 2.8 11.7
North America AGI 55.5 2.8 11.7
---------------------- ----------------------- --------------------- --------
Expected future cash flows are inherently uncertain and could
change materially over time. They are affected by a number of
factors, including market and production estimates, together with
economic factors such as prices, discount rates, currency exchange
rates, estimates of production costs, and future maintenance
capital expenditure, and therefore the Group has conducted
sensitivity analysis on the key assumptions applied to the value in
use calculations for the cash generating units. This uncertainty is
especially relevant in light of the impact of the COVID-19 pandemic
across the world and this has been reflected in the sensitivity
analyses performed of reasonably possible changes in the underlying
assumptions for the cash generating units. This analysis included:
slower growth in the aerospace market; 100% weighting given to the
2020 cash flow scenario that assumes a second wave of the COVID-19
pandemic; and an increase in the discount rate of 1%. These
sensitivities stress test the cash flow headroom on situations that
the directors consider are reasonably possible but not expected.
None of these scenarios resulted in an impairment.
The immediate outlook varies by sector and it is difficult in
the current environment to predict how the world's economies will
recover. Based on current available information the directors do
not consider that there are any reasonable possible sensitivities
that could arise in the next 12 months that would result in a
material impairment charge being recognised. The directors have
concluded that no impairment charge is required as at 30 June
2020.
9. Provisions
Restructuring
Restructuring Environmental Environmental Total
GBPm GBPm GBPm GBPm
------------------------------------ ------------- -------------- ------------- -----
Half year to 30 June 2020
1 January 2020 3.0 2.4 8.1 13.5
Increase in provision 18.8 1.2 0.1 20.1
Utilisation of provision (2.8) (0.2) (0.6) (3.6)
Acquired with subsidiaries - - 0.2 0.2
Exchange difference 0.4 0.2 0.5 1.1
------------------------------------ ------------- -------------- ------------- -----
30 June 2020 19.4 3.6 8.3 31.3
------------------------------------ ------------- -------------- ------------- -----
Included in current liabilities 20.6
Included in non-current liabilities 10.7
------------------------------------ ------------- -------------- ------------- -----
31.3
-----
The restructuring provision relates to the costs associated with
the closure of a number of Heat Treatment sites. The increase in
restructuring and restructuring environmental provisions of
GBP20.1m in the period relates to exceptional costs of GBP32.1m
incurred as a result of restructuring initiatives announced in
Europe
and North America.
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.
10. Acquisition of businesses
During the period the Group completed the acquisition of 100% of
the ordinary share capital of Ellison Surface Technologies
("Ellison") for total provisional consideration of GBP130.2m.
Ellison is a Surface Technology business located in North America
with a number of sites primarily serving the aerospace sector.
The acquisition significantly strengthens the Group's network,
enhances processes and creates synergies allowing the Group to
deliver industry-leading solutions that address aerospace
customers' heat treatment and specialist thermal requirements.
The accounting is provisional as the Group has twelve months to
finalise the valuation of the acquired assets and liabilities and
the resultant goodwill under IFRS 3.
The transaction has been accounted for as a business combination
under IFRS 3 and is summarised below:
Provisional
As at
30 June
2020
GBPm
------------------------------------------------------------------- -----------
Fair value of net assets acquired:
Other intangible assets 87.9
Property, plant and equipment 14.8
Right-of-use assets 5.1
Inventories 2.7
Trade and other receivables 7.5
Trade and other payables (19.4)
Lease liabilities (5.1)
Provisions (0.2)
Bank loans (11.9)
------------------------------------------------------------------- -----------
81.4
Goodwill 48.8
------------------------------------------------------------------- -----------
Total consideration 130.2
------------------------------------------------------------------- -----------
Satisfied by:
Cash consideration 66.1
Deferred consideration 64.1
------------------------------------------------------------------- -----------
Total consideration transferred/to be transferred 130.2
------------------------------------------------------------------- -----------
Net cash outflow arising on acquisition:
Cash consideration paid to seller 66.1
Repayment following completion of debt and other payables acquired 28.8
------------------------------------------------------------------- -----------
94.9
------------------------------------------------------------------- -----------
Acquisition-related costs amounted to GBP2.0m (31 December 2019:
GBP1.7m of which GBP1.3m related to the Ellison acquisition; 30
June 2019: GBP0.4m) and have been included in the Income
statement.
The gross contractual value of the trade and other receivables
was GBP7.8m. The best estimate at the acquisition date of the
contractual cash flows not expected to be collected was
GBP0.3m.
Deferred consideration is recognised at its fair value in the
consolidated financial statements. Gross deferred consideration of
GBP65.2m is payable within 12 months of the completion date of the
acquisition and has been discounted to its fair value.
The goodwill arising on the acquisition is expected to be
deductible for tax purposes and is attributable to:
-- the anticipated profitability of the distribution of the
Group's services in new markets; and
-- the synergies that can be achieved in the business
combination including management, processes and maximising site
capacities.
The business was acquired on 3 April 2020 and contributed
GBP7.2m revenue, GBP0.2m headline operating loss and GBP2.6m
operating loss (after deducting GBP2.3m for amortisation of
acquired intangibles and GBP0.1m exceptional items) for the period
between the date of acquisition and the balance sheet date.
If the acquisition had been completed on the first day of the
financial period, the acquisition would have contributed GBP18.9m
to Group revenue, GBP0.6m to Group headline operating profit and
GBP1.8m operating loss (after deducting GBP2.3m for amortisation of
acquired intangibles and GBP0.1m exceptional items) attributable to
equity holders of the parent.
In the prior year the Group acquired two facilities that were
accounted for as business combinations for total consideration of
GBP20.0m resulting in GBP10.4m of goodwill being recognised in the
consolidated financial statements. Refer to note 23 in the 2019
Annual Report for further information.
11. Notes to the cash flow statement
Restated1
Year ended Half year to Half year to
31 Dec 30 June 30 June
2019 2020 2019
GBPm GBPm GBPm
---------- ---------------------------------------------------------- ------------ -------------
94.0 (Loss)/profit for the period (2.3) 47.0
---------- ---------------------------------------------------------- ------------ -------------
Adjustments for:
(0.2) Finance income (0.1) (0.2)
4.9 Finance costs 2.9 2.4
29.9 Taxation (1.5) 15.2
---------- ---------------------------------------------------------- ------------ -------------
128.6 Operating (loss)/profit (1.0) 64.4
Adjustments for:
63.3 Depreciation of property, plant and equipment 32.6 30.9
14.5 Depreciation of right-of-use assets 7.3 7.2
6.4 Amortisation of other intangible assets 5.9 3.0
(4.4) Loss/(profit) on disposal of property, plant and equipment 0.1 -
1.1 Share-based payments (0.3) 1.2
(0.2) Income from associate (0.2) (0.2)
- Impairment of property, plant and equipment 12.3 -
---------- ---------------------------------------------------------- ------------ -------------
209.3 EBITDA2 56.7 106.5
(1.5) Increase in inventories - (2.3)
(1.1) Decrease/(increase) in receivables 27.3 (9.0)
(2.1) Decrease in payables (18.3) (3.0)
(2.6) Increase/(decrease) in provisions 16.4 (0.3)
---------- ---------------------------------------------------------- ------------ -------------
202.0 Cash generated by operations 82.1 91.9
(24.7) Income taxes paid (6.6) (11.8)
---------- ---------------------------------------------------------- ------------ -------------
177.3 Net cash from operating activities 75.5 80.1
---------- ---------------------------------------------------------- ------------ -------------
1In the June 2019 comparative the presentation of share-based
payments in the cash flow has been amended to present share-based
payments as an operating cash flow item, instead of a financing
cash flow item consistent with the treatment in the 2019 annual
report.
2Defined in note 2.
Cash and cash equivalents comprise:
22.0 Cash and bank balances 23.9 12.5
(1.1) Bank overdrafts (included in borrowings) (1.4) (5.5)
----- ---------------------------------------- ----- -----
20.9 22.5 7.0
----- ---------------------------------------- ----- -----
12. Restatement of comparative information
The following table summarises the impact resulting from the
restatements, being the netting of deferred tax on the condensed
consolidated balance sheet and an adjustment of GBP0.5m to reflect
the impact of the adoption of IFRS16 and the recognition on
deferred tax assets as presented in the 2019 annual report.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis. Management
applied a more strict application of this netting for the 2019 year
end which has resulted in a restatement of the interim 2019
balances, reducing both the asset by GBP16.6m and the liability by
GBP16.6m, to conform with the approach taken for the 2019 year end
financial statements. This restatement has had no impact on the
condensed consolidated income statement or condensed consolidated
cash flow statement.
Summarised condensed consolidated balance sheet
30 June 2019
----------------------------------------------------------
As previously reported Effect of restatement As restated
GBPm GBPm GBPm
---------------------------------------------------- ---------------------- --------------------- -----------
Non-current assets
Deferred tax assets 24.3 (16.1) 8.2
Other non-current assets 856.4 - 856.4
---------------------------------------------------- ---------------------- --------------------- -----------
880.7 (16.1) 864.6
---------------------------------------------------- ---------------------- --------------------- -----------
Non-current liabilities
---------------------------------------------------- ---------------------- --------------------- -----------
Deferred tax liabilities 62.2 (16.6) 45.6
Other non-current liabilities 103.5 - 103.5
165.7 (16.6) 149.1
---------------------------------------------------- ---------------------- --------------------- -----------
Net assets 697.6 0.5 698.1
---------------------------------------------------- ---------------------- --------------------- -----------
Equity
Retained earnings 291.8 0.5 292.3
---------------------------------------------------- ---------------------- --------------------- -----------
Equity attributable to equity holders of the parent 696.8 0.5 697.3
---------------------------------------------------- ---------------------- --------------------- -----------
Total equity 697.6 0.5 698.1
---------------------------------------------------- ---------------------- --------------------- -----------
13. 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.
14. Financial instruments
In accordance with IFRS 7 Financial Instruments: Disclosures,
the Group's financial instruments as set out below are considered
to be classified as level 2 instruments. Fair value measurements
are those derived from inputs other than quoted prices included
within level 1 that are observable for the asset or liabilities,
either directly (i.e. as prices) or indirectly (i.e. derived from
prices).
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 aggregate notional amount (aggregate face value) of
contracts held at 30 June 2020 was GBP4.5m (31 December 2019:
GBP1.4m; 30 June 2019: GBP1.4m).
The fair value of the Group's foreign currency forward contracts
is determined using quoted forward exchange rates and yield curves
derived from quoted interest rates matching the maturities of the
contracts. The related fair value of the contracts held at 30 June
2020 was GBP0.1m (31 December 2019: GBPnil; 30 June 2019:
GBPnil).
The Group's interest rate risk is primarily in relation to its
floating rate borrowings (cash flow risk). From time to time the
Group will use interest rate derivative contracts to manage its
exposure to interest rate movements within Group policy. However,
at the balance sheet date, the Group had no interest rate
derivative contracts (31 December 2019: nil; 30 June 2019:
nil).
Whilst low levels of debt are typically maintained, at the
balance sheet date the Group has drawn on the RCF to partly fund
the Ellison acquisition. This loan is denominated in USD and EUR
and the amounts designated as hedges of the net investments of the
Group's subsidiaries with matching functional currency on a 1:1
ratio. The effects and performance of the net investment hedge at
30 June 2020 are set out as follows:
GBPm EURm $m
---------------------------------------------------------------------------------------------- ------ ---- ----
Carrying amount (bank loan) and denominations (46.2) 25.0 29.0
Hedge ratio 1:1 - -
Change in bank loan carrying amount as a result of foreign currency movements since 1 January
2020 (1.2) - -
Change in value of hedged item used to determine hedge effectiveness 1.2 - -
---------------------------------------------------------------------------------------------- ------ ---- ----
The foreign exchange loss of GBP1.2m on translation of
borrowings to GBP at the end of the reporting period is recognised
in other comprehensive income and accumulated in the foreign
currency translation reserve in shareholder's equity. There was no
ineffectiveness to be recorded from the net investment hedge.
15. Contingent liabilities
The international tax environment has received increased
attention and seen rapid change over recent years, both at a US and
European level, and by international bodies such as the
Organisation for Economic Cooperation and Development (OECD).
Against this backdrop, Bodycote has been monitoring developments
and continues to engage transparently with the tax authorities in
the countries where we operate. On 25 April 2019, the European
Commission released its decision that part of the UK Group
Financing Exemption measures in the UK-controlled foreign company
rules were unlawful and incompatible State Aid and have instructed
HM Revenue & Customs to recover the State Aid. The UK
Government has subsequently appealed the decision.
In common with other UK-based international companies whose
arrangements were in line with current UK CFC legislation, Bodycote
may be affected by the outcome of this decision and has calculated
the maximum potential liability including interest to be
approximately GBP21.8m (31 December 2019: GBP21.6m; 30 June 2019:
GBP20.0m). Bodycote is reviewing the details of the decision and
assessing any impact upon the Company's tax position. At present,
Bodycote believes that no provision is required in respect of this
matter.
The Group is subject to certain legal proceedings, claims,
complaints and investigations arising out of the ordinary course of
business. 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.
16. 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
Independent review report to Bodycote plc
Report on the interim financial statements
Our conclusion
We have reviewed Bodycote plc's interim financial statements
(the "interim financial statements") in the interim report 2020 of
Bodycote plc for the 6 month period ended 30 June 2020. 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 International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union 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 2020;
-- the unaudited condensed consolidated income statement and
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 report
2020 have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim report 2020, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the interim
report 2020 in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim report 2020 based on our
review. 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.
What a review of interim financial statements involves
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 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
report 2020 and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
23 July 2020
Company information
Financial calendar
Deferred dividend for 2019 September 2020
Results for 2020 March 2021
Annual General Meeting May 2021
Interim results for 2021 July 2021
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 (+44 121 415 0804 if calling from outside the UK). Lines
open 9.00am to 5.00pm (UK time), Monday to Friday excluding public
holidays in England and Wales; Email: Log on to
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. Shareholders can easily
access and maintain their shareholding online by registering at
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 (+44 121 415 7560 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 for the up-to-date commission rates.
To view the Bodycote Interim report online visit www.
bodycote.com
Bodycote plc
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
United Kingdom
SK10 2XF
Tel: +44 (0)1625 505300
Fax: +44 (0)1625 505313
Email: info@bodycote.com
(c) Bodycote plc 2020
Produced by Radley Yeldar
www.ry.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FIFSSDFIVFII
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July 23, 2020 02:00 ET (06:00 GMT)
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