Interim Results
August 27 2003 - 3:00AM
UK Regulatory
RNS Number:0185P
Bodycote International PLC
27 August 2003
EMBARGOED UNTIL 0700 HRS : 27 AUGUST 2003
BODYCOTE INTERNATIONAL PLC
PRELIMINARY RESULTS ANNOUNCEMENT
FOR THE HALF YEAR TO 30 JUNE 2003
* Sales #228.1m (2002: #225.3m), marginally ahead despite difficult trading
conditions in end markets
* Profit before tax #10.7m (2002: #6.8m)
* Capital expenditure reduced to 0.8 times depreciation (2002: 1.3 times)
* Free cash flow #13.6m (#4.7m)
* Dividend maintained at 2.25p per share
SUMMARY OF RESULTS Half year to Half year to
30 June 2003 30 June 2002
Turnover #228.1m #225.3m
Headline Operating Profit * #22.8m #26.8m
Operating Profit #15.8m #12.3m
Headline Profit before taxation* #17.7m #21.3m
Profit before taxation #10.7m #6.8m
Headline earnings per share* 5.3p 5.8p
Basic earnings per share 3.0p 1.5p
Dividend per share 2.25p 2.25p
* Expressed before amortisation of goodwill and exceptional items
Commenting on the results, John Hubbard, Chief Executive said:
"It has been a tough six months for the markets we serve, but our self-help
measures have produced the expected savings. Revenues are moving ahead as we
win more outsourcing contracts although cost increases, competition and changes
in mix have offset the benefits of our cost cutting initiatives. We continue to
impose tight control of capital expenditure and again improved cash flow.
Looking ahead, we do not anticipate any immediate improvement in the economic
environment so self-help remains the key to improving our performance."
INTERIM STATEMENT
Introduction
Sales during the six months to 30 June 2003 were marginally ahead of the same
period last year and 6% ahead of second half of 2002. This growth in revenue
was achieved against a background of declining end markets and is attributable
to new outsourcing contracts coming on stream, along with the acquisition of
heat treatment and materials testing businesses in Italy in the second half of
2002. Overall, manufacturing demand remained weak which, combined with an
erosion of selling prices due to excess capacity in our industry, meant that we
processed somewhat more kilogrammes to achieve virtually the same revenues.
Changes in mix, notably the decline in aerospace, power generation and US oil &
gas markets also adversely affected margins. Despite our success in achieving
annualised cost savings of more than #10m during the last financial year, we
have experienced significant offsetting cost increases in the first half, most
notably for wage increases, energy and depreciation. The modest increase in
capacity utilisation has not been enough to compensate for these increased costs
and margin pressure. However, good control of capital investment helped us
achieve free cash flow (cash flow from operating activities less payments for
capital expenditure, interest and tax) of #13.6m (#4.7m last year).
Results
Sales in the first half were in line with expectations at #228.1m, #2.8m higher
than in the first half of 2002. Our overall market share has improved and we
continue to gain business that has historically been done in-house. EBITDA was
#45.2m (before exceptional items) compared to #47.4m in the same period last
year. Operating profit (before goodwill and exceptional items) was #22.8m
versus #26.8m a year ago. Profit before tax, goodwill and exceptional items was
#17.7m compared with #21.3m last year. To address the continuing weaknesses in
aerospace and power generation we closed a further three plants in North America
at an exceptional cost of #2.4m (#0.6m cash). Headline earnings per share are
5.3p (5.8p last year).
Rationalisation measures
In the past 30 months we have merged 30 facilities and reduced like for like
headcount by over 1000, of which over 400 (5% of the workforce) has been in the
past 12 months. Customer retention has been good and much of the equipment has
been relocated and surplus real estate sold. We continue to have significant
capacity to support future increases in business arising from economic recovery.
We have, in the main, rationalised overlapping facilities that resulted from
the rapid acquisition growth in the past. We will continue to review closely
the future of several of our weaker performing plants.
Operational Review
Heat Treatment
Heat Treatment sales and operating profit were #156.0m and #17.4m respectively
in the first half of 2003 versus #156.6m and #19.8m in the same period in 2002.
North America continued to exhibit good cost control in the face of a declining
market. Sales fell #11.5m with operating profit down #3.1m, of which currency
translation accounted for #6.2m and #0.4m respectively. This region has been
impacted significantly by the slowdown in the aerospace and power generation
sectors along with the continuing weakness in oil and gas. In addition, energy
costs were approximately 10% higher than in the same period last year but have
abated somewhat since the end of hostilities in the Gulf. The Central European
Group saw marginal sales growth in local currency but a small reduction in
operating profit. This was a robust performance against a background of
recession in its main market, Germany, and reflects the benefits of new
contracts with blue-chip automotive customers. Excluding the acquisition of
Gamma, the France, Belgium, Italy group saw sales and operating profit fall by
Euro2.9m and Euro1.8m respectively, with the large volume automotive orientated plants
affected most. We have recently concluded negotiations in France which will
allow our cost reduction plans, put forward in 2002, to come into effect in the
second half. The Nordic and UK region saw flat sales in local currency but
additional depreciation and high maintenance costs depressed profits slightly.
Materials Testing
Materials Testing has performed admirably. Sales and operating profit increased
to #29.7m and #5.4m from #26.2m and #4.6m in the same period last year. This
creditable performance has been the result of good sales development and
strength in several key market areas most notably oil & gas development and
civil engineering, allied to stringent cost control. An increasing number of
manufacturers are appreciating the benefits of outsourcing and are rationalising
their in-house testing capabilities with Bodycote being a major beneficiary of
this trend because we are identified as an integrated service provider with a
proven track record. Large outsourcing contracts have recently been won from
several major blue chip clients including General Motors, Doncasters and Johnson
& Johnson. Negotiations are on going with several other manufacturers and we
expect further successes in the second half. The excellent trading performance
from our Middle East operations was given further impetus in July with the
acquisition of five laboratories in the region. Bodycote now has six
laboratories operating from four Gulf States and is well positioned to
capitalise on the huge infrastructure improvement programmes currently underway
in this region.
Metallurgical Coatings
Metallurgical Coatings had sales of #28.9m (2002: #27.5m) and an operating loss
of #0.9m (2002: profit #0.6m) in the first half. This is a major improvement
over the second half of 2002 with sales of #24.8m and an operating loss of
#1.7m. Electroplating again incurred a loss mainly due to start-up costs at the
Gothenburg, Sweden plant and commercial and operational difficulties at our
chrome and gold plating facility at St Dizier, France. Fierce price competition
dramatically affected the electroplating business but with significant
restructuring already completed and market share gains resulting from in-house
and competitor closures, we are anticipating a break even result in the second
half. Physical Vapour Deposition (PVD) sales are up 11% and profitability rose
56% compared to last year. We are winning more new work based on our technical
ability to solve challenging tribological problems. By the first half of next
year we will have expanded our PVD network into Italy to support our existing
customer base. Our French PVD operations have been consolidated into two
Centres of Excellence (Lyon and Paris) to improve our customer technical
support. The Slurry Coating sector, using ceramics, continues to be very
successful and will be enhanced in future years by the recent acquisition of a
patented metallic slurry technology, CoatAlloy(R), which significantly improves
the efficiency of ethylene cracking plants. Starting in the first half of 2004,
CoatAlloy(R) will be offered from an existing facility in Liverpool, UK.
Hot Isostatic Pressing
Sales were #13.5m and operating profit #1.6m in the first half of 2003 compared
to #15.0m and #2.5m in the first half of 2002. Despite winning new contracts
and the increasing adoption of Densal(R) by our customers, sales continued to be
impacted by depressed end markets, most notably commercial aviation and
industrial gas turbines. The new ALON work is coming on line but more slowly
than anticipated. We have developed a new process which combines Densal(R) and
the heat treatment of aluminium. This has the potential to open new sales
opportunities as it reduces time and cost for components which require both
processes.
All references to operating profit in the Operational Review are stated prior to
amortisation of goodwill and exceptional items.
Balance Sheet and Cash Flow
At 30 June 2003 Group net assets were #402.4m (2002: #397.4m) and Group net
borrowings stood at #226.2m (2002: #238.5m) which represents gearing of 56%
(2002: 60%). Improving operating cash flow (cash flow from operating activities
less payments for capital expenditure) remains an important objective of the
Group and was a positive #21.8m (2002: #15.5m) in the half year. Capital
expenditure was down, as expected, to #18.2m (2002: #27.4m) and the ratio of
capital expenditure to depreciation was 0.8x (2002: 1.3x). Reduction in capital
expenditure continues to be a key target for the Group. Nevertheless,
maintenance of current infrastructure and focused new investment will continue.
Notable items of expenditure in the period were at Gillingham, UK for our
partnership with Delphi, installation of further PVD equipment in Venlo,
Netherlands for tribological applications, establishment of increased fatigue/
fracture testing capability for the North American aerospace industry along with
a polymer pipe testing facility for chlorine environments for the US water
industry and additional low pressure carburising capacity in France. The Group
also continues to focus on the control of working capital. At 30 June debtor
days stood at 62 compared to 66 days in December 2002 and over 70 days at
December 2001. Further reductions are anticipated. All businesses are expected
to negotiate improved payment terms with suppliers. The effective tax rate for
the Group, stated prior to the amortisation of goodwill, was 20% (full year
2002: 24%), reflecting enhanced treasury management and the rate is expected to
remain at this level for the rest of 2003. As the Group has minimal cross
border trading, the effects of currency changes on transactions were not
material. The Group's business is well matched between US dollars and Euros and
with these currencies moving in broadly opposite directions versus Sterling
since the first half of 2002, with a weakening of the US dollar and
strengthening of the Euro, the translation impact was insignificant.
Dividend
The directors have declared an unchanged interim dividend of 2.25 pence per
share. This will be paid on 6 January 2004 to all shareholders on the register
at the close of business on 5 December 2003.
Outlook
The Board is not anticipating any immediate improvement in the economic
environment and therefore self-help continues to be our driving force to improve
performance. Proprietary and patented processes are being rolled out into all
the geographies in which we operate and this will continue to differentiate our
services and enhance margins. Outsourcing opportunities are growing in number
as more manufacturers evaluate the cost/benefit of their own captive capacity.
Testimonials from our existing Strategic Partnerships (SPs) and our recognised
quality and geographic reach mean that Bodycote is the reference point for their
decision making process. Our bolt-on acquisitions in Italy last year and the
Middle East in July 2003 demonstrate our strategy to strengthen our position in
existing markets when good value enhancing opportunities arise. Manufacturing
demand is not expected to recover until 2004 or in the case of commercial
aviation and power generation 2006. Accordingly, we expect that competitors
will merge or exit the heat treating and electroplating markets. As the global
leader in our fields of service Bodycote is well positioned to benefit from the
opportunities that will arise and from any upturn in end market demand. Our
commitment to reduce capital spending, find ways to continue to take costs out,
improve our already high quality performance, utilise our synergies and focus on
customer satisfaction should enable us to win greater market share and earn more
outsourced work.
Career development based on challenging assignments and continuing education is
preparing a deeper pool of talent for our future. It is a credit to our people
that they continue to enthusiastically serve our customers, improve our
performance and generate more business.
Unaudited consolidated profit and loss account
Year to Half year Half year
31 to to
December 30 June 30 June
2002 2003 2002
#m
#m #m
Turnover
440.1 Existing operations 228.0 225.3
- Acquisitions 0.1 -
440.1 Continuing operations 228.1 225.3
Operating profit
49.4 - Trading 22.8 26.8
(18.3) - Operating exceptional items arising from (2.4) (10.2)
restructuring and asset write downs
- Goodwill amortisation
(8.7) (4.6) (4.3)
22.4 Operating profit - continuing operations 15.8 12.3
(11.2) Net interest payable (5.1) (5.5)
11.2 Profit on ordinary activities before taxation 10.7 6.8
(4.8) Tax on profit on ordinary activities (3.0) (3.0)
6.4 Profit on ordinary activities after taxation 7.7 3.8
(0.1) Minority interests - equity - -
6.3 Profit for the financial period 7.7 3.8
(15.6) Dividends - paid and proposed (5.8) (5.8)
(9.3) Retained profit/(loss) for the period 1.9 (2.0)
Earnings per share
10.6p Headline 5.3p 5.8p
2.4p Basic 3.0p 1.5p
2.4p Basic - diluted 3.0p 1.5p
Unaudited consolidated balance sheet
As at As at As at
31 December 30 June 30 June
2002 2003 2002
#m
#m #m
Fixed assets
155.5 Intangible assets 151.1 151.7
498.4 Tangible assets 503.5 498.7
1.7 Investments 1.7 1.9
655.6 656.3 652.3
Current assets
Stocks 18.4 19.3
111.6 Debtors 114.1 120.0
43.5 Cash at bank and in hand 36.1 60.7
172.8 168.6 200.0
Creditors
(202.8) Amounts falling due within one year (190.7) (208.9)
(30.0) Net current liabilities (22.1) (8.9)
625.6 Total assets less current 634.2 643.4
liabilities
Creditors
(190.8) Amounts falling due after more than (189.2) (203.3)
one year
(44.6) Provisions for liabilities and (42.6) (42.7)
charges
390.2 Net assets 402.4 397.4
Capital and reserves
25.6 Called-up share capital 25.6 25.6
244.2 Share premium account 244.2 244.2
0.6 Currency and other reserves 10.2 1.6
119.6 Profit and loss account 121.5 125.8
390.0 Shareholders' funds - equity 401.5 397.2
0.2 Minority interests - equity 0.9 0.2
390.2 402.4 397.4
Unaudited consolidated cash flow statement
Year to Half year to Half year to
31 December 30 June 30 June
2002 2003 2002
#m
#m #m
94.2 Net cash inflow from operating 40.0 42.9
activities (Note A)
(11.0) Return on investments and servicing of (5.4) (5.5)
finance
(7.2) Taxation (2.8) (5.3)
(54.0) Capital expenditure and financial (18.2) (27.4)
investment
(10.1) Acquisitions and disposals (Note B) 0.4 (0.6)
(15.6) Equity dividends paid (5.8) (5.8)
(3.7) Cash inflow/(outflow) before management 8.2 (1.7)
of liquid resources and financing
7.8 Management of liquid resources 1.9 0.1
3.6 Financing (14.7) 3.7
7.7 (Decrease)/increase in cash in the (4.6) 2.1
period
Reconciliation of net cash flow to movement in net
debt
7.7 (Decrease)/increase in cash in the (4.6) 2.1
period
(3.6) Cash outflow/(inflow) from decrease/ 14.7 (3.6)
(increase) in debt and lease financing
(7.8) Cash inflow from movement in liquid (1.9) (0.1)
resources
(3.7) Change in net debt resulting from cash 8.2 (1.6)
flows
(1.1) Debt acquired with subsidiaries - -
12.6 Currency adjustments (0.2) 5.1
7.8 Movement in net debt position 8.0 3.5
(242.0) Net debt position at 1 January (234.2) (242.0)
(234.2) Net debt position at end of period (Note (226.2) (238.5)
C)
Year to
31 Half year to Half year to
December 30 June 30 June
2002 2003 2002
#m #m #m
Note A: Reconciliation of operating profit to net cash inflow from operating
activities
22.4 Operating profit 15.8 12.3
43.0 Depreciation charges 22.4 20.6
8.7 Amortisation of goodwill 4.6 4.3
- Profit on sale of tangible fixed assets - (0.4)
8.4 Write off of tangible fixed assets 1.8 6.2
0.6 (Increase)/decrease in stocks (0.3) (1.4)
8.7 Decrease/(increase) in debtors 0.5 (0.9)
2.4 (Decrease)/increase in creditors (4.8) 2.2
94.2 Net cash inflow from operating activities 40.0 42.9
Note B: Acquisitions and disposals
(0.2) Net cash acquired with subsidiaries 0.7 -
(9.4) Purchase of subsidiary undertakings (0.3) (0.1)
(0.5) Purchase of minority shareholders' - (0.5)
interest
(10.1) Net cash inflow/(outflow) from acquisitions 0.4 (0.6)
and disposals
Note C: Analysis of net debt position
As at As at As at
31 December 30 June 30 June
2002 2003 2002
#m #m #m
36.1 Cash at bank and in hand 30.6 45.6
7.4 Short term deposits 5.5 15.1
(6.5) Bank overdrafts (5.1) (20.8)
(87.3) Bank loans due within one year (76.9) (81.7)
(177.8) Bank loans due after one year (174.7) (191.3)
(1.5) Finance leases due within one year (1.3) (1.0)
(4.6) Finance leases due after one year (4.3) (4.4)
(234.2) (226.2) (238.5)
Unaudited consolidated statement of total recognised gains and losses
Year to Half year to Half year to
31 December 30 June 30 June
2002 2003 2002
#m #m #m
6.3 Profit for the financial period 7.7 3.8
9.7 Currency adjustments 9.6 9.6
(0.6) Disposal of revalued property - (0.6)
Total recognised gains and losses
relating to the period
15.4 17.3 12.8
Unaudited reconciliation of movements in shareholders' funds
6.3 Profit for the financial period 7.7 3.8
(15.6) Dividends paid and proposed (5.8) (5.8)
(9.3) Retained profit/(loss) for the financial 1.9 (2.0)
period
9.7 Currency adjustments 9.6 9.6
(0.6) Disposal of revalued property - (0.6)
(0.2) Net movement in shareholders' funds 11.5 7.0
390.2 Shareholders' funds at beginning of period 390.0 390.2
390.0 Shareholders' funds at end of period 401.5 397.2
Notes to the financial statements
1. Segmental analysis by activity
Year to
31 Half year to Half year to
December 30 June 30 June
2002 2003 2002
#m #m #m
Turnover
302.7 Heat treatment 156.0 156.6
56.6 Materials testing 29.7 26.2
52.3 Metallurgical coatings 28.9 27.5
28.5 Hot isostatic pressing 13.5 15.0
440.1 228.1 225.3
Profit and loss
36.4 Heat treatment 17.4 19.8
10.9 Materials testing 5.4 4.6
(1.1) Metallurgical coatings (0.9) 0.6
4.5 Hot isostatic pressing 1.6 2.5
50.7 23.5 27.5
(1.3) Head Office expenses (0.7) (0.7)
Operating profit before amortisation of goodwill
and operating exceptional items
49.4 22.8 26.8
(11.2) Net interest payable (5.1) (5.5)
38.2 Profit on ordinary activities before 17.7 21.3
amortisation of goodwill and operating
exceptional items
(8.7) Amortisation of goodwill (4.6) (4.3)
29.5 Profit on ordinary activities before operating 13.1 17.0
exceptional items
(18.3) Operating exceptional items (2.4) (10.2)
11.2 Profit on ordinary activities before taxation 10.7 6.8
Notes to the financial statements /Cont'd
2. The interim financial information has been prepared on the basis of the
accounting policies set out in the group's statutory accounts for the year
ended 31 December 2002.
3. The calculation of basic earnings per share is based on earnings of #7.7
million (2002: #3.8 million) and on the average number of shares in issue
during the half year, amounting to 256,070,884 (2002: 256,283,201).
Headline earnings per share have been calculated on profits of #13.7
million (2002: #14.8 million), which are stated before amortisation of
goodwill and the post tax impact of exceptional items. Diluted earnings
per share calculated in accordance with FRS14 were 3.0p (2002: 1.5p) based
on a diluted weighted average share capital of 256,070,884 shares (2002:
256,513,023).
4. The charge for taxation on the profit for the period is based on the
estimated effective rate for the full year. The amount includes #3.0
million (2002: #0.7 million) relating to tax on overseas activities.
5. This interim report does not comprise the group's statutory accounts. The
results for the year ended 31 December 2002 are extracts from the published
accounts as filed with the Registrar of Companies. These were audited and
reported upon without qualification by Deloitte & Touche and did not
contain a statement under section 237 (2) or (3) of the Companies Act 1985.
Copies of this report and the last Annual Report and Accounts are available from
the Secretary, Bodycote International plc, Hulley Road, Hurdsfield,
Macclesfield, Cheshire SK10 2SG, and can each be downloaded or viewed via the
group's website at www.bodycote.com
Independent Review Report to Bodycote International plc by Deloitte & Touche,
Chartered Accountants
* Introduction
We have been instructed by the company to review the financial information
for the six months ended 30 June 2003, which comprises the consolidated
profit and loss account, the consolidated balance sheet, the consolidated
cash flow statement, notes A, B and C, the consolidated statement of total
recognised gains and losses, the reconciliation of movement in
shareholders' funds and related notes 1 to 5. We have read the other
information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the company in accordance with Bulletin
1999/4 issued by the Auditing Practices Board. Our work has been
undertaken so that we might state to the company those matters we are
required to state to them in an independent review report and for no other
purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
* Directors' responsibilities
The interim report, including the financial information contained therein,
is the responsibility of, and has been approved by, the directors. The
directors are responsible for preparing the interim report in accordance
with the Listing Rules of the Financial Services Authority which require
that the accounting policies and presentation applied to the interim
figures are consistent with those applied in preparing the preceding annual
accounts except where any changes, and the reasons for them, are disclosed.
* Review work performed
We conducted our review in accordance with the guidance contained in
Bulletin 1999/4 issued by the Auditing Practices Board for use in the
United Kingdom. A review consists principally of making enquiries of group
management and applying analytical procedures to the financial information
and underlying financial data and, based thereon, assessing whether the
accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
United Kingdom Auditing Standards and therefore provides a lower level of
assurance than an audit. Accordingly we do not express an audit opinion on
the financial information.
* Review conclusion
On the basis of our review we are not aware of any material modifications
that should be made to the financial information as presented for the six
months ended 30 June 2003.
Deloitte & Touche LLP
Chartered Accountants
Manchester
27 August 2003
For further enquiries please contact:
Bodycote 0900 hrs - 1130 hrs
Telephone: 0207 831 3113
John Hubbard, Chief Executive
David Landless, Group Finance Director
Financial Dynamics 0207 831 3113
Jon Simmons
Meg Baker
Website: http://www.bodycote.com
This information is provided by RNS
The company news service from the London Stock Exchange
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