Final Results

Bodycote International PLC
18 March 2003

EMBARGOED UNTIL 0700 HRS : 18 MARCH 2003

BODYCOTE INTERNATIONAL PLC

PRELIMINARY RESULTS ANNOUNCEMENT
FOR THE YEAR ENDED 31 DECEMBER 2002

•        Sales down to £440.1m (2001: £479.4m), reflecting difficult trading
         conditions in end markets
•        Profit before tax* £38.2m (2001: £66.3m)
•        13 facilities merged to improve capacity utilisation
•        Capital expenditure reduced to 1.3 times depreciation (2001: 1.6 times)
•        Free cash flow of £22m (2001: £10m)
•        Dividend maintained at 6.1p per share


SUMMARY OF RESULTS                                                       Full year to        Full year to
                                                                          31 Dec 2002         31 Dec 2001

Turnover                                                                      £440.1m             £479.4m
Headline Operating Profit *                                                    £49.4m              £80.2m
Operating Profit                                                               £22.4m              £72.1m
Headline Profit before taxation*                                               £38.2m              £66.3m
Profit before taxation                                                         £11.2m              £55.5m
Headline earnings per share*                                                    10.6p               18.2p
Basic earnings per share                                                         2.4p               14.6p
Dividend per share                                                               6.1p                6.1p


* Expressed before amortisation of goodwill and  exceptional items



Commenting on the results, John Hubbard, Chief Executive said:

'2002 was a difficult year.  Bodycote's traditional strengths of operational and
geographic diversity were unable to insulate the Group from the effects of a
widespread industrial downturn.  This affected demand from customers in almost
all of our end markets.  The performance of our Materials Testing Strategic
Business Unit was the brightest spot.

We responded to these challenges by merging 13 facilities, reducing capital
expenditure and headcount and instituting shared administrative services to
operations in the same geographies.

We have positioned the Group to benefit from any upturn in end markets.  Our
focus in 2003 is to improve cash flow and return on capital employed.'

Enquiries to:

Financial Dynamics

Jon Simmons                                          Tel: [phone]
Meg Baker                                            Tel: [phone]



CHAIRMAN'S STATEMENT



Introduction

It has been a tough year.  As reported in November, the encouraging signs mid
year proved to be a false dawn.  We have never previously experienced such a
widespread downturn in our markets.  Commercial Aerospace, Power Generation, Oil
and Gas all experienced demand weakness.  The Board have been active in
addressing these changing market conditions and we are now much better placed to
deal with the market wide issues than we were twelve months ago.

Trading

Turnover and profits this year have fallen in well over half of our plants.  As
announced at the half year, corrective action has been taken to reduce our cost
base and we have incurred exceptional operating costs of £18.3m.  The cost
savings from these actions are in line with our expectations but have been
largely offset by the decline in turnover and increases in other costs such as
energy and insurance.  Before these exceptional costs and amortisation of
goodwill our pre tax profit for the year was £38.2m (2001: £66.3m) on turnover
of £440.1m (2001: £479.4m).

Materials Testing was the most successful of our Strategic Business Units
(SBUs), achieving organic growth in sales and profits.  The most disappointing
was Metallurgical Coatings, where business levels in electronics and
telecommunications are still significantly down and we have not yet seen the
full benefits of our rationalisation efforts in Scandinavia and the UK.  Heat
Treatment sales and margins were affected in all regions by the general downturn
in the Western Hemisphere and the downturn in aerospace and power generation, in
particular, had a major impact on our USA and UK businesses.  HIPping was
similarly affected as this SBU has the greatest exposure to these two markets.

Dividend

The Directors are recommending an unchanged final dividend of 3.85p per share
which maintains the total dividend for the year at 6.1p, the same level as 2001.
This dividend is covered 1.7 times before the exceptional operating costs.
The final dividend will be paid on 1 July 2003 to shareholders on the register
at the close of business on 6 June 2003.

Acquisitions

The focus of management in 2002 has been to reduce the cost base, instil
stricter capital expenditure disciplines and improve efficiencies in our
existing businesses rather than to strengthen the Group by acquisitions.  We
have, however, made some bolt-on acquisitions at a total cost of £11.2m
including assumed debt.

Board Changes and Structure

I am pleased to report that our plans to reshape the board are complete.  It now
comprises of a majority of non-executive directors.  Our new non-executive
directors, Hans Vogelsang and Laurent Bermejo, were appointed with effect from 2
January 2003.  They bring a wide range of international business experience to
Bodycote and have settled in well.

Martyn Wilton and Mike Hallas have relinquished Main Board responsibilities to
focus on wider executive responsibilities.  They are both members of the Senior
Operating Board which has established itself well during the year.

Bernie Rickinson will retire from the Main Board at the Annual General Meeting
in order to concentrate on his new duties as non-executive chairman of our
HIPping business, as we switch towards a global management approach for this
SBU.

I would like to thank all the retiring directors for the valuable contribution
they have made, at Main Board level, in this and previous years and for
facilitating these changes.

Going forward we have a board which has a balance of experience and a strong
commercial background appropriate for the Group and our shareholders in these
challenging times.

Employees

We are fortunate to have, at all levels, such a strong, dedicated and
professional workforce.  They continue to show a high level of commitment
coupled with a determination to succeed.  I thank them for their continued
support.

Safety, Health and Environment

Our internal reporting on these issues has improved in the year as has our
record and the resources applied.  We now have 15 plants that are certified to
ISO 14001 on environmental management and more plants are expected to achieve
this status in 2003.

Current Trading and Prospects

Trading in 2003 has started at a marginally lower level than that of 2002.  As
detailed by John Hubbard in his Chief Executive's review, we continue to focus
on operational excellence, cost efficiency and capital expenditure discipline.
To this end internal reporting measures have been strengthened across the Group,
which facilitates improved benchmarking between plants and best in class
technology sharing.

The escalating threat of war with Iraq brings increased uncertainty and it is
not possible to comment with any accuracy on the likely impact on our business.
Nevertheless we remain confident of our business model and will continue to
provide leading quality and service to our customers at good value.  We aim to
be the market leader in all the countries where we operate and although we are
not actively seeking acquisitions we will explore bolt on opportunities that
arise to ensure a continuation of our market leadership and geographic expansion
at a sensible cost.  We will also sell some plants whose operations do not fit
in with the long term plans of Bodycote.

We will continue our drive to improve operating and net cash flows and the
return on capital employed.

James Wallace
18 March 2003


CHIEF EXECUTIVE'S REVIEW

Even though the year ended on a high note with December delivering the only
month of organic sales growth during the year, I was more than delighted to put
the new 2003 calendar on my wall.  Although likely to be tough, the prospects
for 2003 are brighter if for no other reason than the actions we took in 2002 to
reduce costs and strengthen our operations are now in place.

2002 was not a kind year for businesses in the engineering sector.  Bodycote
turned in its lowest ever margins, yet they were respectable in comparison to
our peers.  The large drop in demand from the Commercial Aerospace, Power
Generation and Oil & Gas sectors was greater than expected and is well reported.
Automotive demand was firm but margins were difficult due to cost and price
pressures.    Our sales decreased by 8%, however information from trade
associations indicates our market share remained constant or improved.  We
focused our efforts on optimising yield and utilisation and improved cash flow
from our existing facilities.  We re-emphasised the basic operational model that
historically delivered superior margins by running facilities at high
utilisation, selling at competitive yield rates in productive reliable
equipment.   Benchmarking of Key Performance Indicators (KPIs) is increasingly
being applied and the replication of best in class methods around the Group is
improving efficiency.

Our operational structure was modified to merge Heat Treatment, HIP and
Metallurgical Coatings under geographical responsibility to gain market synergy
and institute shared services.  A Senior Operating Board was created to align
our efforts in a common direction.  The plc Board was restructured to broaden
the experience base and advance compliance with guidelines for strong corporate
governance.  Communications both internally and externally have been upgraded to
provide transparency of company actions.

By the year-end we had reduced the number of facilities with negative Operating
Profits.  Over the past 18 months we combined 20 facilities and brought about a
reduction of about 800 jobs to better match capacity to demand.   We exited one
joint venture in China and will exit a second in early 2003.  Our principal
challenge was to manage our number one cost - people.  We had greater success in
North America and the United Kingdom, where labour markets are relatively
flexible. The full benefit of the European staff reductions will not be felt
until later in 2003.  Merging facilities is a difficult and delicate task; given
our high customer retention rate in markets with overcapacity we are pleased
with our success.  We made two small bolt-on acquisitions in Italy toward the
end of the year.  Italy is the third largest manufacturing market in Europe;
these acquisitions strengthen our operations and provide growth potential.

Despite around £18m of previously authorised projects we introduced stringent
capital expenditure discipline which reduced capital investments in 2002 to £54m
against a budget of £60m.  We have relocated equipment around the Group to meet
regional demand shifts.  In addition, working capital controls have been
strengthened.

Our PVD coating businesses is now organised with improved technology transfer
and coordinated marketing.  We won several significant new contracts and
anticipate this will be a continuing growth business.

Our wet coating business underwent major rationalisation with seven facilities
closed and one significantly downsized.  The new Gothenburg facility came on
stream late in the year and we are working hard to attract work to this large
state of the art facility.

Advances in sharing knowledge and technology within the group via our 'Extranet'
are gaining momentum and will deliver value to our customers and employees while
making us more efficient in our operations.  Information Services now have a
strategy that will see us migrate over the coming years to a common ERP
solution, which will reduce our IS cost and provide faster and better
information.

We captured outsourcing business in all SBUs and are seeing market growth
opportunities developing from our technology transfer initiatives and the
co-ordination of our services within each geographical region.

HEAT TREATMENT

North America

Part of the strategy for integrating the Lindberg acquisition (January 2001) was
to consolidate overlapping facilities. With the downturn in demand this program
was accelerated and broadened.

Full time employees have been reduced by 260 with more scheduled in 2003.  In
addition various group purchase contracts have been negotiated delivering cost
savings.

As our operations become more streamlined we are fortunate to have the right
people and systems in place to maintain both the efficiency and the high quality
standards expected of us. Optimised production software is being rolled out,
together with a new standardised Bodycote Quality System.  These systems
differentiate us from competition and provide our customers with value.

Continuous training of our employees in technical matters as well as safety,
health and environmental has been a high priority.  We have a number of
well-qualified, experienced employees whose expertise is respected in the
industry and even in the depressed market conditions these recognised experts
have provided a number of new opportunities for 2003.

As we move forward into 2003 and beyond it is with more confidence than a year
ago.  We are still highly dependent on the markets we serve and the
manufacturing economy as a whole but assuming we see no worsening of the current
conditions we will benefit from the extensive groundwork carried out in 2002.

Central European Group (Germany, Netherlands, Austria, Switzerland, Czech
Republic, Hungary and Liechtenstein)

Against an uncertain background caused by the introduction of the Euro, general
elections in Germany and economic deterioration, 2002 was a challenging year for
the CEG and our historic growth pattern has been temporarily arrested.

All six plants in the Czech Republic, however, had a good year with increasing
sales and profit.  With the relocation of the Liberec plant, we are ready for
the growing economies in Eastern Europe with a wide range of heat treatment
facilities, including vacuum heat treatment, plasma nitriding and physical
vapour deposition (PVD) coating.

Bodycote's technical ability secured a strategic partnership outsourcing project
for the heat treatment of automotive brake pistons in Germany and production
started early in 2002. This success resulted in an agreement for a second
production facility with the same customer, which will open in 2003.

France, Belgium, Italy (FBI)

Production facilities are being rationalised by the closure of four plants and
transfer and closure of non-profitable processes.  This, together with the
implementation of yield and utilisation management controls, will give us better
margins.

Staff numbers have been reduced by a total of 98, with a further circa 100
redundancies planned in 2003.  Further improvements are also anticipated in
working capital management, margin, and general administrative efficiencies.

The improvement in our Nitrocarburising technology stabilised our sales and
produced good development potential in that technology.  A steady increase in
enquiries, trials and contract proposals is in evidence for low-pressure
carburising, for which we should obtain significant sales in 2003.

A significant outsourcing contract for heat treatment of gear and transmissions
has been obtained with a Japanese company which took over a gear and
transmission manufacturing plant in France.

In aerospace, despite an overall slowdown, we have captured new programmes for
the Eurofighter and Airbus 380 projects.

In September 2002 we acquired Gamma in Italy with 3 plants located in the
Brescia and East Milan area, to add to the existing Gorgonzola location.
Bodycote now plays a significant role in this market (the third largest heat
treatment market in Europe). We expect to use our Italian foothold to develop
PVD and Kolsterising technologies in the important Italian tooling, component
and stainless steel markets.

United Kingdom

With a large portion of our sales coming from the Commercial Aerospace and Power
Generation sectors we saw a large drop in demand.

Vacuum brazing and electron beam welding however continued to show growth in a
difficult market.  Complex aerospace and power generation assemblies can only be
manufactured cost effectively by metal joining and Bodycote's world-class skills
in this differentiates us in this market segment.

Outsourcing activity gathered pace with four contracts completed by negotiated
closure of in-house facilities.

The highlight of the year was the new strategic partnership agreement with
Delphi Diesel Systems.  A new Bodycote Heat Treatment Centre will open in March
2003 at Gillingham to support Delphi's operations and provide us with
geographical expansion into the important market in the south east of England.

Rationalisation resulted in the closure of one facility and the transfer of its
equipment and markets to other facilities.  This improved utilisation within the
UK and reduced the number of employees by 29. Geographic transfer of work is
still ongoing to maintain efficient use of furnace capacity.

With the actions taken in 2002, we are encouraged about the outlook for our UK
operations in 2003.

Nordic (Sweden, Denmark and Finland)

Sweden stabilised in 2002 with a focus on cost control and reductions in
investment to combat the lower market volumes. One Strategic Partnership
facility was sold to the customer. Corr-I-Dur, a process we developed in Germany
to provide wear and corrosion resistance with no distortion, was introduced into
the market and is being very well received for difficult corrosion applications.

The re-organisation of Malmo (Sweden) and Copenhagen (Denmark) continued,
combining all vacuum operations in Copenhagen and induction activities at Malmo.
This will improve efficiency and reduce costs.

Sales for 2003 will continue at a low level until the second half, when
improvement is forecast in the traditional diesel and marine engine industries
and in respect of parts for wind turbines, rock drilling and rock breaking
machines.

Reduced activity level in Danish industry and a new competitor started by a
customer led to a sharp decline in profit at our Arhus plants.  The customer has
already sold his interest in this start up and returned to us but the new
competitor continues to disrupt market balance.  Cost reductions were
implemented and the number of employees reduced by 12%.  The focus on costs and
quality will continue in 2003 as we defend our market position.

2003 will be a demanding year for Nordic Heat Treatment, although there are
signs that traditional markets will improve.

HIP

North America

The decline in the aerospace and power generation markets in North America made
2002 a difficult year for the HIP Group, as these areas represent over 60% of
the markets we serve.  While a few key customers experienced good growth, most
saw a fall in activity resulting in staff reductions.  Our London, Ohio plant
was hardest hit, with a substantial decline in HIP and related heat treatment
work directly resulting from the downturn in power generation.  Overall sales
for the group were off 7% from our performance in 2001.

In spite of the decline in worldwide HIP markets, there were several positive
occurrences in 2002.  This was the first full year of operation of the
Densal(R) II unit in our London, Ohio facility and sales were over 50% in
excess of budget and almost four times sales in 2001.  In our Andover,
Massachusetts plant we installed equipment necessary to commence production of
ceramic glass (ALON) for bulletproof windscreens on military vehicles.  In
addition, product sales in Andover exceeded budget by 35% as some significant
Powdered Metal billet, cladding and sputtering target projects expanded.  In
2003 we anticipate further growth in these areas as well as the first ALON
production components.

In Camas WA and London OH staff reductions totaled 10%.  Actions have already
been undertaken, a change in management and other staff reductions, to underpin
current performance and ensure that customers continue to be happy with our
service.

Revival in the aerospace and power generation markets is not expected until
2004.  Accordingly, we are focusing our attention on opportunities for expansion
of the products area.  In addition, we are actively pursuing enquiries and test
components that utilise our Densal(R) II process. Several of these projects are
showing significant growth.  We have developed and are preparing for
commercialisation a new process we call Densal(R) II + T-6 which is a combined
cycle for HIP and Heat Treatment of aluminium.  This process offers the
prospects of reducing the cost of the two separate cycles by combining them.

Europe

2002 was a challenging year for the European HIP group; in particular the demand
for power generation gas turbines fell in the first months of 2002 and continues
to affect the demand for new components into 2003.  When this market does
recover, Bodycote HIP vessels, including new ultra high-pressure capability for
the next generation of materials, are now in place in multiple locations to
satisfy the resurgent market demand.

HIP for the aerospace sector held up reasonably well, with jet engine turbine
blades for Rolls Royce and investment cast airframe parts for Airbus being among
the products processed.

The German HIP operation has been rationalised with the closure at the end of
2002 of one plant and the transfer of its operations to other Bodycote HIP
sites. The European HIP operation reduced its workforce by 10%.  The German
operation has specialised in wear-resistant industrial extrusion equipment for
plastics and other materials - 2002 started slowly in this field, but was
running ahead of expectation by the end of the year and into 2003, with a
positive outlook.

The Densal(R) II processes are already well established for turbo impellers and
competition car castings.  2002 saw the first volumes of engine castings for a
production road model.  The first German Densal(R) II HIP unit is at capacity
and plans are being made to accommodate increased schedules in 2004.

In Sweden the production of NNS (near net shape) parts for the new large CERN
accelerator supported the introduction of automatic welding machines and paves
the way for further volume production of NNS components for petro-chemical,
industrial or scientific applications. The level of enquiries for offshore
petro-chemical components has been good and the outlook for business with our
Scandinavian NNS partner Metso is positive. Extra large parts HIPped for the
paper and mineral extraction industries are continuing to perform well, with
repeat business due to pick up in 2003.

The market for HIPped powder metal billet preforms in tool, high speed steels
and other specialist materials has held up well during 2002. The global market
for medical replacement joints continues to grow.

Continuing involvement in a number of European funded joint research programmes
not only promotes the application of HIP to new materials such as metal matrix
composites, but also strengthens relationships with prime contractors in fields
such as aerospace and medical equipment.

METALLURGICAL COATINGS

This SBU produced a loss after a very disappointing 2001.  The wet coating
section of this SBU was the main under performer.  The severe overcapacity in
wet coating has resulted in numerous competitors making desperate efforts to
survive the downturn by slashing prices.

To improve our performance we have carved out three technologically focused
strategic development units (SDUs) from the activities of the Metallurgical
Coatings SBU - Ceramic, PVD and Advanced Anodising.

Ceramic Coatings

Ceramic coatings improve the productivity of manufacturing equipment by
increasing the wear life of components.  This year we increased cross-selling
and support in several core industries, including the oil exploration,
galvanising, and the circular knitting and textile equipment manufacturing
sectors.

We now have a long-term agreement with the largest manufacturer of plastic
injection moulding equipment for use of our coating and densification processes
on the high wear and corrosion areas of their equipment.  Life improvements have
been dramatic - in excess of tenfold.  Additional market penetration was made in
2002 into the high-pressure chemical injection pump industry, where we are now
the premier coating supplier.

Physical Vapour Deposition

We restructured existing PVD operations in a new SDU under focused leadership,
creating a structure that will increase our market visibility and service
efficiency in this important technology and help us move up from third place in
the field.  Our objective involves establishment of centres of excellence in
North America and Europe, by a combination of relocation of existing plant and
the addition of latest technology equipment.  A number of investments have been
completed or are nearing completion that will expand sales, increase
productivity and efficiency and reduce costs.

In September we moved our Conover, North Carolina facility to Greensboro, a
larger plant, with the most advanced PVD coating units.  It will become a
leading supplier of tribological, decorative and functional coatings for North
America.  Demand for decorative coatings continues to grow.

The plant at Venlo in the Netherlands has also been expanded by the installation
of two new units to serve tribological coatings for the automotive markets.  As
part of our ongoing restructuring programme productivity improvements have been
achieved in France, by the merger of eight small satellite departments into two
strategic sites.

In the future, Bodycote will open new facilities both as a strategic geographic
growth objective and as production requirements increase.  The outlook for
growth of PVD internationally in new markets and geographical locations is very
promising.

Advanced Anodising

2002 was a difficult year for the Kaufbeuren, German anodising business because
of a general decline in demand, especially in our main automotive and mechanical
engineering markets.  There are opportunities, however, in the automotive sector
with common rail diesel and brake systems for the major subcontractors.

Kaufbeuren's proprietary CompCote process, which offers significant improvements
in wear and corrosion resistance, found increasing acceptance with new high
volume contracts.  CompCote is being evaluated for roll out to other Bodycote
facilities.

In Finland Bodycote anodises aluminium profiles, plates and castings for the
construction, marine, vehicle and paper industries, and has important contracts
for customers in the electronics, machine, food, medicine and sports equipment
sectors. The electronics industry in Finland, led by Nokia and its
subcontractors, will provide a useful source of new business, when business
trends upwards again.  Production started in September 2002 at the new anodising
plant at Alajarvi, Finland for Makela-Alu, a leading manufacturer of
decorative aluminium profiles the marine and construction sectors.  This
strategic partnership has the capability of significant third party inload from
the customer's supply chain.

Electroplating

Nordic

The coating market in Nordic countries is greatly dependent on the telecoms
industry. There was further dramatic reduction in the market in 2002 and,
accordingly, a restructuring programme was implemented to reduce the costs.  The
plants at Jarfalla and Kungsor, Sweden have been closed  In addition, to
combat soft markets, a new marketing effort has been launched to improve our
market penetration. With efficient production resources and technical expertise,
there is a great opportunity to increase market share, even in a downturn.

The rate of growth in the telecoms industry is partially dependent on how fast '
3-G' systems grow.  We opened Europe's most modern and largest silver coating
plant in Gothenburg, Sweden, offering technically advanced plating on aluminium.
The most important processes are silver plating, nickel-tin, electroless-nickel
and satin nickel.   In the same facility we developed a new palladium-ruthenium
process for our Strategic Partner Hasselblad, and their unique H1 camera system,
recently introduced at the Cologne Photo-Kina.

During 2003 this SDU will concentrate on increasing market share, especially in
the telecoms and automotive sectors. Cost control will also be intensified. With
the benefit of new efficient production, marketing efforts, unique processes and
co-operation with other group companies, Bodycote Coatings in Sweden will
strengthen our performance.

United Kingdom

During 2002 many markets changed drastically and our resultant rationalisation
programme was a major effort.  Due to decline in the telecoms sector and reduced
volumes for automotive and construction industries, we had to close seven
coatings facilities at Caerphilly, Dudley, Knowsley, Poole and Rotherham.  Their
profitable sales were merged within existing plants and equipment was
transferred to match market requirements and improve efficiencies.

Two sites focus on the aerospace industry with a variety of processes, and four
large and efficient plants concentrate on large volume Sherardizing, organic
finishes and zinc electroplating.  All have excellent equipment and staff to
challenge our competitors and meet customer requirements.

All coatings plants have upgraded to meet new management and quality standards.
Several sites have BS14001 with all others on schedule to meet these
requirements. Our fast delivery and quality systems will assist us in
differentiating us from our competitors.

In-house (captive) closures, due to environmental and commercial challenges and
market co-operation with Bodycote's heat treatment operations, are providing
many outsourcing opportunities.

In the more traditional coatings, niche expertise was developed in zinc
electroplating for the automotive industry and in copper electroplating for the
oil and gas sector for a major French customer.  Sherardizing, a proprietary
process, continues to win specification acceptance with automotive and
construction subcontractors and is under review to be rolled out
internationally.

MATERIALS TESTING

A robust performance was produced by Materials Testing across all geographic
market segments, despite continued economic uncertainty and flat end-user
markets.  The demand for materials testing services continues to grow as new
technologies, material advances and product liability issues create a fitness
for purpose culture.  This factor, allied to the closure of in-house
laboratories, provides substantial opportunities for our extensive service
portfolio, market coverage and reputation for quick and reliable response.  The
winning of increased market share has been the key to achieving increased
operating profit and raising operating margins in price competitive markets.
During 2002 significant effort was expended in increasing our cash flow by
improving our working capital management.  As part of the corporate drive to
improve our operating performance a number of key performance indicators (KPI)
were selected for management.  This approach made our decisions more proactive
as we were able to respond more expeditiously to difficulties.

Our core materials testing laboratories in the UK benefited from a particularly
resilient oil and gas market.  Our specialist corrosion facility was a major
contributor as international projects rely on our expertise.  The radiographic
business unit suffered as a result of general weakness in aerospace and power
generation and we will consolidate our capacity through the closure of our
Halesowen facility in March 2003.  A number of additional OEM approvals for our
engineering laboratory group enabled significant penetration into European
aerospace suppliers, resulting in profit growth.  The acquisition of Pipeline
Developments Limited, Salford UK expands our plastic pipe testing capability and
creates opportunities in the important European water utility market.

Our Norwegian laboratory which, with its specialist fatigue facility, was able
to target simulation studies on oil platform umbilicals.  Our presence in the
important North Italian metals market was strengthened by the acquisition of CTR
Srl, Padua.  This facility complements our existing Crema laboratory and
enhances our skills portfolio available in this important market.

The establishment of an additional road materials laboratory in Abu Dhabi
further extended our capability in the Emirates, allowing increased market
penetration and solid sales and profit growth.

The Canadian Group advanced strongly on the back of substantial success in their
TOP (Total Outsourcing Program) initiative.  Major projects were undertaken for
US automotive and pharmaceutical companies utilising the division's unique
quality approvals and innovative technical solutions.  A number of outsourcing
deals in the Health Science division in Ontario opened up new markets.
Similarly in Quebec we were able to obtain significant quality approvals from
the public health authorities for a number of specialist toxicology and
biological tests, which stimulated sales.

Excellent performance from our businesses in Houston TX and Portland OR offset
the downturn in Aerospace and Powergen markets, allowing the US business to
achieve profit growth.  We were also able to take advantage of cross-selling
with our heat treatment and HIP operations to widen our market exposure and
create exciting service offerings for our combined client base.  The US markets
remain fragile and subject to volatility, therefore, further growth in sales
relies on our ability to expand our approval portfolio and service provision and
this will be the focus in 2003.

Organisationally, we focused efforts on leveraging our technological expertise,
coordinating our sales/marketing strategy and increasing investment in human
capital.  A number of programmes have been initiated with a group business
development model.  Senior executives from each geographical region are tasked
with generating outsourcing opportunities for the group.  Success has been
achieved with a laboratory being set up in the Czech Republic in early 2003 to
service a major aerospace supplier.  We continue to invest in improved
Information Systems and have rolled out enhanced LIMS (Laboratory Information
Management Systems) via our global network.  Our electronic certificate
initiative has been extremely well received by clients who benefit from desktop
access to their test results.  Further integration of our back office systems
followed investment in bespoke e-purchasing packages.

LOOKING FORWARD

Markets are anticipated to remain tough throughout 2003.  With excess processing
capacity in the market we anticipate pricing pressures will remain high.  Cost
pressures will continue to present challenges.  Capital expenditures will be
aggressively managed and are expected to be below depreciation.  We continue
taking costs out, selling to improve our utilization and finding ways to be more
efficient.  Although we already hold the required and desirable quality
certifications we will continue our capability improvement by adopting new ISO,
NADAP and other registrations as appropriate.  The few acquisitions we are
likely to do will be focused on Materials Testing, high value added services,
niche technical providers and/or specific market strengthening bolt-ons. The
Materials Testing Group looks forward with optimism and confidence that further
improvements in performance can be achieved.

Knowledge transfer and the development of employees are critical for our
long-term performance.  We constantly provide continuing education,
apprenticeships, internships, and mentoring.  The annual Bodycote Prize Paper
Competition provides a wide-ranging opportunity to interest young people in
Metallurgy and Materials technology.  We have attracted several participants
into careers with the company and are benefiting not only from their skills but
also the enhanced recognition which our encouragement of technology development
brings.

Despite the challenges presented this year, the Bodycote team never reduced
their efforts.  I am very proud of the commitment they showed to delivering the
best results possible and our ability to make tough decisions in such difficult
conditions.  Our number one asset remains our people.

In conclusion, with the cost actions taken in 2002, Bodycote is well positioned
to be a major beneficiary of any upturn in market demand as we have eager people
and productive capacity available for providing superior quality and service.

John Hubbard
18 March 2003




GROUP FINANCE DIRECTOR'S REPORT

Sales and Operating Profit

The Group recorded sales of £440.1m, compared to £479.4m in 2001, reflecting
very difficult trading conditions in essentially all of the Group's end markets.
Existing operations accounted for £437.2m, whilst acquisitions added £2.9m.

                                       Sales                   Operating Profit*             Operating Margin*

                                2002           2001           2002           2001           2002           2001
Continuing Business               £m             £m             £m             £m              %              %
Heat Treatment                 306.5          340.8           37.1           60.9           12.1           17.8
Hot Isostatic Pressing          28.5           32.0            4.5            7.3           15.8           22.8
Materials Testing               56.6           52.3           10.9            9.9           19.3           18.9
Metallurgical Coatings          48.5           54.3          (1.8)            3.7          (3.7)            6.8
Head Office                        -              -          (1.3)          (1.6)              -              -
                               440.1          479.4           49.4           80.2           11.2           16.7

* Operating profit and margin are stated before the amortisation of goodwill and
exceptional items.

The year began with sales softening in almost all parts of the Group and this
continued through the year although the rate of decline slowed in the second
half and by year-end appeared to have levelled out.  The lower level of sales
has resulted in a marked reduction in profit, because Bodycote, as a service
provider, with few  bought in materials, has a relatively high level of fixed
cost.

Heat Treatment

The UK heat treatment division saw year on year sales fall by 13%, reflecting
the high proportion (typically in excess of 50% of sales) of business in the
aerospace and power generation markets, both of which have suffered
significantly lower demand.  Sales in the Central European region held up well
in the early part of the year, although margins were impacted by cost increases
in labour, transport and utilities. However, the second half saw a decline in
demand as the German economy as a whole slowed.  The France/Belgium/Italy group
also saw sales decline in the second half with the northern area (including
Belgium) seeing a much larger impact than the south (including Italy).  Demand
in the Nordic area was soft throughout the year.  The largest decline was in the
USA at 17%, although regional differences have been marked.  The East and West
Coasts, where aerospace activity predominates and the South West, where oil and
petrochemicals are the major markets, saw the greatest declines.  Conversely,
the Great Lakes and Mid West, where automotive is the driver, held up well.

HIP

UK/European HIP had to contend with a significant reduction in demand from its
precision casting customers who serve aerospace and land turbine markets, which
resulted in a year on year sales decline of 12%, despite an increase in Densal
(R) II sales of 20%.  The situation was mirrored in the USA, with sales down 11%
in weak markets and only modest mitigation from growing areas such as powder
densification for specialist products and Densal(R) II for automotive.

Materials Testing

The Group's laboratory based business proved remarkably strong given that it is
trading largely in the same markets as other parts of the Group.  Sales
increased by 8%, with three quarters of this organic, based largely on new
outsourced contracts.  At the same time margins were up slightly at 19.3%.  The
UK continued its excellent record, with profits ahead 14% and margins
maintained.  Increased engine testing work saw Canada improve its profits by
21%.  Continental Europe and the USA were at similar levels to 2001.

Metallurgical Coatings

Metallurgical Coatings proved to be particularly problematic.  Aerospace demand
has been poor in both the UK and France.  Even more significant, however, has
been the continued extremely low demand for telecoms and electronics components
in the UK and Sweden and in the case of the latter, this has also coincided with
an increase in capacity, which was sanctioned at the height of the telecoms boom
in 2000.  PVD sales increased 3% and capacity was added in both US and
Netherlands as the Group positioned itself to benefit from the growth in
tribological applications.

Profit Before Tax

Profit before tax, goodwill amortisation and exceptional items was £38.2m
compared to £66.3m last year.    In 2001 there were non-operating exceptional
losses of £2.7m, of which £1.9m arose from unanticipated costs related to the
Hauzer disposal.  In 2002 the Group recorded operating exceptional charges of
£18.3m relating to reorganisation of the Group, designed to bring capacity more
into line with reduced demand levels.  The initiative has included the closure
of 20 facilities spread throughout the network.  Pre-goodwill operating profit
from the continuing businesses declined by £30.8m before exceptional items and
the Group's net interest charge was reduced from £13.9 to £11.2 m reflecting
reduced interest rates.  Goodwill amortisation has increased by £0.6m to £8.7m.

Taxation

The effective tax rate was 43% (2001: 32%) a figure which is distorted by the
low levels of profit relative to goodwill charges which are not generally
allowable for tax.  Excluding goodwill and exceptional items the effective rate
is 29% a decrease from 30% in 2001.

Earnings per share

Headline earnings per share were 10.6p (2001: 18.2p), with basic diluted
earnings being 2.4p (2001: 14.6p).  The Board is recommending a full year
dividend of 6.1p (2001: 6.1p) per share.  The dividend was covered 1.7 (2001:
3.0) times by headline earnings.  Interest was covered 4.4 times by profit
before goodwill and exceptional items.

Capital Expenditure

Capital expenditure for the year was £54.0 compared to £62.7m in 2001.  The
multiple of depreciation has continued to fall, being 1.3 times in 2002 compared
to 1.6 times in 2001.

Major projects with expenditure during the year, several of which were approved
in 2000, included the completion of a new facility for electroplating in
Gothenburg, installation of additional PVD equipment in Greensboro, USA,
addition of engine testing capacity in St Catherines, Canada, an anodizing plant
in Alajarvi, Finland, and a heat treatment plant in Sommerda, Germany and
installation of a new large HIP vessel in Hereford, UK.

Cash Flow and Borrowings

Cash flow from operations decreased from £110.5m to £94.2m.  However, the
Group's working capital requirements were reduced by £11.7m.  There has been
continued focus on cash collection, which has seen average debtor days reduce
from 73 to 66.  After allowing for capital expenditure, interest and tax there
was free cash flow of £22.0m compared to £9.8m in 2001.  Acquisitions resulted
in cash payments of £10.1m, and in addition the Group assumed debt of £1.1m.
Net borrowings ended the year at £234.2m a reduction in the year of £7.8m.
Gearing was reduced from 62% to 60%.

Pensions

The Group has elected to adopt the transitional provisions of FRS 17 (Retirement
Benefits) and consequently there is no impact on the 2002 figures.  If FRS17 had
been fully adopted in 2002, the Group would have recorded an additional
liability in its balance sheet of £17.0m relating to defined benefit schemes in
the UK, France and USA.  The US plans were inherited with the acquisition of
Lindberg, and the largest plan, with an asset value of £11.1m is in the process
of being wound-up.  The Group's actuaries have advised that the UK plan, which
is closed to new members will require employer's contributions to be increased
by £0.3m per annum from 2003.

Treasury

Treasury is managed centrally covering borrowings and its components, including
source, maturity, interest rate and currency.  The objective is to minimise risk
through a balanced approach.  Funds are obtained via privately placed bonds and
from banks.  The Group aims to have a range of maturities both committed and
uncommitted currently ranging from 364 day facilities to the seven years
remaining on the private placement senior notes.

The Group also aims to have a mix of fixed and floating rate debt to achieve the
desired profile and to manage interest rate volatility.  During 2002 the balance
has been weighted towards floating allowing the Group to benefit from
historically low rates.  Funding of overseas activities is generally via local
currency borrowings so as to provide a partial hedge against the impact of
exchange rate volatility on asset values as translated into sterling on
consolidation.

David Landless
18 March 2003


Consolidated profit and loss account for the year ended 31 December 2002


                                                                             2002                  2001
                                                                               £m                    £m
Turnover
Existing operations                                                         437.2                 479.4
Acquisitions                                                                  2.9                     -
Continuing operations                                                       440.1                 479.4

Operating profit
Existing operations                                                          22.0                  72.1
Acquisitions                                                                  0.4                     -
Continuing operations                                                        22.4                  72.1

Total operations
-  Trading                                                                   49.4                  80.2
-  Operating exceptional items arising from restructuring and
asset write downs                                                          (18.3)                     -
-  Goodwill amortisation                                                    (8.7)                 (8.1)

Operating profit                                                             22.4                  72.1

Exceptional items
Loss on disposal of discontinued operations                                     -                 (1.9)
Loss on disposal of fixed assets, continuing operations                         -                 (0.8)

Profit on ordinary activities before interest and taxation                   22.4                  69.4
Net interest payable                                                       (11.2)                (13.9)

Profit on ordinary activities before taxation                                11.2                  55.5
Tax on profit on ordinary activities                                        (4.8)                (18.0)

Profit on ordinary activities after taxation                                  6.4                  37.5
Minority interests - equity                                                 (0.1)                 (0.1)

Profit for the financial year                                                 6.3                  37.4

Dividends - paid and proposed                                              (15.6)                (15.6)
Retained (loss)/profit for the financial year                               (9.3)                  21.8

Earnings per share
Headline                                                                    10.6p                 18.2p
Headline - diluted                                                          10.6p                 18.1p
Basic                                                                        2.4p                 14.6p
Basic - diluted                                                              2.4p                 14.6p


Consolidated balance sheet as at 31 December 2002

                                                                            2002                 2001
                                                                              £m                   £m
Fixed assets
Intangible assets - goodwill                                               155.5                154.4
Tangible assets                                                            498.4                496.6
Investments                                                                  1.7                  2.3
                                                                           655.6                653.3

Current assets
Stocks                                                                      17.7                 17.7
Debtors                                                                    111.6                118.2
Cash at bank and in hand                                                    43.5                 52.3
                                                                           172.8                188.2
Creditors
Amounts falling due within one year                                      (202.8)              (197.2)
Net current liabilities                                                   (30.0)                (9.0)

Total assets less current liabilities                                      625.6                644.3

Creditors
Amounts falling due after more than one year                             (190.8)              (212.4)

Provisions for liabilities and charges                                    (44.6)               (41.0)

Net assets                                                                 390.2                390.9

Capital and reserves
Called-up share capital                                                     25.6                 25.6
Share premium account                                                      244.2                244.2
Currency and other reserves                                                  0.6                (7.4)
Profit and loss account                                                    119.6                127.8

Shareholders' funds - equity                                               390.0                390.2
Minority interests - equity                                                  0.2                  0.7

                                                                           390.2                390.9


Consolidated cash flow statement for the year ended 31 December 2002

                                                          2002         2002           2001           2001
                                                            £m           £m             £m             £m

Operating profit                                          22.4                        72.1
Depreciation charges                                      43.0                        39.5
Amortisation of goodwill                                   8.7                         8.1
Profit on sale of tangible fixed assets                      -                       (1.4)
Fixed assets written off on reorganisation                 8.4                           -
Decrease/(increase) in stocks                              0.6                       (4.3)
Decrease in debtors                                        8.7                        10.3
Increase/(decrease) in creditors and provisions            2.4                      (13.8)

Net cash inflow from operating activities                              94.2                         110.5
Returns on investment and servicing of finance                       (11.0)                        (13.9)
Taxation                                                              (7.2)                        (24.1)
Capital expenditure and financial investment                         (54.0)                        (62.7)
Acquisitions and disposals                                           (10.1)                       (105.5)
Equity dividends paid                                                (15.6)                         (9.9)

Cash outflow before management of liquid resources
and financing                                                         (3.7)                       (105.6)
Management of liquid resources                                          7.8                          37.6
Financing                                                               3.6                          58.8

Increase/(decrease) in cash in the year                                 7.7                         (9.2)

Reconciliation of net cash flow to movement in net
debt
Increase/(decrease) in cash in the year                    7.7                       (9.2)
Cash inflow from increase in debt                        (3.6)                      (58.6)
Cash inflow from movement in liquid resources            (7.8)                      (37.6)

Change in net debt resulting from cash flows                          (3.7)                       (105.4)
Debt acquired with subsidiaries                                       (1.1)                        (38.9)
Currency adjustments                                                   12.6                         (4.2)

Movement in net debt in the year                                        7.8                       (148.5)
Net debt at 1 January                                               (242.0)                        (93.5)

Net debt at 31 December                                             (234.2)                       (242.0)



Consolidated statement of total recognised gains and losses for the year ended
31 December 2002

                                                                           2002              2001
                                                                             £m                £m

Profit for the financial year                                               6.3              37.4
Disposal of revalued property                                             (0.6)                 -
Currency adjustments                                                        9.7               0.4

Total recognised gains and losses relating to the year                     15.4              37.8



Reconciliation of movements in
group shareholders' funds                                                  2002              2001
for the year ended 31 December 2002                                          £m                £m

Profit for the financial year                                               6.3              37.4
Dividends                                                                (15.6)            (15.6)
Retained (loss)/profit for the financial year                             (9.3)              21.8
Disposal of revalued property                                             (0.6)                 -
Currency adjustments                                                        9.7               0.4
New shares issued                                                             -               0.3

Net movement in shareholders' funds                                       (0.2)              22.5

Shareholders' funds at 1 January                                          390.2             367.7

Shareholders' funds at 31 December                                        390.0             390.2



Notes to the financial statements 31 December 2002

1. Segmental analysis

By activity                                      2002                 %              2001                 %
                                                   £m                                  £m
Turnover

Heat treatment                                  306.5                70             340.8                71
Hot isostatic pressing                           28.5                 6              32.0                 7
Materials testing                                56.6                13              52.3                11
Metallurgical coatings                           48.5                11              54.3                11
                                                440.1               100             479.4               100

 Profit on ordinary activities before taxation

  Heat treatment                                 37.1                73              60.9                74
  Hot isostatic pressing                          4.5                 9               7.3                 9
  Materials testing                              10.9                21               9.9                12
Metallurgical coatings                          (1.8)               (3)               3.7                 5
                                                 50.7               100              81.8               100

Head office expenses                            (1.3)                               (1.6)

Operating profit before amortisation of
goodwill and exceptional items                   49.4                                80.2
Net interest payable                           (11.2)                              (13.9)
Profit on ordinary activities before
amortisation of goodwill and exceptional
items                                            38.2                                66.3
Amortisation of goodwill                        (8.7)                               (8.1)

  Profit on ordinary activities before
exceptional items                                29.5                                58.2
  Operating exceptional item                   (18.3)                                   -
  Exceptional items                                 -                               (2.7)

Profit on ordinary activities before
taxation                                         11.2                                55.5
                                                 

The segmental disclosure by activity for 2001 has been restated to reflect the 
transfer of certain business from heat treatment to the metallurgical coatings 
division.

2. Geographical analysis of turnover and profit before taxation by origin

                                                               Turnover                   Profit before tax

                                                 2002              2001              2002              2001
                                                   £m                £m                £m                £m

United Kingdom                                   62.2              68.9               4.5              12.2
Mainland Europe                                 201.0             208.8               5.3              31.8
North America                                   174.6             199.5              12.0              24.8
Rest of World                                     2.3               2.2               0.6               0.6
                                                440.1             479.4              22.4              69.4
Net interest payable                                                               (11.2)            (13.9)
Profit on ordinary activities before
taxation                                                                             11.2              55.5
                                                                                     

Notes to the financial statements (continued)


2. Tax on profit on ordinary activities
                                                                                    2002                2001
                                                                                      £m                  £m
The charge for taxation comprises:
Current tax:
UK corporation tax                                                                   3.5                 6.7
Overseas tax                                                                         6.3                 9.2
Adjustments in respect of previous years                                           (3.0)               (2.0)
Total current tax                                                                    6.8                13.9

Deferred tax::
Origination and reversal of timing differences                                     (3.7)                 5.8
Decrease/(increase) in discount                                                      1.7               (1.7)
Total deferred tax                                                                 (2.0)                 4.1
Total tax on profit on ordinary activities                                           4.8                18.0


3.  Earnings per share

                                                                                    2002                2001
                                                                                      £m                  £m
Profit for the financial year                                                        6.3                37.4
Goodwill amortisation charge                                                         8.7                 8.1
Exceptional items after tax                                                         12.1                 1.0

Headline earnings                                                                   27.1                46.5

                                                                                    2002                2001
                                                                                  Number              Number

Weighted average number of ordinary shares in issue - basic                  256,052,197         256,194,136
Adjustment in respect of share options                                           327,984             344,923
Weighted average number of ordinary shares in issue - diluted                256,380,181         256,539,059

Notes to the financial statements (continued)

4. Analysis of changes in net debt

                          1 Jan        Cash        Acquisitions        Non-cash          Currency       31 Dec
                              2002     flow                             changes       adjustments         2002
                                                                                                          
Cash at bank and in hand      37.1    (1.0)                   -               -                 -         36.1
Short term deposits           15.2    (7.8)                   -               -                 -          7.4
Bank overdrafts             (14.5)      8.7                   -               -             (0.7)        (6.5)
Bank loans due within one
year                        (74.0)     10.1               (0.1)          (23.1)             (0.2)       (87.3)
Bank loans due after one
year                       (200.3)   (13.4)               (1.0)            23.1              13.8      (177.8)
Finance leases due within
one year                    (1.0)      0.5                   -           (0.8)             (0.2)         (1.5)
Finance leases due after
one year                     (4.5)    (0.8)                   -             0.8             (0.1)        (4.6)

                           (242.0)    (3.7)               (1.1)               -              12.6      (234.2)
                                                                                                       


5.  Non-statutory financial statements

The financial information set out above does not constitute the Group's
statutory financial statements for the year ended 31 December 2002 or 2001 but
is derived from those financial statements.  Statutory financial statements for
2001 have been delivered to the Register of Companies and those for 2002 will be
delivered following the company's annual general meeting.  The auditors have
reported on the financial statements for 2001; their report was unqualified and
did not contain any statement under Section 237(2) or (3) of the Companies Act
1985.

The financial information set out above has been prepared under the same
accounting policies as the 2001 financial statements.

The auditors have not reported on financial statements for the year ended 31
December 2002, nor have any such financial statements been delivered to the
Registrar of Companies.

This report was approved by the Board of Directors on 18 March 2003.






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