Final Results

Bodycote International PLC
09 March 2004

EMBARGOED UNTIL 0700 HOURS :  9 MARCH 2004

                        BODYCOTE INTERNATIONAL PLC

Not for distribution or transmission, directly or indirectly in or into the
United States, Canada, Australia, Japan, the Republic of Ireland or the Republic
of South Africa

      PRELIMINARY RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2003

•        Sales 2% up at £448.4m despite difficult trading conditions in end
         markets

•        Operating profit of £25.1m up 12%

•        Net capital expenditure reduced to 0.8 times depreciation (2002: 1.3
         times)

•        Debt reduced by £24m to £210m

•        Dividend for the year maintained at 6.1p per share

•        Also announced today a 1 for 4 Rights Issue at 100 pence per share to
         raise £61.9m, net of expenses


SUMMARY OF RESULTS                                               Full year to         Full year to
                                                                  31 Dec 2003          31 Dec 2002

Turnover                                                              £448.4m              £440.1m

Headline Operating Profit *                                            £41.7m               £49.4m

Operating Profit                                                       £25.1m               £22.4m

Non-operating exceptional charges (net)                                £26.5m                    -

Headline Profit before taxation*                                       £32.0m               £38.2m

(Loss)/profit before taxation                                        £(11.1)m               £11.2m

Headline earnings per share*                                             9.7p                10.6p

Basic (loss)/ earnings per share                                       (6.8)p                 2.4p

Dividend per share                                                       6.1p                 6.1p


*   Expressed before amortisation of goodwill (2003: £9.1m; 2002: £8.7m) and
exceptional items  (2003: £34.0m; 2002: £18.3m).


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

'The results for the first two months of the year are in line with our
expectations.  With the operating improvements that have already been
implemented and the actions we are taking on Wet Coatings, we are confident in
the financial and trading prospects for the Group in the current year.


'Looking further ahead the Group is poised to move forward as market demand
recovers.  Bodycote has capable people, productive facilities and the systems to
deliver exceptional quality and service.  The Group will continue to focus on
higher value added work, gaining further market share and winning new
outsourcing contracts.  The Group's medium term strategy is to deliver a pre tax
return on capital in the mid teens.'


For further information, please contact:


Bodycote International plc                          Tel:  [phone]
James Wallace, Chairman
John D. Hubbard, Chief Executive
David Landless, Group Finance Director


Financial Dynamics                                  Tel: [phone]
Jon Simmons
Sally Lewis






CHAIRMAN'S STATEMENT


Introduction


It has been another tough year.  At the beginning of 2003 there was a general
view amongst macro-economic commentators that the difficult market conditions
that commenced in the middle of 2001 would start to abate in the second half of
2003.  However, as in 2002, the encouraging mid-year signs turned out to be
another false dawn.  The programme of self-help initiatives that we have taken
have been extensive and the benefits have gone some way to compensate for the
effects of downward market demand, pressure on pricing and the increased costs
particularly of medical insurances, depreciation and utilities.


Trading


Aided by some acquisition growth and favourable foreign exchange conversion
rates turnover was up by a modest amount at £448.4m (2002:£440.1m).  Operating
Profit of £25.1m (2002: £22.4m) was up 12 per cent.  However, despite our cost
saving measures our operating margins weakened and consequently our profit
before taxation, goodwill amortisation of £9.1m (2002: £8.7m) and exceptional
items of £34.0m (2002: £18.3m) fell to £32.0m (2002:£38.2m).


Heat Treatment turnover held up well in Europe but was severely affected in
North America, which also suffered from the adverse effects of currency
translation.  Materials Testing was again our most successful Strategic Business
Unit with an improvement in both sales and operating profit.  HIPping,
particularly in the early part of the year, experienced a further downturn in
turnover and profitability.  Metallurgical Coatings, whilst increasing turnover,
has not so far secured the benefits from the rationalisation programme and the
increased losses within this division are all attributable to wet coatings which
is an area of activity that we have concluded does not fit with Bodycote's
longer term strategy.  A decision has thus been taken to exit the wet coatings
business area in an orderly and timely fashion.


It is particularly pleasing to note that our efforts to reduce capital
expenditure and to improve working capital continue to show benefits and we have
generated free cash of £30.3m in the year (2002: £22.0m) and our year end
indebtedness now stands at £210.3m (2002:£234.2m).


Operating Exceptionals and Exceptional charges


Principally as a result of the decision to dispose of our wet coatings
businesses we incurred £34.0m net exceptional and operating exceptional charges
in 2003 (2002: £18.3m). £33.5m of these charges related to goodwill and asset
write-downs and were of a non cash nature.  It is anticipated that a further £5m
cash of exceptional charges will be incurred in 2004 in respect of disposal and
closure costs for wet coatings.


Future Growth


The focus of the Board is to return the Group to an organic growth path and a
number of significant new outsourcing contracts have been won and are currently
being negotiated.  In addition, the Board have and will continue to consider
appropriate bolt on acquisitions, which we believe will strengthen the Group,
improve our market position and increase our earning capacity.  Net acquisition
costs in 2003 were £2.2m.  The principal acquisition of 3 test laboratories in
the Middle East has been assimilated well and has significantly increased our
presence in this growing market.  The other acquisition of note was the
CoatAlloy(R) slurry coatings business which is being relocated from Canada to an
existing facility in the UK.


Rights Issue


We have taken the decision to strengthen our balance sheet and to give ourselves
increased financial flexibility going forward.  To this end we have today
announced a fully underwritten rights issue which will raise net proceeds of
approximately £61.9m.  We believe that this issue together with the actions
being taken on wet coatings and the rationalisation measures already implemented
will significantly strengthen Bodycote's financial position.  Full particulars
are contained in the prospectus sent to shareholders under separate cover.


Dividend


The Directors are recommending an unchanged final dividend of 3.85p which
maintains the total dividend for the year at 6.1p and will be paid on 5 July
2004 to all shareholders on the register at the close of business on 26 March
2004.  The new shares, the subject of the rights issue, will not qualify for
this final dividend.


Governance


Over the last two years Bodycote has been very proactive in reviewing and
implementing changes to its board structure and governance procedures in
general.  What has emerged, we believe, is a structure appropriate for Bodycote.
In keeping with the spirit of the New Combined Code we explain in the
Directors' Report in the Annual Report why, for good reasons, we are at variance
with the Code in a small number of respects.  Our clear focus, going forward, as
a Board, is to concentrate on adding economic value to the Group whilst
continuing to be transparent and open in our communication with shareholders and
the investment community.


Employees


As always we rely upon the dedication and professionalism of our staff which has
been clearly demonstrated in what has been another tough year.  The additional
financial commitment from our shareholders and the prospects for an upturn in
our markets will provide them with the opportunity to fully demonstrate their
abilities.


Safety, Health and the Environment


The industries we operate in have inherent safety risks from high temperature,
high pressure, volatile gases and chemicals.  We strive to provide training,
equipment and procedures to manage the risks associated with our businesses.  In
the past year we have enhanced the gathering of detailed safety performance data
relating to incidents, frequency and severity rates of accidents and established
specific goals.  Environmental compliance is part of our good citizenship
effort.  We now have a group of facilities certified to ISO-14001 environmental
standard and are working to certify more locations.  We remain committed to
continuous improvement.


Current Trading and Prospects


The results for the first two months of the year are in line with our
expectations.  With the operating improvements that have already been
implemented and the actions we are taking on Wet Coatings, we are confident in
the financial and trading prospects for the Group in the current year.


Looking further ahead the Group is poised to move forward as market demand
recovers.  Bodycote has capable people, productive facilities and the systems to
deliver exceptional quality and service.  The Group will continue to focus on
higher value added work, gaining further market share and winning new
outsourcing contracts.  The Group's medium term strategy is to deliver a pre tax
return on capital in the mid teens.


J A S Wallace
9 March 2004




CHIEF EXECUTIVE'S REVIEW


2003 brought no respite from the tough trading conditions we faced since mid
2001 when demand for the Group's services began to decline, particularly in
North America.  This trend was quickly exacerbated by the events of September
11, political instability and has continued to affect us through 2003.  The
Group's future can best be served by concentrating on the businesses where we
have strong market positions and excellent know how, to enable Bodycote to
maximise its return on capital employed.


Sales for the year were up 1.9% over 2002; however, this was aided by some small
acquisitions generating growth of 1.8% and favourable currency translation of
1.9%.  Pricing pressures remained high, the result of our customers benchmarking
manufacturing costs on a global basis and driving their costs down.  In response
to  difficult markets, over capacity in the market and overlapping locations, we
closed 13 facilities in 2003, 16 in 2002 and reduced headcount by around 1,100
in this two year period.  These actions have primarily targeted Heat Treating
and Wet Coatings in the USA, UK, Sweden and France and have slightly improved
facility utilisation.  Market mix, however, has remained skewed towards lower
value added segments with commercial aviation, oil and gas, telecommunications
and industrial gas turbine market (IGT) demands remaining low.  We have
successfully reduced our cost structure by £15m annualised over the past two
years, but these gains have been more than offset by unit cost rises for key
inputs, most notably our people costs, energy and depreciation.  Reflecting all
these dynamic forces, operating margins declined in all Strategic Business Units
(SBUs) except Materials Testing where they remained steady.  We have
successfully instituted rigorous controls on capital expenditure and in 2003
generated £30.3m free cash flow (2002: £22.0m) and net cash of £16.1m, after
paying the dividend.


Automotive and general engineering end markets have begun to show some signs of
recovery in demand while aerospace and power generation markets are stabilising.


We made two significant acquisitions during the year.  The first, a patented
slurry coating technology developed in Canada which has been relocated to an
existing UK facility with development support being provided from one of our
laboratories in Canada.  The second, a testing group of three laboratories in
the Middle East.


We captured new outsourcing business which, when on stream, will equate to over
£20m a year of new sales.  In addition, as a result of our network capability
within each geographical region, we are expecting to see market growth
opportunities develop in late 2004 from our technology transfer initiatives.


Our two largest SBUs, Heat Treatment and Materials Testing, are in a good
position to capitalise on improving market conditions.  Demand for HIP remains
subdued as this is more geared to IGT and aerospace markets which are expected
to improve later than other sectors.


The Wet Coatings performance, however, continued to decline.  With sales in 2003
of £38.0m, it lost £6.0m, had negative EBITDA of £1.8m and over the past two
years absorbed £10m of capital investment.  The Wet Coatings group was
established in the late 1990s through a series of acquisitions designed to
create a business which would be synergistic with Bodycote's core heat treatment
operations.  These synergies, however, have not materialised.  After a thorough
evaluation we have decided to exit the Wet Coating business sector and aim to do
so by divestiture in an orderly and timely fashion so we can focus our resources
on core businesses.  We estimate that this early action will require a charge of
c.£35.0m.  This will include non cash asset write downs of approximately £30m
charged in the 2003 accounts, of which, £19.0m relates to tangible fixed assets
and £11.0m to goodwill.  The remaining £5m (cash) relates to exit costs such as
redundancy, and these will be charged in the 2004 accounts.  The exit from this
business will remove a cash and profit drain on the Group and will allow us to
re-focus attention and develop our core businesses.


In addition to addressing the Wet Coatings issue, which was mentioned in our
December 2003 trading statement, we have today announced a fully underwritten
Rights Issue.  We consider that a combination of equity issuance and asset sales
will significantly improve the financial position and flexibility of the Group.
Over time, some of the proceeds will be used to support outsourcing, organic
growth and to make selective, focused, bolt on acquisitions for our core SBUs.
There have been no material acquisitions in the past two years and the few we
have made have been in core businesses and delivered well over 20% return on
capital.  We remain totally committed to improving the Group's return on capital
employed and generating cash.



HEAT TREATMENT


Overall sales were flat with margins slipping 1.7 percentage points.


North America


In local currency sales for North America dropped 7.3% year on year with margins
slipping 3 percentage points.


We entered 2003 expecting that the decline in the manufacturing economy was
about to end and we would benefit from all the cost reductions achieved.  Since
the downturn started in 2001, we reduced the number of heat treatment locations
from 58 to 43 and the number of people employed by around 450.  Cost increases
in utilities and medical insurance offset a lot of the cost reductions that had
been made.  Over capacity, and thus pricing pressures, continue to influence the
industry.  We have been able to increase market share in some areas and have
been successful in concluding additional Strategic Partnerships and outsourcing
agreements bringing prospects for growth in 2004 and beyond.  We increased our
emphasis on management training and continued to raise the bar in areas of
safety, health and environmental.


The Bodycote Quality System, a systematic approach to delivering quality
results, is now installed throughout the organisation and has advanced to become
the Bodycote Management System to encompass the new ISO 9001-2000 requirements.
Most sites have successfully been accredited to the new ISO standard.


We enter 2004 with a committed and streamlined organisation.  Most of the
planned consolidation work is now behind us and our base is aligned with market
demand.  We move forward focused on growth and business development.


Central European Group (CEG)


Germany, Netherlands, Austria, Switzerland, Czech Republic, Hungary and
Liechtenstein

In local currency sales for CEG grew 2.0% year on year with stable margins.


Despite difficult market conditions, national strikes and the strong influence
of the Iraq war at the beginning of the year, this division was able to deliver
a respectable profit margin by tight cost control, a strong sales programme,
high profile marketing and turning around loss making plants.


CEG increased market share especially in the high added value sectors of the
market.  We continued to develop the outsourcing concept and improved capacity
utilisation.  Steps into new technology applications such as: laser heat
treating/joining, brazing of fuel cells, diesel exhaust filters and heat
treatment of automotive common rail components helped improve our performance.


The Netherlands had a satisfactory performance.


Our international reputation for quality and reliable service has helped us to
gain market share with multi-national manufactures in the automotive and tooling
markets of the Czech Republic, Hungary and Romania.


Against a background of declining markets and strong competition we managed to
maintain our sales in Austria.  New low pressure carburizing capacity was
installed for diesel engine applications.


Focus will be maintained on our plans to produce better returns in Switzerland
and Liechtenstein where declining markets and excess capacity have driven prices
down.


In the Central European Group, winning additional outsourcing business remains a
focus to increase utilisation of our existing equipment.  Our Eastern European
expansion programme to support manufacturers will also be a key objective.


France, Belgium, Italy (FBI)


In local currency organic sales for FBI fell 5.4% year on year with margins
remaining stable.


A major restructuring plan in 2003 absorbed much management time and energy.
Five facilities were closed.  As a result our headcount has been reduced by more
than 100 people but because of the time consuming process involved in securing
government and union agreement, the full benefit will not be seen until 2004.
Other rationalisation has involved the merger of all induction heat treatment at
Billy Berclau and the return to profitability under new management of the Cluses
and Thyez operations.  La Talaudiere was modified to house additional operations
and most of the sales transferred from neighbouring closed facilities.  New
low-pressure carburising investment will focus on emerging automotive
applications.


We now have a good base for growth in Italy, the third largest manufacturing
market in Europe, after our acquisition of the Gamma group in 2002.


UK


Sales in the UK grew 1.1% year on year with margins reducing by 2 percentage
points.


The UK heat treatment operations focused on cost control and improvement in
return on capital employed.  Sales from new automotive contracts and growth in
vacuum brazing and electron beam welding offset price pressures in other areas
to keep sales level with 2002.  Cost increases, however, led to margins
declining.  The demand for high value work from the commercial aerospace and
power generation sectors continued at depressed 2002 levels.


Our new Heat Treatment Centre adjacent to Delphi in Gillingham opened in March
2003 and is performing according to plan.  Our relationship with major
international manufacturing firms continues to strengthen; offering us
opportunities throughout the Western Hemisphere.  NADCAP (National Aerospace and
Defence Contractors Accreditation Programme) audits to meet our Rolls-Royce
commitment started successfully and will be completed during 2004.  This
establishes Bodycote as the first NADCAP approved source on this side of the
Atlantic.


Nordic (Sweden, Denmark and Finland)


In local currency sales for the Nordic Group were at a similar level year on
year but margins dropped almost 6 percentage points.


Although sales in Swedish heat treatment were flat, low margin sales
predominated.


Sales growth in Finland was slightly positive and with tight cost control,
margins were acceptable.  Co-operation with our French colleagues and a Finnish
customer led to the development of FinNIT, a new process which extends the life
of aluminium extrusion dies.  We expect to offer this service in other
geographies.


Increased competition from a start up company in Denmark has resulted in losses.
Costs have been reduced to improve the situation.


MATERIALS TESTING


Organic sales grew 2.6% year on year and margins remained steady.


In very tough economic conditions and market uncertainty, the Materials Testing
SBU performed in line with expectations, primarily by diversifying our range of
expertise and service offerings.  By concentrating on high valued added services
the Group won new business and increased market share.  A key element to this
growth was the formation of a number of cross-border, industry specific
technical forums which were able to capitalise on extensive technical know-how
and experience, enabling significant opportunities to be grasped.  A number of
innovative projects, indicating the leading role the Materials Testing SBU
places on technologically driven expertise, were initiated in early 2003 and
included:-


The installation in Sweden of BOMIC, our advanced microcalorimetry testing
service, capable of predicting the shelf life of a number of defence munitions
systems.  This world standard technology has attracted global business and was
partly responsible for growth in profits at this facility.


In our Italian facilities we added a unique laboratory specifically designed to
investigate the field failure of telecom and associated electronic products by
utilising various optical and analytical techniques.


In terms of our geographical market performance, the core UK business suffered
in line with UK manufacturing and the effects of globalisation on traditional
home produced goods.  Our Radiographic and Materials Engineering units performed
admirably in difficult IGT/Aerospace markets, and a number of OEM approvals and
investment programmes should provide added impetus for 2004.  The Health
Sciences division posted an improvement in profit.  This business unit will be
expanded to take advantage of further regulatory compliance monitoring for water
quality, asbestos in buildings and integrated pollution, prevention and control
(IPPC).


The European division had strong trading performances in Sweden, where our
Polymer Piping laboratory won large outsourced testing programmes from North
America and the Far East.  In the Netherlands the laboratories won work on large
tranches of pipeline and associated oil/gas installation work from France, Spain
and Indonesia.  Similarly, the Italian business captured several significant
projects for programmes in Russia, Turkey and Libya.


Our Middle Eastern facilities performed well ahead of expectations following the
completion of several significant construction projects in the UAE allied to
significant penetration into oil/gas markets in Azerbaijan, Kazakhstan and Iran.
This provided the platform for the further expansion, both in service scope
and geographically, via the acquisition of the laboratory interests of Carillion
plc in Abu Dhabi, Oman, and Dubai.  These laboratories are now successfully
integrated into the Group and the rationale for the development of the division
was fully vindicated by securing the multi-million dollar contract for provision
of an on site laboratory for the Dubai Airport extension.


Our North American business Group had mixed fortunes, with the Canadian Group
unable to match last year's performance due to price erosion in our Quebec
Environmental/Pharmaceutical markets.  Our Detroit laboratory which opened an
additional facility, enhancing the large scale environmental simulation
capability available.  New chlorine test cells for Polymer Piping were installed
at Melrose Park to meet changes in the US plumbing regulations.  Los Angeles
continues to be a challenge due to the continuing downturn in the US Aerospace
sector, however a number of significant quality approvals from major US/UK
engine manufacturers should provide trading stimulus for 2004.


2003 also witnessed a number of advances in our infrastructure support systems
with the adoption worldwide of our ISO 17025 quality system; the roll-out of our
North American developed LIMS system, which allows clients direct access to
their data; and finally the setting up of divisional marketing centres to
control enquiry management, co-ordinate web marketing and provide market
intelligence to our business development teams.


HIP


Overall sales declined 1% year on year and margins declined 3 percentage points.
2004 will be a year in which we expect to start improving our return on
capital employed which remains unacceptably low in this capital intensive SBU.


North America


Aerospace volumes in North America accounted for 54% of our sales (2002: 54%).
We saw a halving in IGT sales but this was more than offset by growth in the
tooling and electronics markets, which relate to HIPping of powder metal billets
and flat screen TV targets.


Equipment installed in 2002, to produce a transparent ceramic material (ALON),
experienced slower than budgeted sales increase, but we remain confident that
this work will utilise the installed capacity.


Europe


Positive change came from increased sales of near net shaped powder
densification projects.  Improved welding efficiency in Sweden has reduced
operating costs and lead-time for several key customers.  The offshore oil and
gas business and demand for industrial gas turbines, which is the major market
for UK HIP, remained at the levels of 2002 reflecting continued low global
demand.


The merger of our Essen facility with Haag, near Munich, helped reduce the cost
base.  Densal II(R) adoption by a major automotive customer is assisting in
gaining application acceptance.



METALLURGICAL COATINGS


Wet Coatings


The acquisition strategy to grow a wet coatings group synergistic with our
heat-treating network failed to benefit the Group.  After careful review, we
have decided to exit this market in an orderly and timely fashion so we can
focus our resources on core businesses.


Specialty Coatings


Specialty coatings consist of processes we believe are synergistic with our
heat-treating business.  These value added services provide, in the main,
functional metallurgical enhancement.


Slurry Coatings


Demand for our ceramic slurry coatings increased during the year in spite of
fluctuations in the oil exploration and textile markets.  Our emerging market
applications are medical suppliers and electronics, the latter requiring an
insulating coating currently under development.


Following our success in the UK, we are now penetrating the North American and
European steel market.  Bodycote is applying K-Tech 17 ceramic densification on
galvanising and steel mill furnace rolls, extending their useful life.  A
collaboration agreement with a leading UK manufacturer to supply tungsten
carbide coating and a joint marketing campaign is currently underway in Europe.


In June, we acquired the intellectual property rights and production equipment
for the CoatAlloy(R) range of diffusion bonded metallic slurry coatings from
Surface Engineered Products Ltd of Alberta, Canada, as part of our strategy to
develop our speciality coating group.  These advanced, high temperature,
metallic slurry coatings will be applied at our previously surplus facility at
Knowsley, UK to a range of oil and gas and petrochemical applications.  This
coating dramatically improves ethylene process yield and lengthens time between
maintenance requirements offering considerable advantages for chemical plant
operators and is being marketed through our strategic partnership with Manoir
Industries S.A., a specialist tubular manufacturer.


Physical Vapour Deposition (PVD)


In order to cope with the international nature of the PVD customer base and the
strong needs to cross link the coating know how, the 10 facilities have been put
under one operating structure.  Specific regional market knowledge and coating
application know-how is being leveraged 'from centres of excellence' for global
exploitation.  PVD operations that have proven competencies in specific niches
will support the roll-out of those applications into the geographic network.
The Tecate, Mexico operation is supporting marketing and process development for
decorative applications, Chassieu, France for tooling and Venlo, Netherlands for
tribological coatings applications.


Sherardizing/Sheraplex


Two sites focus on large volume Sherardizing/Sheraplex.  Sheraplex has been
specified by the designer for European and USA foldaway trailer system for the
back of breakdown trailers.  Sheraplex is being marketed worldwide as a cost
effective coating system for fasteners used on construction projects.


Plasma Spray


New contracts have been won for plasma spray of titanium honeycomb parts for
Airbus projects at our French facility.



CURRENT TRADING AND PROSPECTS


The results for the first two months of the year are in line with our
expectations.  With the operating improvements that have already been
implemented and the actions we are taking on Wet Coatings, we are confident in
the financial and trading prospects for the Group in the current year.


Looking further ahead the Group is poised to move forward as market demand
recovers.  Bodycote has capable people, productive facilities and the systems to
deliver exceptional quality and service.  The Group will continue to focus on
higher value added work, gaining further market share and winning new
outsourcing contracts.  The Group's medium term strategy is to deliver a pre tax
return on capital in the mid teens.


In support of our ongoing needs and future talent requirement for high calibre
staff, we have intensified initiatives to nurture interest in a career with
Bodycote.  Programmes of school visits, distance learning through related
discipline colleges, graduate sponsorship schemes at various European and North
American universities and 'Prize Paper Competition' have enhanced Bodycote's
profile amongst this important talent pool as Bodycote continues to position
itself for further growth and development and looks forward to the challenges
ahead.


John D. Hubbard
9 March 2004



GROUP FINANCE DIRECTOR'S REVIEW


Sales and Operating Profit


The Group recorded sales of £448.4m, compared to £440.1m in 2002, with difficult
trading conditions in essentially all of the Group's end markets continuing.
Existing operations accounted for £447.1 m, whilst acquisitions added £1.3 m.


                                        Sales                    Operating Profit*                Margin
                                  2003           2002           2003           2002           2003         2002
Continuing Operations               £m             £m             £m             £m              %            %
Heat Treatment                   302.9          302.7           31.6           36.5           10.4         12.1
Hot Isostatic Pressing            27.6           28.5            3.6            4.5           13.0         15.8
Materials Testing                 61.2           56.6           11.4           10.9           18.6         19.3
Specialty Coatings                18.7           16.3            2.7            2.6           14.4         16.0
Head Office                          -              -          (1.6)          (1.3)
                                 410.4          404.1           47.7           53.2           11.6         13.2
Wet Coatings                      38.0           36.0          (6.0)          (3.8)         (15.8)       (10.6)
                                 448.4          440.1           41.7           49.4            9.3         11.2

* before amortisation of goodwill of £9.1m (2002: £8.7m) and exceptional items
of £34.0m (2002: £18.3m)


The continued weakness in demand for the Group's services during 2003 has
resulted in a degree of price pressure which coupled with higher employment and
energy costs and operational problems at several wet coatings plants, more than
offset the benefits of our reorganisation and cost reduction programme.  The
effect of this was that despite closing a further 13 facilities and reducing
headcount by over 380, (excluding businesses acquired in 2003) operating profit*
fell from £49.4m to £41.7m.


Following a review of the Coatings operations, the Board has concluded that the
future development of the Group can best be served by concentrating on the
businesses where we have strong market positions and excellent know-how, thereby
enabling Bodycote to maximise its return on capital employed.  Consequently the
Board has decided to exit the wet coatings business (electroplating and
anodising) in an orderly and timely fashion.  This will result in an impairment
in the asset values of this business and an exceptional charge in the 2003
accounts of £30m, made up of £11m goodwill and £19m for tangible assets.  In
addition it is expected that cash costs for this reorganisation will be £5m to
be recognised in 2004.


Heat Treatment


The UK heat treatment business recorded sales and profits almost identical in
2003 to 2002, although reported profits in 2003 are lower by £0.3m due to an
unanticipated pension charge related to a 1998 acquisition which, if identified
at the time, would have been included in purchase consideration.  Demand from
its key aerospace/IGT markets appear to have bottomed out and market increases
are now expected.  The Central European Group returned robust results in the
face of weak conditions, particularly in Germany, with sales and profits in
local currency ahead by 2% and 5% respectively.  This reflects good cost control
and success at winning new outsourced contracts, particularly in the automotive
sector.  The France/Belgium/Italy Group had its operating profit boosted by
£0.7m with the inclusion for a full year of the Gamma acquisition in Italy
(purchased in September 2002).   France, however, proved to be one of our
weakest markets in 2003, particularly in the second half, with our large
automotive orientated continuous furnace facilities most affected.  Progress was
also retarded by the very lengthy process required in France to action our
reorganisation plan.  This caused an eight month delay compared to other parts
of the Group.  Official sanction to reduce headcount by 8% was finally given in
June and the benefits will be achieved in 2004.  The Nordic division had
disappointing results given that local currency sales were flat but profits were
down £1.1m.  This was due to issues regarding employee cost control and high
maintenance costs, both of which should be improved in 2004.  In addition,
results from Denmark were impacted by significant over capacity in the market.
Along with France, North America proved to be the most difficult trading
environment with sales down, in local currency, over 7% year on year.  Aerospace
and IGT demand was very weak throughout the year, particularly impacting our
West Coast plants.  Automotive was hit by a very weak Q3 as component suppliers
reacted to the Q2 vehicle production cut back by the Big Three manufacturers.
Despite good cost control with a further 173 reduction on headcount, margins
were reduced by three percentage points.


Hot Isostatic Pressing


The UK saw a further significant decline in HIP demand from its key precision
casting customers, who serve the aerospace and IGT markets, which saw sales down
19% year on year.  With particularly high fixed costs in HIP, margins were
reduced to 11%.  The continental European plants fared much better with sales
flat in Sweden and ahead in both Germany and Belgium.  This reflects a wider
spread of business in these markets with powder consolidation and production of
near net shapes in addition to casting densification.  Densal(R) sales grew by
64% due to good demand from German automotive manufacturers.  Sales in the USA
were marginally ahead for the year, with Q4 easily the strongest.  Profits were
impacted by £0.2m increase in depreciation charges.


Materials Testing


Once again, Materials Testing has delivered increased sales, up 8%, and
maintained margins, whilst  serving essentially the same markets as our other
SBUs.  Sales were ahead in all regions, except Canada which was flat, as the
division continues to win new business for the Group despite weak end market
conditions.  In the UK, our traditional engineering focused laboratories were
impacted, along with heat treatment and HIP, by weak aerospace and IGT demand
but this was compensated for by growth in Health Sciences.  The European
laboratories performed strongly with new contracts for polymer pipeline testing
for the water industry and in steel for the oil and gas sector.  The Middle East
produced excellent results as it benefited from strong civil engineering related
demand in the UAE and our position was significantly enhanced mid year by the
acquisition of additional facilities in the region. Canada was held back by
price erosion in the Quebec environmental and pharmaceutical laboratories,
although this was offset by increased demand for engine testing in Ontario.  In
the USA, the situation was one of steady growth with the exception of Los
Angeles which was impacted by poor aerospace demand.


Metallurgical Coatings


The results from the Group's coatings plants range from some of the best in the
Group to the worst.  Margins and profits in the small specialty businesses
(slurry and flame spray) were excellent.  PVD ranges from satisfactory to very
good with sales ahead 21% compared to 2002.  We expect this trend to continue in
2004.  Along with Materials Testing, this is an area where Bodycote's capacity
is being increased.  The performance of the anodizing plants (located in Sweden,
Finland and Germany) should certainly be better but are not a serious problem.
The electroplating results, however, are very poor, as a combination of weak
demand and disappointing operational performance at a handful of facilities have
resulted in  significant losses.  Wet coatings in total lost £6.0m.  The plants
that focus on zinc (in the UK, France and Sweden) have suffered from poor
demand.  The aerospace facilities (UK and France) should experience a recover in
demand in due course.  It is taking time to efficiently run the large new highly
automated telecoms oriented operation at Gothenburg, Sweden.  There has also
been a high scrap rate at our chrome on plastic facility at Anderstorp, Sweden.
At St Dizier in France, operational performance has been stabilised following a
problematic second half of 2002 and first half of 2003 but the plant operates in
a small market for chrome on aluminium, which requires further development
before satisfactory returns can be achieved.


Information Systems


During the last two years the Group has been moving towards standard information
systems solutions as and when businesses need to upgrade.  Our Central European
Group is close to completing the implementation of the Navision ERP system (a
Microsoft solution).  As well as offering first class functionality for
accounting, sales and purchase order processing and plant scheduling, the system
enables electronic customer access to scheduling information, all of which are
factors to improve our future market position and margins.  Based on our
experience in the Central European Group, France, Belgium, Italy, the UK and
North American will adopt Navision to replace their legacy systems in 2004.


Profit Before Tax, Goodwill Amortisation and Exceptional Items


Profit before tax, goodwill amortisation (£9.1m) and net exceptional items
(£34.0m) was £32.0m compared to £38.2m last year.    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.  In 2003
the continuation of this programme saw a further charge of £7.5m, in addition to
the £19m provision against wet coatings tangible fixed assets.  With the
exception of wet coatings, the reorganisation is broadly completed.  The
initiative has included the closure of 29 facilities over the two years spread
throughout the network.  Against this, the Group benefited from the settlement
of a fully provided loan to its former furnace manufacturing business resulting
in an exceptional profit in 2003 of £3.5m.  Pre-goodwill amortisation, pre
exceptional operating profit declined from 2002 to 2003 by £7.7m, of which £2.2m
was due to wet coatings.  Foreign exchange movements during the year resulted in
a net benefit to operating profit of £0.8m.  The effect of applying current
exchange rates to the 2003 results would be an adverse impact on operating
profit of approximately £1.0m, although this would be partly offset by interest
savings on dollar borrowings of c.£0.6m.  The Group's interest charge was
reduced from £11.2m to £9.7 m reflecting lower borrowings and the benefit of a
weaker US dollar.  Goodwill amortisation has increased by £0.4m to £9.1m
excluding the exceptional write-down of £11m related to wet coatings.


Taxation


The effective tax rate in 2003, before the amortisation of goodwill (which is
not generally allowable for tax) was 69% (2002: 24%).  The figure is distorted
by the significant exceptional charges, particularly related to the disposal of
wet coatings, which creates losses, the tax benefit for which has not been
assumed in the Group accounts, as their recoverability at the Balance Sheet date
is not known.  Before exceptional charges and goodwill amortisation, the
effective tax rate is 22% (2002: 29%), reflecting the mix of taxable profits and
losses and the jurisdictions in which the Group operates.


Earnings per share


Headline earnings per share were 9.7p (2002: 10.6p), with basic diluted loss per
share being (6.8)p (2002 earnings per share: 2.4p).  The Board is recommending a
full year dividend of 6.1p (2002: 6.1p) per share.  Dividend was covered 1.6
(2002: 1.7) times by headline earnings.  Interest was covered 4.3 (2002: 4.4x)
times by profit before goodwill and exceptional items.


Capital Expenditure


Net capital expenditure for the year was £38.3m compared to £54.0m in 2002.  The
multiple of depreciation (net capital expenditure divided by depreciation) has
continued to fall, being 0.8 times in 2003 compared to 1.3 times in 2002 as the
Group continues to make greater use of previous investments.


Major projects undertaken during the year included: the consolidation of three
facilities into one in St Etienne, France with the establishment of a new
service centre focused on nitriding technologies, the installation of additional
PVD tribological capacity in Venlo, Netherlands, tooling capacity in Chassieu,
France, the addition of low pressure carburizing technologies in Livonia, USA
and established an engine testing facility in St Catherine's, Canada.


Cash Flow and Borrowings


In July 2003 a three year £195m syndicated unsecured revolving credit facility
was successfully arranged which, along with the existing $80m of senior notes
due in December 2009, means that no significant refinancing of borrowings will
be required in 2004 or 2005.


There has been continued focus on cash collection, which has seen debtor days
reduce from 66 to 64.  After allowing for capital expenditure, interest and tax
there was free cash flow of £30.3m compared to £22.0m in 2002 even though cash
flow from operations decreased from £94.2 m to £83.9 m.    Acquisitions resulted
in net cash payments of £2.2m, of which the purchase of the Middle East
laboratories, from Carillion plc, accounted for £1.4m.  Net borrowings ended the
year at £210.3m, a reduction in the year of £23.9m; gearing was reduced from 60%
to 57%.


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 six 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 2003 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.


Pensions


The Group has elected to adopt the transitional provisions of FRS 17 (Retirement
Benefits) and consequently there is no impact on the 2003 figures.  If FRS17 had
been fully adopted in 2003, the Group would have recorded an additional
liability in its balance sheet of £14.3m (2002: £17.0m) relating to defined
benefit schemes in the UK, France and USA of which the UK plan accounted for
£12.5m (2002: £13.4m).  The US plans were inherited with the acquisition of
Lindberg.  Since last year the largest of these plans has been wound-up,
requiring the Group to inject $2.2 m in 2003.  The actuaries to the UK scheme
have advised that contributions to that plan be increased by £0.1m in 2004.


International Accounting Standards


All European Union listed groups are required to adopt International Accounting
Standards (IAS) for their financial statements from 2005, which will include
comparative information for 2004.  The Group is currently undertaking a detailed
review of the impact of IAS on its published financial statements.  Although
these standards are themselves evolving and undergoing improvements, a
preliminary review shows that there is likely to be an impact on the Group's
accounts, in relation to accounting for pensions, as the Group has adopted the
transitional provisions of FRS 17 and for deferred taxation, where the Group has
historically discounted the liability to present value.


D F Landless
9 March 2004





Consolidated profit and loss account
for the year ended 31 December 2003




                                                                    2003 £m               2002 £m
Turnover
Existing operations                                                   447.1                 440.1
Acquisitions                                                            1.3                     -
Continuing operations                                                 448.4                 440.1



Operating profit
Existing operations                                                    24.9                 22.4
Acquisitions                                                            0.2                    -
Continuing operations                                                  25.1                 22.4

Total operations
-  Trading                                                             41.7                 49.4
-  Operating exceptional items arising from restructuring and
asset write downs                                                     (7.5)               (18.3)
-  Goodwill amortisation                                              (9.1)                (8.7)

Operating profit                                                       25.1                 22.4

Exceptional items
Profit on disposal of discontinued operations                           3.5                    -
Loss on termination of operations                                    (30.0)                    -

(Loss)/profit on ordinary activities before interest and
taxation                                                              (1.4)                 22.4
Net interest payable                                                  (9.7)               (11.2)

(Loss)/profit on ordinary activities before taxation                 (11.1)                 11.2
Tax on (loss)/profit on ordinary activities                           (6.2)                (4.8)

(Loss)/profit on ordinary activities after taxation                  (17.3)                  6.4
Minority interests - equity                                           (0.1)                (0.1)

(Loss)/profit for the financial year                                 (17.4)                  6.3
Dividends - paid and proposed                                        (15.6)               (15.6)
Retained loss for the financial year                                 (33.0)                (9.3)



Earnings/(loss) per share
Headline                                                              9.7p                 10.6p
Headline - diluted                                                    9.7p                 10.6p
Basic                                                               (6.8)p                  2.4p
Basic - diluted                                                     (6.8)p                  2.4p





Consolidated balance sheet
as at 31 December 2003


                                                                                          2002
                                                                  2003             As restated
                                                                    £m                      £m
Fixed assets
Intangible assets - goodwill                                     137.5                   155.5
Tangible assets                                                  478.7                   498.4
Investments                                                        0.9                     0.9
                                                                 617.1                   654.8

Current assets
Stocks                                                            18.2                    17.7
Debtors                                                          102.7                   111.6
Cash at bank and in hand                                          35.2                    43.5
                                                                 156.1                   172.8

Creditors
Amounts falling due within one year                            (119.1)                 (202.8)
Net current assets/(liabilities)                                  37.0                  (30.0)

Total assets less current liabilities                            654.1                   624.8

Creditors
Amounts falling due after more than one year                   (239.5)                 (190.8)


Provisions for liabilities and charges                          (42.8)                  (44.6)

Net assets                                                       371.8                   389.4

Capital and reserves
Called-up share capital                                           25.7                    25.6
Share premium account                                            244.4                   244.2
Currency and other reserves                                       14.2                   (0.2)
Profit and loss account                                           86.6                   119.6

Shareholders' funds - equity                                     370.9                   389.2
Minority interests - equity                                        0.9                     0.2

                                                                 371.8                   389.4







Consolidated cash flow statement
for the year ended 31 December 2003




                                       2003              2003              2002              2002
                                         £m                £m                £m                £m


Operating profit                       25.1                                22.4
Depreciation charges                   45.7                                43.0
Amortisation of goodwill                9.1                                 8.7
Loss on sale of tangible fixed assets   0.1                                   -
Fixed assets written off on
restructuring                           3.5                                 8.4
Decrease in stocks                        -                                 0.6
Decrease in debtors                    12.1                                 8.7
(Decrease)/increase in creditors and (11.7)                                 2.4
provisions                             

Net cash inflow from operating                           83.9                                94.2
activities
Returns on investment and servicing of                 (10.3)                              (11.0)
finance
Taxation                                                (4.9)                               (7.2)
Capital expenditure and financial                      (38.3)                              (54.0)
investment
Acquisitions and disposals                                1.3                              (10.1)
Equity dividends paid                                  (15.6)                              (15.6)

Cash inflow/(outflow) before
management of liquid resources and
financing                                                16.1                               (3.7)
Management of liquid resources                            5.9                                 7.8
Financing                                              (23.5)                                 3.6

(Decrease)/increase in cash in the                      (1.5)                                 7.7
year

Reconciliation of net cash flow to
movement in net debt
(Decrease)/increase in cash in the    (1.5)                                 7.7
year
Cash outflow/(inflow) from             23.7                               (3.6)
decrease/(increase) in debt and lease
financing
Cash inflow from movement in liquid
resources                             (5.9)                               (7.8)

Change in net debt resulting from cash                   16.3                               (3.7)
flows
Debt acquired with subsidiaries                             -                               (1.1)
Currency adjustments                                      7.6                                12.6

Movement in net debt in the year                         23.9                                 7.8
Net debt at 1 January                                 (234.2)                             (242.0)

Net debt at 31 December                               (210.3)                             (234.2)





Consolidated statement of total recognised gains and losses
for the year ended 31 December 2003



                                                         2003               2002
                                                           £m                 £m

(Loss)/profit for the financial year                   (17.4)                6.3
Disposal of revalued property                               -              (0.6)
Currency adjustments                                     14.4                9.7

Total recognised gains and losses relating to the       (3.0)               15.4
year



Reconciliation of movements in                                              2002
Group shareholders' funds                                2003        As restated
for the year ended 31 December 2003                        £m                 £m

(Loss)/profit for the financial year                   (17.4)                6.3
Dividends                                              (15.6)             (15.6)
Retained loss for the financial year                   (33.0)              (9.3)
Disposal of revalued property                               -              (0.6)
Currency adjustments                                     14.4                9.7
New shares issued                                         0.3                  -

Net movement in shareholders' funds                    (18.3)              (0.2)

Shareholders' funds at 1 January (as previously        390.0               390.2
stated)

Prior year adjustment                                  (0.8)               (0.8)

Shareholders' funds at 1 January (as restated)         389.2               389.4

Shareholders' funds at 31 December                     370.9               389.2



Notes to the financial statements
31 December 2003


1. Segmental analysis


By activity                                  2003            %                 2002              %
                                               £m                                £m
Turnover

Heat treatment                              302.9           68                302.7             69
Materials testing                            61.2           14                 56.6             13
Hot isostatic pressing                       27.6            6                 28.5              6
Specialty coatings                           18.7            4                 16.3              4
                                            410.4           92                404.1             92
Wet coatings                                 38.0            8                 36.0              8

                                            448.4          100                440.1            100



(Loss)/profit on ordinary activities before
taxation


Heat treatment                              31.6            73                36.5              72
Materials testing                           11.4            26                10.9              21
Hot isostatic pressing                       3.6             8                 4.5               9
Specialty coatings                           2.7             6                 2.6               5
                                            49.3           113                54.5             107
Wet coatings                               (6.0)           (13)              (3.8)             (7)
                                            43.3           100                50.7             100

Head office expenses                       (1.6)                             (1.3)


Operating profit before amortisation of
goodwill and exceptional items              41.7                              49.4
Net interest payable                       (9.7)                            (11.2)
Profit on ordinary activities before
amortisation of goodwill and exceptional
items                                       32.0                              38.2
Amortisation of goodwill                   (9.1)                             (8.7)

Profit on ordinary activities before
exceptional items                           22.9                              29.5
Operating exceptional items                (7.5)                            (18.3)
Exceptional items                         (26.5)                                 -

(Loss)/profit on ordinary activities before
taxation                                  (11.1)                              11.2

  The segmental disclosure by activity for 2002 has been restated to reflect the
transfer of certain business from heat treatment to the metallurgical coatings
division.









Notes to the financial statements (continued)


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


                                                Turnover                       Profit before tax

                                           2003             2002             2003              2002
                                             £m               £m               £m                £m

United Kingdom                             60.6             62.2            (0.9)               4.5
Mainland Europe                           229.0            201.0            (5.5)               5.3
North America                             154.9            174.6              4.2              12.0
Rest of World                               3.9              2.3              0.8               0.6
                                          448.4            440.1            (1.4)              22.4

Net interest payable                                                        (9.7)            (11.2)
(Loss)/profit on ordinary activities
before taxation                                                            (11.1)              11.2


3. Tax on (loss)/ profit on ordinary activities


                                                                             2003                2002
                                                                               £m                  £m
The charge for taxation comprises:
Current tax:
UK corporation tax                                                            1.4                 3.5
Overseas tax                                                                  5.0                 6.3
Adjustments in respect of previous years                                    (0.6)               (3.0)
Total current tax                                                             5.8                 6.8

Deferred tax:
Origination and reversal of timing                                            2.1               (3.7)
differences
(Increase)/decrease in discount                                             (1.7)                 1.7
Total deferred tax                                                            0.4               (2.0)

Total tax on (loss)/ profit on ordinary                                       6.2                 4.8
activities

4.  Earnings/(loss) per share

                                                                             2003                2002
                                                                               £m                  £m
(Loss)/profit for the financial year                                       (17.4)                 6.3
Goodwill amortisation charge                                                  9.1                 8.7
Exceptional items after tax                                                  33.1                12.1

Headline earnings                                                            24.8                27.1

                                                                             2003                2002
                                                                           Number              Number
Weighted average number of ordinary shares in issue                   256,115,749         256,052,197
-basic
Adjustment in respect of share options                                          -             327,984
Weighted average number of ordinary shares in issue -                 256,115,749         256,380,181
diluted






Notes to the financial statements (continued)

5.  Analysis of changes in net debt
                                 1 Jan     Cash flow         Non-cash       Currency           31 Dec
                               2003 £m            £m          changes    adjustments             2003
                                                                                  £m               £m
Cash at bank and in hand          36.1         (4.2)                -            1.8             33.7
Short term deposits                7.4         (5.9)                -              -              1.5
Bank overdrafts                  (6.5)           2.7                -          (1.6)            (5.4)
Bank loans due within one
year                            (87.3)          84.2            (2.5)          (3.7)            (9.3)
Bank loans due after one
year                           (177.8)        (61.2)              2.5           11.6          (224.9)
Finance leases due within
one year                         (1.5)           1.3            (1.3)          (0.1)            (1.6)
Finance leases due after
one year                         (4.6)         (0.6)              1.3          (0.4)            (4.3)

                               (234.2)          16.3                -            7.6          (210.3)




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 2003 or 2002 but
is derived from those financial statements.  Statutory financial statements for
2002 have been delivered to the Register of Companies and those for 2003 will be
delivered following the company's annual general meeting, which will be held at
3pm on 26 May 2004.  The auditors have reported on those accounts; 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 2002 financial statements, with the exception of the
policy for accounting for the Group's employee benefit trust, which has been
changed in accordance with UITF Abstract 38, 'Accounting for ESOP trusts'.  This
reduced net assets in 2002 and 2003 by £0.8m.


This report was approved by the Board of Directors on 9 March 2004




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