Interim Results
Bodycote International PLC
23 August 2005
PRESS RELEASE
EMBARGOED UNTIL 0700 HRS: 23 AUGUST 2005
BODYCOTE INTERNATIONAL PLC
RESULTS ANNOUNCEMENT FOR THE HALF YEAR TO 30 JUNE 2005
• Sales (continuing operations) ahead 8% at £229.3m
• Headline Operating Profit (1, 2) higher by 22% at £33.1m
• Headline Profit Before Tax (1) £29.2m (2004: £22.3m) up 31%
• Headline EPS (3) increased 12%
• ROCE improved by 51% from 7.9% to 11.9%
• Dividend raised to 2.35p per share (2004: 2.25p)
• Acquisitions: 10 completed
• Outsourcing grows to 20% of sales
SUMMARY OF RESULTS Half year to Half year to Change
30 June 2005 30 June 2004 %
£m £m
Total Revenue 230.7 231.4 -
Revenue - Continuing Operations 229.3 211.5 + 8
Headline Operating Profit (1, 2) 33.1 27.1 + 22
Operating Profit - Continuing Operations 30.7 29.5 + 11
Headline Profit before taxation (1) 29.2 22.3 + 31
Profit Before Taxation - Continuing Operations 27.3 24.7 + 11
Headline earnings per share (3) 6.7 6.0 + 12
Basic earnings per share 6.2 4.7 + 32
Dividend per share 2.35 2.25 + 4
(1) Expressed pre impairment of goodwill (£1.8m: 2004 £nil), amortisation of
acquired intangibles (£0.1m: 2004 £nil) and restructuring costs (£nil: 2004
£5.4m). (2) Expressed before interest and tax on associates (£0.5m: 2004 £nil).
(3) A detailed breakdown can be found in the reconciliation of operating profit
to net cash inflow from operating activities.
Commenting on the results, John Hubbard, Chief Executive said:
'The continuing improvement in Bodycote's results reflects our focus on cost
management and return on capital employed. This clear focus has positioned
Bodycote to reap the benefit of the improvement in demand in the aerospace,
power generation, oil & gas and health sciences sectors along with further
outsourcing contract wins. Together these added three quarters of our top line
growth. Ten acquisitions, seven in Testing and three in Heat Treatment, have
been completed.'
'We believe there is now momentum behind the Group's improving results. Results
in July have continued the trend seen in the first half and we are optimistic
that this will remain the case for the balance of the year, although summer and
Christmas/New Year holidays will have their usual impact'.
'We continue to focus on winning more outsourcing work and managing our cost
base in highly competitive markets. We anticipate completing more bolt-on
acquisitions in the second half, primarily in Testing, as part of our growth
plan.'
INTERIM STATEMENT
INTRODUCTION
The continuing improvement in Bodycote's results reflects our focus on cost
management and return on capital employed, which has underpinned the
restructuring of the Group. This clear focus has positioned Bodycote to reap
the benefit of the improvement in demand in several core markets across our
broad range of geographies. Organic sales and profit growth in the first half
of 2005 came from a combination of improved demand in the aerospace, power
generation, oil & gas and health sciences sectors along with further outsourcing
contract wins.
Ten acquisitions, seven in Testing and three in Heat Treatment, have been
completed, of which six were finalised after the half year end.
RESULTS (Reported under IFRS, 2004 restated)
Sales in the first half of 2005 were £229.3m, an increase of 8.4% of which 5.8%
is organic. EBITDA(1) was £53.5m compared to £48.6m in the first half of 2004,
an increase of 10.1%. Headline operating profit (2, 3) was £33.1m versus
£27.1m a year ago, up 22.1%, of which 9.3% is organic. Headline profit before
tax (2) was £29.2m compared to £22.3m last year (stated before restructuring
charges in respect of discontinued operations of £5.4m), ahead 30.9%. Goodwill
impairment in the first half of 2005 was £1.8m, relating to the divestiture of a
heat treatment plant in North America. Profit before tax for the continuing
operations was £27.3m against £24.7m in the prior year, an improvement of 10.5%,
whilst profit for the period was £20.0m as against £13.6m in 2004, ahead 47.1%.
The effective tax rate for the Group, stated prior to goodwill impairment, was
25% (full year 2004: 22%) and is expected to remain at this level for the rest
of 2005. Headline earnings per share were 6.7p (2004: 6.0p). Basic earnings per
share were 6.2p (2004: 4.7p).
The two most important currencies for translation of Group sales and profit are
the US dollar which, on average, was 3.5% weaker than a year ago and the euro
which, on average, was 2.0% stronger than last year. The net effect of these
and other currency movements was to increase sales by £0.8m and operating profit
by £0.2m.
The trend of increased revenue as a result of outsourced work from Strategic
Partnerships and Long Term Agreements continues and in H1 2005 was 20% of sales
compared to 18.5% in the whole of 2004.
(1) EBITDA denotes earnings before interest, tax, depreciation from continuing
and discontinued operations, amortisation/impairment of goodwill and having
added back interest and tax in respect of associates. A detailed breakdown
can be found in the reconciliation of operating profit to net cash inflow
from operating activities
(2) Expressed pre impairment of goodwill (£1.8m: 2004 £nil), amortisation of
acquired intangibles (£0.1m: 2004 £nil), restructuring costs (£nil: 2004
£5.4m).
(3) Expressed before interest and tax on associates (£0.5m: 2004 £nil).
OPERATIONAL REVIEW
Heat Treatment
Sales were £165.2m (2004: £154.8m) and operating profit was £21.1m (2004:
£19.7m).
Sales increased in all geographies compared to the same period of 2004 being
6%(4) ahead overall. The strongest growth came in northern Europe with the UK
up 11% and Nordic up 10%(4) reflecting improvements in aerospace/power
generation and general engineering/heavy truck, respectively. Margins in the UK
came under pressure mainly due to high energy costs, which are expected to be
fully recovered in the second half. Nordic margins improved. The Central
European business continued to make progress, with sales up 6%(4) and margins
maintained. This region was boosted by the acquisition in Poland which offset
the effects of softer demand from German automotive customers. Our Eastern
European plants continue to perform very well. France/Belgium/Italy also saw
poor automotive demand and consequently sales were up only 2.5%(4) with margins
improving slowly. Despite concerns about the impact of difficulties at some
automotive OEMs, our sales in North America were up 7%(4) overall with improving
aerospace and oil & gas demand easily offsetting any softness in automotive.
Margins are now improving. Our two lowest margin regions remain North America
and France, due to higher levels of mass production work compared to other
regions but we expect the improving trend to continue.
Our strategy to expand further into Eastern Europe took a major step forward
with the acquisition of a group of four facilities in Poland complementing our
start-up in Warsaw. We have been successful in relocating under- utilised
assets to meet growth opportunities in Eastern Europe and are also using the
same approach in China, with our first wholly owned green field facility
expected to be in production by H1 2006.
Testing
Sales were £37.0m (2004: £30.5m) and operating profit was £6.5m (2004: £5.3m)
with margins remaining stable.
Testing has progressed well in all regions, with organic sales growth amounting
to 11%(4) and additional sales from acquisitions in the last twelve months
adding 9%(4). Our strategy to expand this SBU is delivering results. The UK in
particular is making excellent progress in health sciences both from the
existing business and following the acquisitions of Law Laboratories. Our
continental European and Middle Eastern businesses also delivered strong
performances with sales up 13%(4) and 19%(4) respectively, essentially all of
which was organic, on the back of robust demand from civil engineering and oil &
gas markets. A new joint venture in Qatar is ramping up as planned. Canada was
ahead by a more modest 6%(4) as a result of some softness in automotive, whilst
the USA was better by 9%(4).
Traditionally the second half delivers improved performance in Testing and the
recent acquisitions should also deliver growth in the second half.
Hot Isostatic Pressing
Sales were £16.8m (2004: £16.0m) and operating profit was £4.2m (2004: £3.5m).
Continuing recovery in Industrial Gas Turbine demand and a pick up in Commercial
Aviation build rate has increased our utilisation and margins have responded
accordingly with return on capital approaching acceptable rates. By early next
year two previously stored HIP units will commence production in Europe and the
USA. Even with this additional capacity and based on forecasts from our
customers, we anticipate adding new capacity by 2007.
Surface Engineering
Sales were £10.3m (2004: £10.2m) and operating profit was £1.6m (2004: £2.2m).
This drop in operating profit is primarily the result of start-up and
development costs at CoatAlloy(R) along with reduced demand by telecoms and ship
building in the Nordic facilities. Based on new business won, a recovery of
margins in the second half is forecast.
Our IonBond investment (20% of the equity) generated £0.8m of operating profit
(2004, wholly owned by Bodycote: £0.6m). IonBond continues to consolidate the
PVD industry and is performing in line with expectations.
As part of our geographic expansion of our technologies we have successfully
tested Sherardizing (thermal diffusion zinc coating) with a continental European
customer on a new critical corrosion resistance application in the automotive
industry which offers a significant growth opportunity if it proves commercially
viable.
The CoatAlloy(R) start-up is running about a year behind schedule but is now set
to generate sales and profits in the second half of the year.
A further five electroplating sites were sold in the first half and, along with
the divestiture of the North American heat treatment plant, have resulted in
disposal proceeds of £6.6m being received.
On 22 August 2005 we completed our exit from the electroplating business with
the sale of the last remaining site for £1.1m.
(4) Stated at constant exchange rates.
ACQUISITIONS
Four bolt-on acquisitions were successfully completed and integrated into the
Bodycote network in the first half. Two were in the UK Testing business, one in
Poland Heat Treatment (four facilities) and the other in France Heat Treatment.
The latter, ABMT, a specialist in high temperature vacuum heat treatments for
the aerospace industry, was finalised on 10 June 2005.
Continuing with our strategy to accelerate the growth of our Testing division, a
further four businesses have been acquired since 30 June 2005. On 5 July 2005
we acquired the entire share capital of J W Worsley (Coventry) Limited of
Nuneaton, a specialist provider of testing services to the automotive industry
which complements our extensive similar capabilities in North America. On 8
July 2005 we completed the purchase of Allied Laboratory Services Limited of
Grimsby. Allied provides testing services to the food processing industry and
will complement the recently acquired Law Laboratories business. Our health
sciences division also acquired Cirrus Laboratories Limited on 19 August 2005 to
extend the range of our pharmaceutical analysis services in the South of
England. Our Middle Eastern civil engineering testing company Bodycote Al
Futtaim Materials Testing Services Limited has acquired GHD Cladding Testing, a
Dubai based division of GHD Global Pty Ltd on 15 August 2005 to broaden the
range of civil engineering services provided.
The previously announced agreement to purchase CSM Materialteknik AB from SAAB
AB was completed on 5 August 2005 following clearance from the Swedish
competition authorities. This multi-disciplined research and testing facility
will form the nucleus of a European Technology Centre for the Testing division.
The Group has also strengthened its position in the UK heat treatment market
following the acquisition of Expert Heat Treatments Limited on 19 August 2005.
Expert operates from 4 sites throughout England with a strong bias towards
aerospace and automotive markets. Following this acquisition Bodycote has
strengthened its position as the leading UK Nadcap approved heat treatment
provider to the aerospace market.
BALANCE SHEET AND CASH FLOW
At 30 June 2005, Group net assets were £417.8m (2004: £407.6m) and net
borrowings stood at £98.0m (2004: £128.9m), which represents net gearing of 23%
(2004: 32%). The Group remains keenly focussed on cash generation. Cash
generated by operations was £40.2m. This was, however, somewhat lower than in
H1 2004 (£45.4m) due to a change in the treatment of customer payments in
France, which increased debtors by approximately £4m and some increase in trade
debtors and inventories generally due to increased activity. Free cash flow
(net cash from operating activities, less net capital expenditure and net
interest payments) was £14.2m (2004: £24.4m). In addition to the increases in
working capital, tax payments have risen by £2.7m year on year and net capital
expenditure has increased by £2.4m.
Capital expenditure continues to be tightly managed while organic growth
opportunities have resulted in a modest increase in net spend to £18.5m (2004:
£16.1m) for the period and the ratio of capital expenditure to depreciation was
0.9x (2004: 0.8x). We remain committed to improving our return on capital,
whilst recognising that we must invest for our long-term future prosperity.
The cash outlay for acquisitions net of disposals in the first half amounted to
£9.7m and since the half year end a further £13.9m has been invested.
The Group has recently completed a refinancing of its syndicated banking
facility, with £225m now available for five years and with pricing improved.
DIVIDEND
The Directors have declared an increased interim dividend of 2.35 pence per
share (2004: 2.25p). This will be paid on 6 January 2006 to all shareholders on
the register at the close of business on 2 December 2005.
CURRENT TRADING AND OUTLOOK
We believe there is now momentum behind the Group's improving results. We
continue to focus on winning more outsourcing work and managing our cost base in
highly competitive markets. Our technology transfer programme and sharing of
best practices within Bodycote will continue to help us improve our performance.
As part of our growth plan we anticipate completion of more bolt-on
acquisitions in the second half, primarily testing laboratories.
Our team of competent and dedicated professionals continues to provide each
customer with consistent quality and reliable delivery at good value thus
allowing us to grow profitability. We are very proud of our people and the
positive reputation they create each day with each customer.
Results in July have continued the trend seen in the first half and we are
optimistic that this will remain the case for the remainder of the year,
although summer and Christmas/New Year holidays will have their usual impact.
Bodycote is well positioned to grow in existing and new markets both organically
and by carefully selected acquisitions.
John D Hubbard
Chief Executive
23 August 2005
Unaudited consolidated income statement
Year ended Half year to Half year to
31 December 2004 30 June 2005 30 June 2004
£m £m £m
Revenue
426.4 Existing operations 225.6 211.5
- Acquisitions 3.7 -
426.4 Revenue - continuing operations 229.3 211.5
Operating profit
55.5 Existing operations 29.4 29.5
- Acquisitions 1.0 -
- Share of results of associates 0.3 -
55.5 Operating profit - continuing operations 30.7 29.5
55.5 Operating profit prior to amortisation and impairment 32.6 29.5
- Amortisation of acquired intangible fixed assets (0.1) -
- Impairment of goodwill (1.8) -
55.5 Operating profit - continuing operations 30.7 29.5
4.7 Investment income 3.0 1.8
(13.5) Finance costs (6.4) (6.6)
46.7 Profit before taxation 27.3 24.7
(9.3) Taxation (7.3) (5.6)
37.4 Profit for the period from continuing operations 20.0 19.1
Discontinued operations
(9.0) Loss for the period from discontinued operations - (5.5)
28.4 Profit for the period 20.0 13.6
Attributable to:
28.2 Equity holders of the parent 19.9 13.5
0.2 Minority interest 0.1 0.1
28.4 20.0 13.6
Earnings per share
From continuing operations
12.2 Basic 6.2 6.6
12.2 Basic - diluted 6.2 6.6
From continuing and discontinued operations
9.3 Basic 6.2 4.7
9.3 Basic - diluted 6.2 4.7
Unaudited consolidated statement of recognised income and expense
Year to Half year to Half year to
31 December 2004 30 June 2005 30 June 2004
£m £m £m
2.0 Exchange differences on translation of foreign operations (12.0) (9.4)
(8.2) Actuarial losses on defined benefit pension schemes - -
2.1 Tax on items taken directly to equity - -
(4.1) Net income recognised directly in equity (12.0) (9.4)
28.4 Profit for the period 20.0 13.6
24.3 Recognised income and expense for the period 8.0 4.2
Attributable to:
24.1 Equity holders of the parent 7.9 4.1
0.2 Minority interest 0.1 0.1
24.3 8.0 4.2
Unaudited consolidated balance sheet
As at As at As at
31 December 2004 30 June 2005 30 June 2004
£m £m £m
Non-current assets
139.7 Goodwill 148.6 137.9
1.4 Other intangible assets 3.4 1.5
425.9 Property, plant and equipment 415.1 448.4
5.8 Interests in associates 8.3 0.4
0.4 Other investments 0.4 0.4
6.1 Trade and other receivables 6.9 6.0
579.3 582.7 594.6
Current assets
8.9 Inventories 10.0 10.3
102.3 Trade and other receivables 112.8 100.8
142.1 Cash and cash equivalents 124.0 108.0
253.3 246.8 219.1
6.9 Non-current assets classified as held for sale 2.4 13.8
839.5 Total assets 831.9 827.5
Current liabilities
86.9 Trade and other payables 87.5 84.7
7.2 Dividends payable 12.4 9.9
2.5 Tax liabilities 6.2 6.9
1.5 Obligation under finance leases 1.2 1.5
7.0 Bank overdrafts and loans 4.5 6.4
1.5 Short-term provisions 1.5 2.1
106.6 113.3 111.5
146.7 Net current assets 133.5 107.6
Non-current liabilities
219.5 Bank loans 212.2 224.2
24.2 Retirement benefit obligation 24.5 15.8
53.2 Deferred tax liabilities 52.9 53.5
4.4 Obligations under finance leases 4.1 4.8
9.6 Other payables 7.1 9.2
310.9 300.8 307.5
- Liabilities directly associated with non-current assets - 0.9
classified as held for sale
417.5 Total liabilities 414.1 419.9
422.0 Net assets 417.8 407.6
Unaudited consolidated balance sheet
As at As at As at
31 December 2004 30 June 2005 30 June 2004
£m £m £m
Equity
32.1 Share capital 32.1 32.1
300.0 Share premium account 300.1 299.9
(0.8) Own shares (0.8) (0.8)
1.5 Other reserves 1.6 1.5
16.2 Hedging and translation reserves 4.2 3.4
72.0 Retained earnings 79.5 70.6
421.0 Equity attributable to equity holders of the parent 416.7 406.7
1.0 Minority interest 1.1 0.9
422.0 Total equity 417.8 407.6
Unaudited consolidated cash flow statement
Year to Half year to Half year to
31 December 2004 30 June 2005 30 June 2004
£m £m £m
100.5 Net cash inflow from operating activities 37.6 45.5
Investing activities
(37.5) Purchases of property, plant and equipment (22.4) (18.1)
3.6 Proceeds on disposal of property, plant and equipment 4.4 2.3
(0.5) Purchases of intangible fixed assets (0.5) (0.3)
(5.2) Acquisition of investment in an associate (2.7) -
(4.7) Acquisition of subsidiaries (15.6) (3.2)
20.4 Disposal of subsidiary 5.9 1.3
(23.9) Net cash used in investing activities (30.9) (18.0)
Financing activities
4.2 Interest received 2.8 1.6
(12.9) Interest paid (7.6) (6.5)
(15.7) Dividends paid (7.2) (5.8)
- Dividend paid to minority shareholder (0.1) -
(9.2) Repayments of borrowings (8.8) (5.3)
(2.2) Repayments of obligations under finance leases (0.9) (1.3)
5.1 New bank loans raised - 4.7
0.4 New obligations under finance leases - 0.1
62.0 Proceeds on issue of ordinary share capital 0.1 61.9
(2.9) Increase (decrease) in bank overdrafts 2.1 (1.8)
28.8 Net cash (used in)/from financing activities (19.6) 47.6
105.4 Net (decrease)/increase in cash and cash equivalents (12.9) 75.1
35.2 Cash and cash equivalents at beginning of period 142.1 35.2
1.5 Effect of foreign exchange rate changes (5.2) (2.3)
142.1 Cash and cash equivalents at end of period 124.0 108.0
Reconciliation of operating profit to net cash inflow from operating activities
Year to Half year to Half year to
31 December 2004 30 June 2005 30 June 2004
£m £m £m
55.5 Operating profit 30.7 29.5
(2.4) Operating loss from discontinued operations - (2.4)
- Share of associates' interest and tax 0.5 -
43.4 Depreciation of property, plant and equipment 20.1 21.1
0.7 Amortisation of intangible assets 0.4 0.4
- Impairment of goodwill 1.8 -
97.2 EBITDA (1) 53.5 48.6
0.5 (Gain)/loss on disposal of property, plant and equipment - (0.2)
0.2 Share-based payments 0.1 0.1
(0.5) (Decrease)/Increase in provisions - 0.2
97.4 Operating cash flows before movement in working capital 53.6 48.7
3.6 Decrease/(Increase) in inventories (1.5) 2.5
(2.1) Decrease/(Increase) in receivables (10.5) (7.7)
7.0 (Decrease)/Increase in payables (1.4) 1.9
105.9 Cash generated by operations 40.2 45.4
(5.4) Taxation (paid)/received (2.6) 0.1
100.5 Net cash from operating activities 37.6 45.5
(1) Earnings before interest, tax, depreciation and amortisation
Notes to the financial information
1. IFRS Reconciliations
In 2004, the Group prepared its consolidated financial statements under UK GAAP.
With effect from 1 January 2005, the Group is required to prepare its
consolidated financial statements in accordance with IFRS. This note sets out
details of the effect of the transition from UK GAAP to IFRS on the Group's
equity and its net income and cash flows for the six months ended 30 June 2004.
Full details of the restatement and reconciliations of the UK GAAP financial
information for the year ended 31 December 2004 can be obtained from the group's
website, www.bodycote.com.
Reconciliation of income statement for the six months
ended 30 June 2004 IFRS
UK GAAP ADJ. IFRS
£m £m £m
Revenue 231.4 (19.9) 211.5
Profit from operations before exceptional items 22.4 7.1 29.5
Exceptional items (UK GAAP) (5.4) 5.4 -
Profit from operations after exceptional items 17.0 12.5 29.5
Investment income 1.8 - 1.8
Finance costs (6.2) (0.4) (6.6)
Net Interest (4.4) (0.4) (4.8)
Profit before taxation 12.6 12.1 24.7
Taxation (3.3) (2.3) (5.6)
Loss for the period from discontinued operations - (5.5) (5.5)
Profit for the year 9.3 4.3 13.6
Attributable to:
Equity holders of the parent 9.2 4.3 13.5
Minority interest 0.1 - 0.1
9.3 4.3 13.6
Explanation of transition to IFRS
Goodwill - IFRS 3, Business Combinations
Goodwill is no longer amortised (under UK GAAP the Group amortised goodwill over
twenty years), but will be subject to an annual impairment review.
Pensions - IAS 19, Employee Benefits
Pension scheme charges are split between current service costs (charged to
operating profit), net finance costs (charged to interest costs) and actuarial
gains or losses (recognised in the Statement of Recognised Income and Expense).
The Group's pension scheme deficit is recognised on the Group balance sheet,
gross of the related deferred taxation.
Employee share option schemes - IFRS 2, Share-Based Payments
The cost of share-based payments is charged to operating profit, with the
valuation of share-based payments being based on the fair value of the option or
award at grant date.
Dividends - IAS 10, Events After the Balance Sheet Date
Under IFRS, dividends are not recognised as liabilities until they are
appropriately approved and are no longer at the discretion of the directors.
Notes to the financial information (continued)
Deferred taxation discounting - IAS 12, Income Taxes
Under UK GAAP, the Group's deferred tax balances were discounted to present
value. Discounting of deferred tax balances is not permitted under IAS 12 and
hence the impact of discounting has been removed.
Non-current assets held for sale - IFRS 5, Non-Current Assets Held for Sale and
Discontinued Operations
Non-current assets held for sale (for example closed plant buildings) are
presented separately from other non-current assets under IFRS.
Maintenance spares - IAS 16, Property, Plant and Equipment
Under IFRS, maintenance spares are treated as non-current assets rather than
inventory, due to their long term nature.
Software - IAS 38, Intangible Assets
Certain software assets are shown separately as intangible fixed assets in the
Group balance sheet under IFRS. These were previously classified as property,
plant and equipment under UK GAAP.
Leases - IAS 17, Leases
Certain leases formerly recorded as operating leases under UK GAAP have been
reclassified as finance leases under IFRS, due to the fact IAS 17 has a wider
scope than the UK standard.
Cash flow statement - IAS 7, Cash Flow Statements
The cash flow differences between UK GAAP and IFRS are all either movements
within a classification (adjustments netting to zero) or presentational. There
is no impact on the final cash position nor the movement during the periods
presented.
Notes to the financial information (continued)
Reconciliation of balance sheet at 30 June 2004 IFRS
UK GAAP ADJ IFRS
£m £m £m
Non-current assets
Goodwill 134.9 3.0 137.9
Other intangible assets - 1.5 1.5
Property, plant and equipment 455.7 (7.3) 448.4
Interests in associates 0.4 - 0.4
Other investments 0.4 - 0.4
Other receivables 6.1 (0.1) 6.0
597.5 (2.9) 594.6
Current assets
Inventories 15.1 (4.8) 10.3
Trade and other receivables 101.6 (0.8) 100.8
Cash and cash equivalents 108.1 (0.1) 108.0
224.8 (5.7) 219.1
Non-current assets classified as held for sale - 13.8 13.8
Total assets 822.3 5.2 827.5
Current liabilities
Trade and other payables 102.3 (7.7) 94.6
Tax liabilities 6.9 - 6.9
Obligations under finance leases 1.3 0.2 1.5
Bank overdrafts and loans 6.4 - 6.4
Short term provisions 2.1 - 2.1
119.0 (7.5) 111.5
Net current assets 105.8 1.8 107.6
Non-current liabilities
Bank loans 224.2 - 224.2
Retirement benefit obligation - 15.8 15.8
Deferred tax liabilities 38.5 15.0 53.5
Obligations under finance leases 3.3 1.5 4.8
Other payables 11.2 (2.0) 9.2
277.2 30.3 307.5
Liabilities directly associated with non-current assets - 0.9 0.9
classified as held for sale
TOTAL LIABILITIES 396.2 23.7 419.9
NET ASSETS 426.1 (18.5) 407.6
EQUITY
Share capital 32.1 - 32.1
Share premium account 299.9 - 299.9
Currency and other reserves 4.6 (0.5) 4.1
Retained earnings 88.6 (18.0) 70.6
Equity attributable to equity holders of the parent 425.2 (18.5) 406.7
Minority interest 0.9 - 0.9
TOTAL 426.1 (18.5) 407.6
Notes to the financial information (continued)
2. Operating Profit
Year ended 31 December 2004 Six months ended 30 June 2005 Six months ended 30 June 2004
Continuing Discontinued Total Existing Acquisitions Discontinued Total Continuing Discontinued Total
£m £m £m £m £m £m £m £m £m £m
426.4 30.8 457.2 Turnover 225.6 3.7 1.4 230.7 211.5 19.9 231.4
(284.6) (25.9) (310.5) Cost of sales (149.1) (1.9) (1.1) (152.1) (139.2) (17.7) (156.9)
141.8 4.9 146.7 Gross profit 76.5 1.8 0.3 78.6 72.3 2.2 74.5
0.4 (0.7) Other 0.7 - - 0.7 (1.3) 0.1 (1.2)
(1.1) operating
income/
(expenses)
(13.7) (1.4) (15.1) Distribution (7.2) - - (7.2) (6.4) (0.9) (7.3)
costs
(71.5) (6.3) (77.8) Administration (38.8) (0.7) (0.3) (39.8) (35.1) (3.8) (38.9)
costs - General
- - - Amortisation - (0.1) - (0.1) - - -
of acquired
intangibles
- - - Impairment (1.8) - - (1.8) - - -
of goodwill
Share of
results of
associates
- - - Operating 0.8 - - 0.8 - - -
profit
- - - Net (0.5) - - (0.5) - - -
interest
payable -
share of
associates
- - - Attributable - - - - - - -
tax expense -
Associates
- (11.2) (11.2) Restructuring - - - - - (5.4) (5.4)
costs
55.5 (13.6) 41.9 Operating 29.7 1.0 - 30.7 29.5 (7.8) 21.7
profit
(8.8) - (8.8) Net interest (3.4) - - (3.4) (4.8) - (4.8)
payable
(9.3) 4.6 (4.7) Attributable (7.3) - - (7.3) (5.6) 2.3 (3.3)
tax expense
37.4 (9.0) 28.4 19.0 1.0 - 20.0 19.1 (5.5) 13.6
Notes to the financial information (continued)
3. Segmental analysis by activity
Year to Half year to Half year to
31 December 2004 30 June 2005 30 June 2004
Restated Restated
£m £m £m
Revenue
309.0 Heat treatment 165.2 154.8
65.6 Testing 37.0 30.5
32.1 Hot isostatic pressing 16.8 16.0
19.7 Surface engineering 10.3 10.2
426.4 Continuing operations 229.3 211.5
19.1 Electroplating 1.4 12.7
11.7 PVD - 7.2
30.8 Discontinued operations 1.4 19.9
457.2 Total revenue 230.7 231.4
Profit/(loss) from operations
35.2 Heat treatment 21.1 19.7
12.4 Testing 6.5 5.3
7.1 Hot isostatic pressing 4.2 3.5
3.6 Surface Engineering 1.6 2.2
- PVD - share of associates 0.7 -
58.3 Continuing operations 34.1 30.7
(3.3) Electroplating - (3.0)
0.9 PVD - 0.6
(2.4) Discontinued operations - (2.4)
55.9 34.1 28.3
(2.8) Head office expenses (1.1) (1.2)
53.1 Profit from operations before restructuring costs 33.0 27.1
- Impairment of goodwill (1.8) -
(11.2) Restructuring costs - exceptionals - (5.4)
41.9 Profit from operations 31.2 21.7
(13.5) Interest payable (6.4) (6.6)
4.7 Interest receivable 3.0 1.8
- Share of associates' interest (0.5) -
(8.8) Net interest (3.9) (4.8)
33.1 Profit before taxation 27.3 16.9
(9.3) Taxation - continuing operations (7.3) (5.6)
4.6 Taxation - discontinued operations - 2.3
(4.7) Taxation (7.3) (3.3)
28.4 Profit for the period 20.0 13.6
Notes to the financial information (continued)
4. Earnings per share
Year ended Half year to Half year to
31 December 30 June 30 June
2004 2005 2004
£m £m £m
28.2 Profit for the financial period 19.9 13.5
- Goodwill amortisation charge - -
- Amortisation of acquired intangibles 0.1 -
- Operating exceptionals after tax 1.8 -
7.3 Exceptional items after tax - 3.8
35.5 Headline earnings 21.8 17.3
28.2 Profit for the financial period 19.9 13.5
9.0 Discontinued operations after tax 0.0 -
37.2 Continuing earnings 19.9 13.5
304,605,680 Weighted average number of shares in issue - 320,281,966 290,258,656
basic
124,007 Adjustment in respect of share options 381,650 157,602
304,729,687 Weighted average number of ordinary shares in 320,663,616 290,416,258
issue - diluted
Continuing and discontinued
11.7 Headline 6.7 6.0
11.7 Headline - diluted 6.7 6.0
9.3 Basic 6.2 4.7
9.3 Basic - diluted 6.2 4.7
Continuing operations
12.2 Basic 6.2 6.6
12.2 Basic - diluted 6.2 6.6
Notes to the financial information (continued)
5. Accounting Policies
Basis of accounting
The next annual financial statements of the Group will be prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted for use in
the EU. Accordingly, the interim financial information has been prepared using
accounting policies consistent with IFRS. IFRS is subject to amendment and
interpretation by the International Accounting Standards Board (IASB) and there
is an ongoing process of review and endorsement by the European Commission. The
financial information has been prepared on the basis of IFRS that the Directors
expect to be applicable as at 31 December 2005. In particular, the Directors
have assumed that the European Commission will endorse the amendment to IAS 19
'Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures'
issued by the IASB in December 2004.
Bodycote International plc's consolidated financial statements were prepared in
accordance with United Kingdom Generally Accepted Accounting Principles (UK
GAAP) until 1 January 2005. UK GAAP differs in some areas from IFRS. In
preparing this interim financial information, management has amended certain
accounting and valuation methods applied in the UK GAAP financial statements to
comply with the recognition and measurement criteria of IFRS. The comparative
figures in respect of 2004 were restated to reflect these adjustments.
The Group has made use of the exemption available under IFRS 1 to only apply IAS
32, 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial
Instruments: Recognition and Measurement' from 1 January 2005.
The disclosures required by IFRS 1 concerning the transition from UK GAAP to
IFRSs are given in note 1.
The financial statements have been prepared on the historical cost basis. The
principal accounting policies adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up to
31 December each year. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities.
On acquisition, the assets and liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of acquisition. Any
excess of the cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill. Any deficiency of the cost of
acquisition below the fair values of the identifiable net assets acquired (i.e.
discount on acquisition) is credited to profit and loss in the period of
acquisition. The interest of minority shareholders is stated at the minority's
proportion of the fair values of the assets and liabilities recognised.
Subsequently, any losses applicable to the minority interest in excess of the
minority interest are allocated against the interests of the parent.
The results of subsidiaries acquired or disposed of during the year are included
in the consolidated income statement from the effective date of acquisition or
up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by
the Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Investments in associates
An associate is an entity over which the Group is in a position to exercise
significant influence, but not control or joint control, through participation
in the financial and operating policy decisions of the investee.
Notes to the financial information (continued)
The results and assets and liabilities of associates are incorporated in these
financial statements using the equity method of accounting. Investments in
associates are carried in the balance sheet at cost as adjusted by
post-acquisition changes in the Group's share of the net assets of the
associate, less any impairment in the value of individual investments. Losses
of the associates in excess of the Group's interest in those associates are not
recognised.
Any excess of the cost of acquisition over the Group's share of the fair values
of the identifiable net assets of the associate at the date of acquisition is
recognised as goodwill. Any deficiency of the cost of acquisition below the
Group's share of the fair values of the identifiable net assets of the associate
at the date of acquisition (i.e. discount on acquisition) is credited in profit
and loss in the period of acquisition.
Where a group company transacts with an associate of the Group, profits and
losses are eliminated to the extent of the Group's interest in the relevant
associate. Losses may provide evidence of an impairment of the asset
transferred in which case appropriate provision is made for impairment.
Non-current assets held for sale
Non-current assets (and disposal groups) classified as held for sale are
measured at the lower of carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their
carrying amount will be recovered through a sale transaction rather than through
continuing use. This condition is regarded as met only when the sale is highly
probable and the asset (or disposal group) is available for immediate sale in
its present condition. Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within one year from the
date of classification.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets and liabilities of a subsidiary, associate or jointly controlled entity
at the date of acquisition.
Goodwill is recognised as an asset and reviewed for impairment at least
annually. Any impairment is recognised immediately in profit or loss and is not
subsequently reversed.
On disposal of a subsidiary, associate or jointly controlled entity, the
attributable amount of goodwill is included in the determination of the profit
or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRSs has been
retained at the previous UK GAAP amounts subject to being tested for impairment
at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has
not been reinstated and is not included in determining any subsequent profit or
loss on disposal.
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided in
the normal course of business, net of discounts, VAT and other sales-related
taxes.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount.
Dividend income from investments is recognised when the shareholders' rights to
receive payment have been established.
Notes to the financial information (continued)
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their
fair value or, if lower, at the present value of the minimum lease payments,
each determined at the inception of the lease. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly against income.
Rentals payable under operating leases are charged to income on a straight-line
basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight line basis over the lease term.
Foreign currencies
Transactions in currencies other than pounds sterling are recorded at the rates
of exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign currencies
are retranslated at the rates prevailing on the balance sheet date. Gains and
losses arising on retranslation are included in net profit or loss for the
period.
On consolidation, the assets and liabilities of the Group's overseas operations
are translated at exchange rates prevailing on the balance sheet date. Income
and expense items are translated at the average exchange rates for the period
unless exchange rates fluctuate significantly. Exchange differences arising, if
any, are classified as equity and transferred to the Group's translation
reserve. Such translation differences are recognised as income or as expenses
in the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate. The Group has elected to treat goodwill and
fair value adjustments arising on acquisitions before the date of transition to
IFRSs as sterling-denominated assets and liabilities.
Borrowing costs
Borrowing costs are recognised in profit or loss in the period in which they are
incurred.
Government grants
Government grants relating to property, plant and equipment are treated as
deferred income and released to profit and loss over the expected useful lives
of the assets concerned.
Operating profit
Operating profit is stated after charging restructuring costs and after the
post-tax share of results of associates but before investment income and finance
costs.
Retirement of benefit costs
Payments to defined contribution retirement benefit schemes are charged as an
expense as they fall due. Payments made to state-managed retirement benefit
schemes are dealt with as payments to defined contribution schemes where the
Group's obligations under the schemes are equivalent to those arising in a
defined contribution retirement benefit scheme.
For defined benefit retirement benefit schemes, the cost of providing benefits
is determined using the Projected Unit Credit Method, with actuarial valuations
being carried out at each balance sheet date. Actuarial gains and losses are
recognised in full in the period in which they occur. They are recognised
Notes to the financial information (continued)
outside profit or loss and presented in the statement of recognised income and
expense.
Past service cost is recognised immediately to the extent that the benefits are
already vested, and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the
present value of the defined benefit obligation, as reduced by the fair value of
scheme assets.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from goodwill or from the initial recognition (other
than in a business combination) of other assets and liabilities in a transaction
that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and any recognised impairment loss.
Depreciation is charged so as to write off the cost of assets, other than land
and properties under construction, over their estimated useful lives, using the
straight-line method, on the following bases:
Freehold buildings 2%
Leasehold property over the period of the lease
Fixtures and fittings 10% - 20%
Plant and machinery 5% - 20%
Motor vehicles 20% - 33%
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, over the term of the
relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the
asset and is recognised in income.
Notes to the financial information (continued)
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where the asset does not generate cash
flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset
(cash-generating unit) is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of an
impairment loss is recognised as income immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories to their present
location and condition. Net realisable value represents the estimated selling
price less all estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance
sheet when the Group becomes a party to the contractual provisions of the
instrument.
Trade receivables
Trade receivables do not carry any interest and are stated at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds
received, net of direct issue costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are accounted for on
an accrual basis to the profit and loss account using effective interest method
and are added to the carrying amount of the instrument to the extent that they
are not settled in the period in which they arise.
Trade payables
Trade payables are not interest-bearing and are stated at their nominal value.
Notes to the financial information (continued)
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
Provisions
Provisions for restructuring costs are recognised when the group has a detailed
formal plan for the restructuring that has been communicated to affected
parties.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payments. In
accordance with the transitional provisions, IFRS 2 has been applied to all
grants of equity instruments after 7 November 2002 that were unvested as of 1
January 2005.
The Group issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value at the date of
grant. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting
period, based on the group's estimate of shares that will eventually vest.
Fair value is measured by use of a Black-Scholes model.
6. The charge for taxation on the profit for the period is based on the
estimated effective rate for the full year. The amount includes £6.6 million
(2004: £3.3 million) relating to tax on overseas activities.
7. This unaudited interim report does not comprise the Group's statutory
accounts. The financial information in respect of the year ended 31 December
2004 are extracts from the statutory accounts under UK GAAP for this period and
amended by adjustments arising from the implementation of International
Financial Reporting Standards (IFRS). The statutory accounts for this period
have been filed with the Registrar of Companies. The auditor's report on these
accounts was unqualified and did not contain a statement under section 237 (2)
or (3) of the Companies Act 1985.
8. Copies of this report and the last Annual Report and Accounts are available
from the Secretary, Bodycote International plc, Hulley Road, Macclesfield,
Cheshire SK10 2SG, and can each be downloaded or viewed via the group's website
at www.bodycote.com. Copies of this report are also being submitted to the UK
Listing Authority, and will shortly be available at the UK Listing Authority's
Document Viewing Facility at 25 The North Colonnade, Canary Wharf, London E14
5HS (Telephone +44(0) 207-676-1000).
Enquiries: Tuesday 23 August 2005:
0900 hrs - 1130 hrs Telephone: 0207 831 3113
John Hubbard, Chief Executive
David Landless, Group Finance Director
Website: http://www.bodycote.com
INDEPENDENT REVIEW REPORT TO BODYCOTE INTERNATIONAL PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2005, which comprises the profit and loss account,
the balance sheets, the cash flow statement and related notes 1 to 8. We have
read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority, which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
International Financial Reporting Standards
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with International Financial Reporting Standards as
adopted for use in the EU. Accordingly, the interim report has been prepared in
accordance with the recognition and measurement criteria of IFRS and the
disclosure requirements of the Listing Rules. The accounting policies are
consistent with those that the directors intend to use in the annual financial
statements.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
Deloitte & Touche LLP
Chartered Accountants
Manchester
23 August 2005
This information is provided by RNS
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