Final Results - Year Ended 31 December 1999

Bodycote International PLC 23 March 2000 For further information, please contact: John Chesworth, Managing Director Tel: 0171 831 3113 on 23.03.2000 Bodycote International plc Tel: 01625 505300 thereafter Edward Bridges/Scott Fulton Deborah Ardern-Jones Financial Dynamics Tel: 0171 831 3113 BODYCOTE INTERNATIONAL PLC PRELIMINARY RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 1999 H I G H L I G H T S * Good progress in a demanding year * Double digit operating profit growth across all divisions * Additional capacity in place after two year programme * Operational efficiency drive continues * World markets strengthening * E-commerce improving volume business prospects 1999 1998 Change SUMMARY OF RESULTS £M £M % Turnover 355.4 320.0 +11 Operating profit before 84.0 75.1 +12 goodwill Profit before taxation 80.7 76.8 +5 goodwill and exceptional items Earnings per share Headline 22.5p 21.3p +6 Basic 22.6p 21.0p +8 Dividend per share 5.5p 4.8p +15 Commenting on the results, John Chesworth, Managing Director said: 'The group is in excellent shape, both structurally and geographically, and continues proactively to develop the many outsourcing opportunities which are even more apparent during these challenging conditions. With capacity in place to serve markets which are generally showing distinct signs of improvement, the year 2000 should be another successful year.' PRELIMINARY RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31st DECEMBER 1999 CHAIRMAN'S STATEMENT Bodycote made good progress during what proved to be a demanding year. For the twentieth consecutive year the group's core businesses produced increased sales and profit before tax. Pre-tax profit, before amortisation of goodwill and exceptional items, was £80.7 million, an increase of 5% over the previous year (1998: £76.8 million). Headline earnings per share increased to 22.5 pence from 21.3 pence last year, a rise of 6%. Interest cover for the group was 26 times. The directors are recommending a final dividend of 3.55p per share, making a total dividend for the year of 5.5 pence per share (1998: 4.8p), an increase of 15%. The dividend is covered more than 4 times by earnings. The figures for earnings and dividend per share have been adjusted for the reorganisation of share capital into 10 pence shares completed in June 1999. The group made significant progress in the restructuring of its short-term loans at the end of 1999 with a private placement of $80 million with five US financial institutions for a ten year term at a fixed interest coupon of 7.8%. During the year a review of the group's audit and tax advisory services was concluded. As a result the international firm Arthur Andersen was appointed for all group companies. This has already streamlined the audit process and reduced costs. 1999 was another busy year for the group with £39 million spent on acquisitions, £24.5 million received from disposals and £84 million invested in new plant and equipment. Eighteen acquisitions in six countries in our core activities were completed during the year. The most significant was the purchase of the former Ontario Research and Technology Institute (Ortech) in Canada, which now forms the centre for materials testing for all Bodycote's North American operations. A Nordic coatings group was also created by the acquisition of five companies, comprising nine facilities, in the first half of the year. This new group has considerable market synergies with the existing Bodycote heat treatment companies. New plants were established at Rochdale and Wolverhampton (UK), Venlo (Holland), Eching (Germany), Santa Ana (USA) and Tecate (Mexico). These state of the art investments will help to increase our profitability and market penetration. Three furnace equipment manufacturing businesses, which had been acquired as part of companies purchased in 1995 and 1997, were sold for £24.5 million in November. Outsourcing agreements, under which customers' in house facilities are replaced by Bodycote's dedicated plant, similar to those agreed with Rolls- Royce, Derby, and highlighted in my previous annual statement, have been completed with Corus (formerly British Steel) at Shotton, and AGCO (Massey Ferguson) in Coventry in the United Kingdom. Similar agreements have also been entered into in Germany, with Holzer and Krupp Presta, in France, with Garconnet and Franck et Pignard, and in North America with Schlage Lock. The group also continues to meet the metallurgical processing needs of major customers through an increasing number of long term contracts. Another developing feature has been the transfer of technology between Bodycote group companies. In Europe the transfer of vacuum brazing know-how has enabled the group to develop new markets. Densal IIr HIP technology is to be deployed in Germany and the United States. Bodycote Hauzer's PVD process technology and equipment, introduced in the Netherlands, is now in operation within the group in the United Kingdom, Sweden, France and Mexico. Bodycote's efforts in 2000 will be concentrated on maximising utilisation of its existing facilities. The influence of the Internet and telecommunications based technologies is starting to change the way Bodycote does business. Bodycote is using these e-commerce technologies to improve competitiveness. I should like to thank all Bodycote employees whose dedication, hard work and enthusiasm enabled the group to produce such good results. The group has a strong pool of talent which augurs well for the future. With improving world markets, a continuing drive towards greater operational efficiency and opportunities for organic and acquisition-led growth, the year 2000 should be another successful one. Dr Bruce Farmer CBE Chairman 23 March 2000 MANAGING DIRECTOR'S REPORT Bodycote's geographic and technical strength enabled the group to overcome difficult market conditions. The performance of the group against this background was extremely resilient, sales increased from £320 million to £355 million (+11%), operating profit before goodwill increased from £75.1 million to £84 million (+12 %), whilst profit before tax, amortisation of goodwill and exceptional items, increased from £76.8 million to £80.7 million (+5%). Headline earnings per share improved from 21.3p to 22.5p (+6%). Operating cash flow for the year amounted to £99 million, an increase of £5 million compared to 1998. Capital expenditure in 1999 was £84 million and acquisitions absorbed £39 million. The sale in November of the furnace manufacturing businesses, Schmetz, Mahler and Fours BMI for £24.5 million, released resources for redeployment into our core activities. All processing divisions continued to make progress, achieving double digit growth in operating profits and all contributed well to these improved results. Modest organic growth was achieved in spite of generally difficult markets, whilst acquisitions produced results in line with expectations. The substantial capital expenditure programmes of the last two years, totalling in excess of £160 million, included the replacement of old plants with new greenfield facilities, as well as the commissioning of additional capacity. With generally flat market conditions, a swift response in reducing the cost base ensured that margins were maintained. The group is now very well positioned to take advantage of improving volumes of business as markets firm up and increased utilisation of the additional capacity created in the last two years will be the major focus in the short term. Investment in the medium term will, therefore, be directed mainly towards specific outsourcing projects and further geographic expansion of the network. Heat treatment processing, by far the largest division, produced record results. Towards the year end there were clear signs that volume business was improving in Scandinavia, Germany and the United States, and with the UK and France continuing strong, prospects for the year 2000 are encouraging. The hot isostatic pressing division continued to make good progress. Difficulties in the oil and gas sector affected the performance of Bodycote Powdermet in Sweden. However, this was outweighed by underlying growth in the remainder of the division which increased volume business by 16%. Margins improved because of the change in mix of business. Market development of the Densal IIr process will gather momentum when new aluminium processing capacity is installed in Germany and the United States in the summer. Materials testing had a very good year, and reported a tenth consecutive record performance in sales and profits. Markets generally were firm although some weakness was evident in the oil and gas sector. First time contributions from some notable acquisitions were excellent. Prospects for this division continue to be bright. The rapidly growing coatings division completed a year of considerable reorganisation in the UK and is now able to offer substantial, highly efficient capacity to component manufacturers. The results for the division were enhanced by contributions from several UK acquisitions, as well as an excellent performance from the newly created coatings network in Sweden. The new facility in Tecate, Mexico, providing PVD coatings to Schlage Lock was running profitably by the year end. The remaining manufacturing business, Hauzer Techno Coatings again produced a strong performance and has a substantial order book for the year 2000. Bodycote now has capacity headroom to increase volume business substantially without further capital expenditure. E-commerce will undermine historic supplier relationships and create much more efficient purchasing. The Bodycote network is able to accommodate these large volumes of potential business. The group's registered web properties, including www.heattreatments.com are in position to meet these rapidly emerging opportunities. The group is in excellent shape, both structurally and geographically, and even though a strong pound is having an adverse effect on translation of European profits, the group continues proactively to develop the many outsourcing opportunities which are even more apparent during these challenging conditions. With capacity in place to serve markets which are generally showing distinct signs of improvement, the year 2000 should be another successful year. Once again, I am obliged to all my colleagues for their continuing support and commitment. J. Chesworth Managing Director 23 March 2000 Bodycote International plc Consolidated profit & loss account For the year ended 31 December 1999 1999 1999 1999 1998 1998 1998 Note Before Goodwill Total Before Goodwill Total Goodwill Goodwill £'000 £'000 £'000 £'000 £'000 £'000 Turnover 1 Existing operations 307,606 - 307,606 305,311 - 305,311 Acquisitions 31,284 - 31,284 - - - Continuing 338,890 - 338,890 305,311 - 305,311 operations Discontinued 16,490 - 16,490 14,657 - 14,657 operations 355,380 - 355,380 319,968 - 319,968 Operating Profit Existing operations 75,361 (2,145) 73,216 72,344 (1,166) 71,178 Acquisitions 5,540 (786) 4,754 - - - Continuing 80,901 (2,931) 77,970 72,344 (1,166) 71,178 operations Discontinued 3,133 - 3,133 2,731 - 2,731 operations 84,034 (2,931) 81,103 75,075 (1,166) 73,909 Exceptional items Profit on disposal of discontinued 11,764 631 operations Restructuring costs (5,116) - Profit on disposal 775 - of fixed assets Profit on ordinary 88,526 74,540 activities before interest and taxation Net interest (3,322) 1,697 (payable)/receivable e Profit on ordinary activities before 85,204 76,237 1 taxation Tax on profit on (27,169) (22,768) 3 ordinary activities Profit on ordinary activities after 58,035 53,469 taxation Minority interests 131 6 - equity Profit for the financial year 58,166 53,475 Dividends - paid and proposed (14,184) (12,334) Retained profit for the financial year 43,982 41,141 Earnings per share 4 Headline 22.5p 21.3p Headline - diluted 22.3p 21.1p Basic 22.6p 21.0p Basic- diluted 22.4p 20.8p Bodycote International plc Consolidated balance sheet As at 31 December 1999 1999 1998 £'000 £'000 Fixed Assets Intangible assets 64,074 41,740 Tangible assets 357,438 299,220 Investments 1,465 1,668 422,977 342,628 Current assets Stocks 13,144 15,560 Debtors 98,570 89,230 Cash at bank and in hand 96,409 102,855 208,123 207,645 Creditors Amounts falling due within one year (145,485) (160,159) Net current assets 62,638 47,486 Total assets less current liabilities 485,615 390,114 Creditors Amounts falling due after more than one (136,899) (80,964) year Provisions for liabilities and charges (16,383) (11,623) Net assets 332,333 297,527 Capital and reserves Called up share capital 25,750 25,696 Share premium account 239,607 238,727 Revaluation reserve 2,718 2,718 Currency and other reserve (9,265) 2,473 Profit and loss account 73,276 27,439 Shareholders' funds - equity 332,086 297,053 Minority interests - equity 247 474 332,333 297,527 Consolidated statement of total recognised gains and losses 1999 1998 £'000 £'000 Profit for the financial year 58,166 53,475 Currency adjustments (11,738) 6,370 Total recognised gains and losses 46,428 59,845 relating to the year Bodycote International plc Consolidated cash flow statement For the year ended 31 December 1999 1999 1999 1998 1998 £'000 £'000 £'000 £'000 Operating profit 81,103 73,909 Depreciation charges 27,086 22,971 Amortisation of goodwill 2,931 1,166 Profit on sale of tangible (366) (227) fixed assets Cash impact of restructuring (4,341) - Increase in stocks (3,080) (1,252) Increase in debtors (10,597) (10,944) Increase in creditors 1,878 8,139 Net cash inflow from operating 94,614 93,762 activities Returns on investment and servicing of finance (3,750) 1,624 Taxation (26,148) (19,192) Capital expenditure and financial investment (83,634) (80,737) Acquisitions & disposals (10,867) (63,402) Equity dividends paid (12,981) (10,946) Cash outflow before management of liquid resources and (42,766) (78,891) financing Management of liquid resources 2,616 (38,581) Financing 32,876 109,161 Decrease in cash in year (7,274) (8,311) Bodycote International plc For the year ended 31 December 1999 Note 1999 1999 1998 1998 £'000 £'000 £'000 £'000 Reconciliation of net cash flow to movement in net debt Decrease in cash in the year (7,274) (8,311) Cash inflow from increase in (32,142) (7,300) debt Cash (inflow)/outflow from movement in liquid resources (2,616) 38,581 Change in net (debt)/cash resulting from cash flow (42,032) 22,970 Debt acquired with (7,913) (2,847) subsidiaries Currency adjustments 6,493 (4,507) Movement in net (debt) /cash position in the year 15,616 (43,452) Net debt position at 1 (34,961) (50,577) January Net debt position at 31 5 (78,413) (34,961) December Reconciliation of movements in shareholders' funds 1999 1998 £'000 £'000 Profit for the financial year 58,166 53,475 Dividends paid and proposed (14,184) (12,334) Retained profit for the 43,982 41,141 financial year Currency adjustments (11,738) 6,370 New shares issued 934 109,453 Goodwill written off on prior year acquisitions (96) (1,442) Goodwill previously written off included in retained 1,951 - profit Net movement in shareholders' 35,033 155,522 funds Shareholders' funds at 1 297,053 141,531 January Shareholders' funds at 31 332,086 297,053 December NOTES ON THE ACCOUNTS 1. Divisional turnover and profit before taxation 1999 % 1998 % £'000 £'000 Turnover Heat treatment 220,530 62.1 204,178 63.8 Hot isostatic pressing 33,289 9.4 32,271 10.1 Materials testing 39,455 11.1 31,069 9.7 Metallurgical coatings 29,518 8.3 18,271 5.7 Equipment manufacture 32,588 9.1 34,179 10.7 355,380 100 319,968 100 1999 % 1998 % £'000 £'000 Profit before tax Heat treatment 51,148 60.3 46,014 60.1 Hot isostatic pressing 11,837 14.0 9,849 12.9 Materials testing 9,786 11.5 8,342 10.9 Metallurgical coatings 5,883 6.9 4,957 6.5 Equipment manufacture 6,140 7.3 7,369 9.6 84,794 100 76,531 100 Head office expenses (760) (1,456) Operating profit before amortisation of goodwill 84,034 75,075 Net interest (3,322) 1,697 Profit on ordinary activities before amortisation of goodwill and 80,712 76,772 exceptional items Amortisation of goodwill (2,931) (1,166) Profit on ordinary activities before 77,781 75,606 exceptional items Exceptional items 7,423 631 Profit on ordinary activities before taxation 85,204 76,237 2. Geographical analysis of turnover by origin and profit before taxation Turnover Profit 1999 1998 1999 1998 £'000 £'000 £'000 £'000 United Kingdom 61,756 59,784 15,479 16,602 North America 77,916 56,371 19,445 13,922 Rest of Europe 213,525 201,677 52,432 43,001 Rest of World 2,183 2,136 1,170 1,105 355,380 319,968 88,204 76,237 Net interest (3,322) 1,697 85,204 76,237 3. Tax on profit on ordinary activities 1999 1998 £'000 £,000 The charge for taxation comprises: UK Corporation tax 6,741 7,660 Overseas (including tax on exceptional items of £4,215,000 20,428 15,108 (1998:£265,000)) 27,169 22,768 4. Earnings per share 1999 1998 £'000 £'000 Profit for the financial year 58,166 53,475 Goodwill amortisation charge 2,931 1,166 Exceptional items after tax (3,208) (366) Headline earnings 57,889 54,275 Weighted average number of shares in 257,292,664 254,603,568 issue - basic Adjustment in respect of share 1,984,843 2,784,060 options Weighted average number of ordinary shares in issue - diluted 259,277,507 257,387,628 The figures for 1998 have been adjusted to take into account the five for two share capital reorganisation in June 1999. 5. Analysis of net debt position 1 Jan Cash Acquisitions Non- Currency 31 99 Flow cash Dec 99 changes £'000 £'000 £'000 £'000 £'000 £'000 Cash at bank & in 29,437 (2,943) - - (887) 25,607 hand Short term 73,418 (2,616) - - - 70,802 deposits Bank overdrafts (2,587) (4,331) - - 268 (6,650) Bank loans due within one year (57,918) 13,506 (1,974) 6,325 4,050 (36,011) Bank loans due after one year (73,019) (45,347) (5,336) (6,325) 2,551 (127,476) Finance leases due within one year (1,205) 209 (124) (103) 112 (1,111) Finance leases due after one year (3,087) (510) (479) 103 399 (3,574) (34,961) (42,032) (7,913) - 6,493 (78,413)

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