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    BOY   GB00B3FLWH99

BODYCOTE PLC

(BOY)
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Delayed Quote. Delayed London Stock Exchange - 10/26 11:35:18 am
818.5 GBX   -0.18%
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Bodycote : 2021 Interim report

07/29/2021 | 02:07am EDT

Bodycote plc

Interim results for the six months to 30 June 2021

Strong profit and cash performance; Full year guidance raised

Financial summary

Half year to 30

% Change

Half year to 30

%

Constant

June 2021

June 2020

Change

Currency

Revenue

£312.9

m

£306.7

m

2.0%

5.9%

Headline operating profit1

£48.7

m

£37.8

m

29%

35%

Headline operating margin1

15.6

%

12.3

%

Exceptional items2

-

m

£(32.1)

m

Free cash flow1

£60.2

m

£69.7

m

-14%

Basic headline earnings per share1,3

18.5

p

14.2

p

30%

Interim dividend per share

6.2

p

6.0

p

Additional statutory measures

Half year to 30

Half year to 30

June 2021

June 2020

Operating profit/(loss)

£43.4

m

£(1.0)

m

Profit/(loss) after tax

£31.5

m

£(2.3)

m

Net cash from operating activities

£78.2

m

£75.5

m

Basic earnings/(loss) per share

16.4

p

(1.3)

p

Highlights

  • Revenues up 5.9%4 to £312.9m (2.0% at actual rates)
  • Headline Operating Profit up 35%4 to £48.7m
  • Headline Operating Margin increased to 15.6% (2020: 12.3%); with AGI margins above 20% for the first time
  • Free cash flow of £60m (124% free cash conversion)
  • £78m net cash from operating activities
  • Profits benefit strongly from restructuring and efficiency improvements, with gearing5 over 70%
  • On track to deliver £20m net restructuring cost savings in 2021
  • Specialist Technologies and Emerging Market strategies delivering strong outperformance against background markets
  • Full year guidance raised

Commenting, Stephen Harris, Group Chief Executive said:

"Bodycote's headline operating margin, at 15.6%, has recovered strongly, boosted by good operational performance and net savings from the 2020 restructuring programme. AGI margins are above 20% for the first time, while ADE margins have also improved over the previous half year.

Revenues in the Automotive and General Industrial market sectors have shown good recovery, even if end market performance has been held back by the global chip shortage and supply chain constraints more generally.

- 1 -

Civil Aerospace revenues are yet to rebound and, while prospects for this recovery continue to improve as civil air traffic returns and the OEMs increase production rates, no material increase in our business is expected in 2021.

We expect growth to accelerate once short-term supply chain disruptions are eliminated in the Automotive and General Industrial markets and Civil Aerospace begins its upward climb, but none of these effects are expected to be material until 2022. However, the benefits of our 2020 restructuring programme continue to build and Bodycote is well placed to capitalise on increases in revenues as they occur. Given the developments in the first half and the anticipated second half performance, we now expect to deliver a result in the upper half of the range of expectations6."

  1. The headline performance measures represent the statutory results excluding certain non-operational items. These are deemed alternative performance measures under the Financial Reporting Council (FRC) guidelines. Please refer to note 2 of the condensed consolidated financial statements for a reconciliation to the nearest IFRS equivalent.
  2. Detail of exceptional items is provided in note 4.
  3. A detailed earnings per share reconciliation is provided in note 7.
  4. At constant currency.
  5. Gearing is the differential in headline operating profit divided into the differential in revenue on a constant currency basis.
  6. Company compiled analysts' expectations for the full year headline operating profit range from £91m to £104m.

END

Interim Results Presentation

Bodycote will be presenting our results via webcast at 09.00am UK GMT on 29 July 2021. Please find the following instructions to connect to the video and audio:

Webcast URL:

https://bodycote.com/webcast2021

For dial-in only:

Participant dial-in numbers are:

United Kingdom: 0800 640 6441

UK local: 0203 936 2999

All other locations: +44 203 936 2999

Participant Access Code: 617409

An audiocast and presentation will be available from 9.00am at www.bodycote.comin the investor section from 29 July 2021.

For further information, please contact:

Bodycote plc

Stephen Harris, Group Chief Executive

Dominique Yates, Chief Financial Officer

Tel: +44 1625 505 300

FTI Consulting

Richard Mountain

Susanne Yule

Tel: +44 203 727 1340

- 2 -

Overview

Bodycote reported increased revenues of 2.0% to £312.9m (H1 2020: £306.7m). At constant currency, revenue increased 5.9%, while, on an organic constant currency basis, revenues increased by 2.7%. As the prior period experienced dramatic declines related to the pandemic, it is instructive to compare also with the first half of 2019, against which 2021 revenues in the half were down 12.1% on a constant currency basis, and down 17.6% on an organic basis.

Headline operating profit was £48.7m (H1 2020: £37.8m), yielding a headline operating margin of 15.6%. This represents a strong recovery versus the 12.3% margin achieved in the equivalent period last year. Free cash flow in the first half was very strong at £60.2m, representing 124% free cash conversion.

The following reflects constant currency growth rates versus the comparable period last year, unless stated otherwise.

Market sectors

General Industrial revenues increased by 9% to £126.7m in the period, with sequential improvement in the second quarter compared with the first quarter. Against 2019, revenues were down 5% in the period. The recovery was similar across all of our geographies and reflects the continued recovery in industrial production. Similar revenue trends are being seen across most of the major sub sectors, with the exception of Tooling. Tooling is a lead indicator for the Automotive sector and growth in Tooling stalled in early Q1 2021 and has yet to show further material growth.

Automotive revenues increased by 34% to £91.7m in the period. The increase would have been higher but for production delays at major OEMs due to supply chain constraints, which contributed to second quarter Automotive revenues being lower than the first quarter. Against 2019, revenues were down 8% in the period.

Aerospace & Defence revenues were down 16% to £71.0m (down 25% on an organic basis). Against 2019, total Aerospace & Defence revenues were down 24% (down 37% on an organic basis). European revenues are recovering faster than North America revenues but from a lower base. This is driven largely by an increase in flying hours. While there has been some improvement in revenues for the latter stages of the supply chains, there is still plenty of inventory in the civil aerospace supply chain and there has been no significant rebound in Bodycote's overall Civil Aerospace business so far. New plane build rates are forecast to improve, particularly in narrow body aircraft and there is a growing expectation of a strong ramp up in this business in 2022 and beyond.

Specialist Technologies

The proportion of Specialist Technologies revenues grew from 27% to 30% of the Group and continue to outperform the Classical Heat Treatment revenues in the associated market sectors. Given the higher margins that we achieve with our Specialist Technologies, they contributed 43% of the Group's operating profit.

The AGI focused Specialist Technologies recorded 42% revenue growth versus last year, comparing very favourably with the 14% growth achieved in Classical Heat Treatment in the Automotive and General Industrial market sectors. Moreover, AGI focused Specialist Technologies' revenues were 22% up against 2019 revenues.

The ADE focused Specialist Technologies naturally fared worse, given the subdued Civil Aerospace market. Nonetheless, on an organic basis, revenues were only down 13%, comparing favourably with the 23% decline experienced in Classical Heat Treatment in these sectors.

Emerging Markets

Emerging markets represent 12% of Group revenues, growing 36% in the period and recording strong growth in all of our key Emerging Market countries. Against 2019, Emerging Markets' revenues are 15% higher on an

- 3 -

organic basis. It is worth remembering that almost two-thirds of Emerging Markets' revenues are in the Automotive market sector and our growth comfortably exceeds the general market growth. Furthermore, Emerging Markets margins at 25% are comfortably ahead of Group margins.

Environmental, Social and Governance

Bodycote has continued to develop its ESG agenda, particularly in the area of climate change. We are on the path to net zero carbon emissions in line with the Paris Agreement. We are assessing and managing climate related risks in line with the Task Force on Climate-Related Financial Disclosures (TCFD). We continue to make meaningful progress in our carbon accounting practices which will enable us to commit to the Science Based Target Initiative. Bodycote's most significant contribution to sustainability, however, is to help customers reduce their carbon emissions. Bodycote can lower most of our customers' emissions by 10% to 40% if they outsource their works to us. In addition, we are often able to convert our customers' natural gas-fuelled processes to electrically fired processes. These are often not only more efficient but also allow us to take advantage of green energy where it is available. We expect this to be a growing feature of our business in the months and years to come. As the importance of all sustainability aspects increases, Bodycote is constantly evolving to ensure we maintain our leadership role in the industry.

Restructuring Update

Implementation of the 2020 restructuring programme has remained on track, with 19 of the 26 facilities concerned having closed by the end of the half; the remaining 7 plants will be closed in the second half. As a result, much of the eventual permanent cost savings have already been achieved (even if there are some short term additional business disruption costs associated with the closures). Three new facilities are operational. Overall, we expect to deliver 2022 savings of £30m per annum as previously communicated. The expected benefit for 2021 remains at £20m.

Profits and Margins

Profitability and margins improved significantly compared with the same period last year. Headline operating profit increased by 35% at constant currency to £48.7m (2020: £37.8m), while the headline operating margin increased to 15.6% (2020: 12.3%). The margin improvement stems from the benefits of the 2020 restructuring programme as well as improvements in operational efficiency which have yielded operational gearing of over 70%. Whilst we experienced some inflation in energy costs in the first half, we have once again passed these costs through to our customers. We have a longstanding record of being able to do this, regardless of background macroeconomic conditions. With early signs of labour inflation in some of our geographies, we fully expect to continue to be able to pass any cost increases through.

The margin improvement in the first half was not consistent across both of our key business divisions.

AGI suffered a sharper initial pandemic-related revenue decline, particularly in the Automotive sector but the recovery has been quicker. Our AGI restructuring was already in train, and was accelerated when the pandemic hit. The consequence is that AGI margins have already recovered - indeed with margin now at 20.2%, profitability exceeds pre-pandemic levels. The previous peak was 19.4%. It is also worth noting that this margin improvement was achieved in spite of a number of operational challenges. The impact of customers' supply chain shortages, including the global chip shortage and labour shortages in a number of markets, has contributed to an uneven recovery in AGI's end markets, which, in turn, has led to volatility in customer demand through the period, most notably affecting our Automotive plants. Since labour costs represent roughly half of our cost of sales, matching labour to customer demand at plant level is critically important in our business. Moreover, labour shortages have not only impacted our customers. In some areas of our business, it has also been a challenge to find the extra labour needed to service the pick-up in demand. We have handled these challenges well and the improvement in business quality speaks for itself.

- 4 -

In contrast, the decline in ADE revenues has been more sustained, and the recovery will be slower. ADE revenues remain some 30% below pre-pandemic levels on an organic basis. The ADE restructuring was initiated at the start of the pandemic and the benefits are, therefore, being delivered later than those in AGI. Consequently, the 14.6% ADE margin achieved during the period was well below the 20.0% margin achieved in H1 2020 (although well above the 8.6% margin in H2 2020). Some measure of revenue recovery will be required before margins return to previous levels.

We fully expect Group margins to trend above 20% in due course.

Headline earnings per share increased to 18.5p in the first half (H1 2020: 14.2p) as a result of the improvement in headline operating profit.

In terms of statutory measures, statutory operating profit was £43.4m (H1 2020: loss of £1.0m). Basic earnings

per share were 16.4p (H1 2020: loss of 1.3p).

Dividend

In light of the improvement in revenues and margins, the Board has decided that an interim dividend for 2021 of 6.2p (2020: 6.0p) will be paid on 5 November 2021 to all shareholders on the register at close of business on 8 October 2021.

Summary and outlook

Bodycote's key strategic pillars comprise expansion in Specialist Technologies, expansion in Emerging Markets with a particular emphasis on electric vehicles, and a focus on the narrow-bodied Civil Aerospace market. Our goal is to make progress on these while, at the same time, driving down our customers' carbon footprint as well as our own. Good progress on all of our strategic pillars in the half has translated into the business momentum that these results demonstrate.

Bodycote's headline operating margin, at 15.6%, has recovered strongly, boosted by good operational performance and net savings from the 2020 restructuring programme. AGI margins are above 20% for the first time, while ADE margins have also improved over the previous half year.

Revenues in the Automotive and General Industrial market sectors have shown good recovery, even if end market performance has been held back by the global chip shortage and supply chain constraints more generally.

Civil Aerospace revenues are yet to rebound and, while prospects for this recovery continue to improve as civil air traffic returns and the OEMs increase production rates, no material increase in our business is expected in 2021.

We expect growth to accelerate once short-term supply chain disruptions are eliminated in the Automotive and General Industrial markets and Civil Aerospace begins its upward climb, but none of these effects are expected to be material until 2022. However, the benefits of our 2020 restructuring programme continue to build and Bodycote is well placed to capitalise on increases in revenues as they occur. Given the developments in the first half and the anticipated second half performance, we now expect to deliver a result in the upper half of the range of expectations1.

Business review

The following review reflects constant currency growth rates versus the comparable period last year unless stated otherwise.

1 Company compiled analysts' expectations for the full year headline operating profit range from £91m to £104m.

  • 5 -

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Bodycote plc published this content on 29 July 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 July 2021 06:06:13 UTC.


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