31st Jul 2007 07:02
Bodycote International PLC31 July 2007 BODYCOTE INTERNATIONAL PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 Financial Highlights • Revenue rose by 14% to £317.6m (H1 2006: £279.3m) • Operating profit grew by 19% to £48.2m (H1 2006:£40.6m) • At constant exchange rates: • Revenue increased by 19% • Headline* operating profit increased by 23% • ROCE continues to improve - now over 11% • Headline* profit before tax increased by 23% to £43.2m (H1 2006: £35.1m) • Profit before tax £42.6m (2006: £34.8m) • Headline* earnings per share rose by 23% to 10.3p (H1 2006: 8.4p) • Basic earnings per share 10.1p (2006: 11.6p) • Interim dividend 2.75 pence per share (H1 2006: 2.5p), up 10% * Stated before exceptional items. Refer to Notes 1 and 3. Operational Review • Robust first half demand in Aerospace, Power Generation and Oil & Gas markets • Outsourcing now comprises 22% of Group sales (H1 2006: 20%) - 118 new outsourcing agreements • 4 new acquisitions in Thermal Processing in H1, 2 acquisitions already completed in H2 • Expansion of Heat Treatment into Asia and developing markets continues as planned • Global demand for HIP remains high and expected to increase further • Energy cost increases now fully recovered Commenting on the results, John D. Hubbard, Chief Executive, said: "Bodycote's strong performance continued in the first half of 2007, withincreased demand in most of our key end markets and geographies. Our strategyof increasing return on capital continues to be successful. "Our rate of acquisitions was intentionally lower than in the equivalent periodof 2006, as we concentrated on integrating the 17 businesses in 52 facilities weacquired last year. We continue to anticipate a full year acquisition spend ofapproximately £60 million. Our expansion into developing markets continues withfacilities in India, China, Singapore, Dubai, Bahrain, Saudi Arabia, Mexico andCroatia opening in 2007. "Looking ahead, we are confident that our performance will show furtherimprovement and that our full year results will be in line with ourexpectations. Acquisition prospects are good and our focus on operationalexcellence and financial discipline means we are well placed for the secondhalf." For further information, please contact: Bodycote International, plc Financial DynamicsJohn Hubbard Chief Executive 020 7831 3113 Jon Simmons 020 7831 3113David Landless Group Finance Director 020 7831 3113 James Ottignon 020 7831 3113 2007 INTERIM STATEMENT INTRODUCTION Bodycote performed strongly in the first half of 2007 with further improvement,compared to the first half of 2006, in the key areas of return on capitalemployed (up 0.6%), headline* operating margins (better by 0.7%), headline*operating profit at constant exchange rates (ahead 23.4%) and sales at constantcurrency (better by 18.8%). Reported sales were £317.6m (2006: £279.3m), ahead13.7% and operating profit was £47.6m (2006: £39.7m), up 19.9%. Sales growthwas driven by outsourcing wins, with 118 new agreements contributing an increasein sales of £16.2m compared to the first half of 2006 and strong market demandin Aerospace, Power Generation, and Oil & Gas. The progress in European Heat Treatment (organic growth 9.7 %), HIP worldwide(organic growth 15.3 %) and the Materials Testing/Engineering & Technology/Measurement Technology (MEM) division of Testing (organic growth 12.6 %) hasbeen particularly good. In the first half we acquired four Thermal Processingand two Testing businesses at a cost of £6.6m. Acquisition activity, asplanned, has been at a lower rate in the first half whilst we focus on theintegration of the 17 businesses in 52 facilities acquired last year. Since theend of June we have acquired a further two Thermal Processing companies and, aspreviously indicated, we expect to invest c. £60m in acquisitions for the yearas a whole. RESULTS FOR THE FIRST HALF OF 2007 Underlying sales growth was robust. At constant exchange rates sales increasedby 18.8% in the first half of 2007 and reported sales were £317.6m compared to£279.3m in 2006, an increase of 13.7%. Of this improvement 8.3% was organic, ona like for like basis, but was reduced to 6.3% after the impact of closed orsold heat treatment facilities. Acquisitions added 12.5%. The effect ofexchange rates on translation impacted reported sales by 5.1%. Revenue from Strategic Partnerships and Long Term Agreements increased to 22%(2006: 20%) of Group sales and in absolute terms this represents an increase of£16.2m or 29.7% year on year. Headline* operating profit increased by 23.4% at constant exchange rates.Statutory operating profit increased 18.7% to £48.2m (2006: £40.6m). Theheadline* operating margin has improved from 14.5% to 15.2%. Operating profit increased by £7.9m after allowing for favourable changes to therules of the UK final salary pension scheme (£4.1m), largely offset by goodwillimpairment (£1.8m) and bid response costs (£2.1m), each of which is exceptionalin nature. A charge of £1.1m (2006: £0.5m) has been accrued in head office forthe Group's share-based long term incentive plan (LTIP). As the Group is targeting significant growth in Asia, incremental management andbusiness development costs have been incurred, with a spend in the first half of£0.6m (2006: £0.2m). In addition, facilities which are in the start-up phase inChina, Singapore and India have recorded operating losses of £0.5m in the firsthalf (2006: £0.1m). We expect levels of expense to be similar in the secondhalf. REVIEW BY STRATEGIC BUSINESS UNIT (SBU) Thermal Processing SBU Thermal Processing recorded increased sales of 14.1% at constant exchange rates.This was split 8.4% organic, -2.7% in respect of closed plants and 8.4% fromacquisitions. Reported sales were £232.1m (2006: £211.9m) after allowing foradverse exchange rate movement of 4.6%. Return on Capital Employed (ROCE)improved to 10.8% (2006: 9.4%) and the headline* operating margin was increasedto 17.4% (2006: 15.9%). In the first half of 2007 there were four acquisitions in Thermal Processing;three small businesses from the Group's associate undertaking SSCP Coating Sarl(SSCP), in India, Brazil and Argentina and Techmeta SA, an electron beam weldingbusiness in France. Since the end of June we have acquired two further businesses; Ruidahong HeatTreatment Co. Ltd which has two facilities in the Ningbo region of China andprovides batch and mesh belt atmosphere heat treating and Nitruvid SA, whichoperates from three sites in France and specialises in patented plasma nitridingprocesses. Heat Treatment Sales increased, at constant exchange rates, by 14.0% compared to the sameperiod in 2006, of which 4.7% was organic and if the impact of closingfacilities in USA and UK was excluded would have been 7.7% on a like for likebasis. Sales were £210.8m (2006: £192.2m) and headline* operating profit was £32.9m(2006: £27.6m) and would have been £1.1m higher had currency been constant.Headline* operating margin rose to 15.6 % (2006: 14.4%), driven by organicgrowth and the exit from underperforming locations. Organic sales growth in Europe was 9.7%, on the back of robust demand in Germanyand Sweden and was enhanced by new outsourcing wins in UK, France, Germany andSweden in the automotive, Heavy Truck and Mining sectors. Bodycote currentlyoperates in five countries in Eastern Europe, where sales growth is in doubledigits and overall profitability is good. The integration of the recentacquisition in Turkey is progressing according to plan. In North America, Aerospace, Power Generation and Oil & Gas sectors are buoyantand are anticipated to remain so. As expected Automotive was weaker in quartertwo than quarter one, although half one sales to the sector in constantcurrencies are up £1.6m in ongoing facilities. Costs have been reducedfollowing the closure of two plants and the sale of another. Operating marginshave improved but, as anticipated sales were reduced in the half year, by £5.2m(at constant exchange rates) which represents 8.9% of half year sales in NorthAmerica. In the Brazilian heat treatment business acquired in November 2006,sales are ahead of the same period last year by 6.7%. In both North and SouthAmerica we continue to focus on higher added value opportunities and moreadvanced processing solutions to move the mix more in line with our Europeanbusiness. Our expansion into Asia continues at a controlled pace as planned with Wuxi,China, now in production and with the acquisition of two facilities near NingboChina and two facilities in India. In addition to service the Oil & Gas sector,a greenfield thermal spray facility in Singapore is now in production and we areoffering thermal spray and K-Tech services in Dubai via a licensee. Hot Isostatic Pressing (HIP) Sales were £21.3m (2006: £19.7m), which equates to organic growth of 14.8%before the impact of currency movements which impacted sales by (-6.7%).Headline* operating profit was £7.5m (2006: £6.0m) and the headline* operatingmargin was 35.2% (2006: 30.5%). Global demand for HIP is high and is expected to increase further over the nextthree years. In addition to Power Generation and Aerospace, HIPping of powderedmetal, to produce both near net shape parts and advanced material billets forextrusion and rolling, is growing. These opportunities will be addressed bycompletion of the installation of the new large HIP unit in Camas, Washington,which will be in production at the end of 2007, and the addition of a large HIPunit into Surahammar, Sweden and a medium sized high pressure HIP unit in theUSA, both of which will be available in 2009. Densal(R) continues to perform well in Europe and we have launched a pilotproject in the USA to extend and improve the capabilities of this aluminiumdensification process. In addition, to increase effective capacity, we arecontinuing to look at ways to improve our cycle times for all HIP processes, aswell as capsule fabrication for near net shape powdered metal components. Testing SBU At constant exchange rates sales grew 33.4% of which organic growth was 8.2% andacquisitions accounted for 25.2%. Sales, as reported, were £85.5m (2006:£67.4m) an increase of 26.9%. Testing now represents 27% of Group sales (2006:24%) in line with our strategic goal of increasing the proportion of Group salescontributed by this SBU. Headline* operating profit was £11.5m (2006: £9.6m)and at 2006 exchange rates would have been £12.1m, an increase of 26%. ROCEcontinues to exceed Group target at 17% and together with strong sales growthmore than compensates for a modest reduction in return on sales to 13.4% (2006:14.2%). The change in headline* operating margin is due to the addition ofinfrastructure to support our rapid growth plans, increasing exposure to lowermargin business notably Health Sciences and Measurement Technologies, a degreeof pricing pressure in the UK food and environmental businesses and slower thanexpected trading conditions in Western Canada due to adverse weather conditionsthroughout the first half. As usual we expect a notable increase in margin inthe second half which will be enhanced by a catch up in the Canadianenvironmental business. Our level of acquired sales growth in 2006 of circa 60% has resulted inconsiderable integration activity during the first half of 2007. Consequentlyonly two facilities have been acquired in this period; Drayton Valley Laboratoryin Western Canada which provides support to the tar sands oil developmentindustry and a sensing and controls laboratory from Honeywell in Illinois, USA.Acquisition activity is planned to increase in the second half. Materials Testing/Engineering & Technology/Measurement Technology (MEM) Sales were £61.9m (2006: £46.7m), an increase of 38.1% (12.6% organic) atconstant exchange rates and 32.5% as reported. Headline* operating profit was£10.3m (2006: £7.0m) and headline* operating margin improved to 16.6% (2006:15.0%). Strong demand in our key market sectors of Oil & Gas, Aerospace & Defence andPower Generation continues to drive growth. Particularly strong margin growth(up 1.5% basis points in Europe) was achieved as a result of significantcross-selling of our core service offerings into our expanding client base. Ourspecialist Fire Safety & Technology laboratories experienced strong revenuegrowth in both European and Asian markets. North American engine testing remained robust in line with our expansion ofemission testing capacity. Some softness in the automotive interiors testingsector impacted on the recently acquired ACT business, in Michigan, USA and sowe have decided to consolidate activity from several sites into one. The Measurement Technology business, acquired in April 2006, continues itsintegration process. Our Civils & Materials Engineering business grew significantly, up 59%, ascontinued economic growth fuelled demand in the Middle East. A number ofoutsourcing contracts were won and we continue to expand our geographicalfootprint in this region. We opened up a new flagship laboratory in Dubai inFebruary of this year and this will be followed by greenfield facilities inBahrain and Saudi Arabia. Health Sciences and Environmental (HSE) Sales were £23.6m (2006: £20.7m), an increase of 22.7% (-1.9% organic) atconstant exchange rates and 14.0% as reported. HSE represents 7.4% of Groupsales. Headline* operating profit was £1.2m (2006: £2.6m) and headline* marginwas 5.1% (2006: 12.6%) This business stream delivered a varied set of results as a number ofoperational and adverse trading conditions impacted on both organic growth andmargins achieved. Our Pharma business performed satisfactorily with strongdemand in both the Quality Control and Development segments. The Food/Agricultural business suffered due to soft market conditions in the UKand North America where price competition was notable but now appears to beabating. We have developed a number of new technologies during the period andexpect these to provide improvements in the second half. The Environmental services business was impacted in the first half, particularlyin Canada, where weather related issues reduced the on-site sampling capability.Revenues were reduced by 22% from the prior year; however, field operators andconsultants expect a surge in the second half to catch-up the significantbacklog of work leading to significant revenue recovery. Evidence of this hasalready been seen in July. We therefore expect a much better performance in thesecond half of 2007. Our Middle East business grew 30% from 2006 as several large contracts were wonfollowing the expansion of our capabilities in the region. FINANCIAL REVIEW Revenue Group revenue, as reported for the half year was £317.6m, an increase of £38.3m(13.7%) on 2006 (£279.3m). In constant currency terms the increase in revenuewas £52.5m with organic growth accounting for £17.6m of the increase andacquisitions for £34.9m. The net impact of foreign currency movements onrevenues reduced this by £14.2m primarily as a result of the weakness of the USdollar. Revenue growth for Thermal Processing was £20.2m (up 9.5% on 2006) andfor Testing £18.1m (up 26.9% on 2006). Operating Profit and Margins Group reported headline* operating profit increased by 18.7% and by 23.4% atconstant exchange rates. Heat Treatment increased headline* operating profitsby 19.2% (23.3% at constant exchange rates). HIP by 25.0% (28.1% at constantexchange rates) and Testing by 19.8% (26.0% at constant exchange rates). The overall Group operating margin increased to 15.2% (2006: 14.5%). Demand wasrobust in most of our markets in the first half of 2007 with the exception ofAutomotive in North America. On average, selling prices have increased by 2.3%,whilst labour rates have increased year on year by approximately 3%. Naturalgas prices have fallen in the USA and UK but electricity prices have continuedto rise in all regions except North America and Scandinavia. As a result, totalenergy costs as a percentage of Thermal Processing sales are fractionally lowerthan in the same period in 2006, as the impact has been recovered in sellingprices. Energy cost changes in the second half are expected to be small. In Heat Treatment, headline* operating margins improved from 14.4% to 15.5%while HIP continued to benefit from robust aerospace and power generation demandand headline* operating margins moved ahead from 30.5% to 35.2%. Testingheadline* operating margins fell back from 14.2% to 13.4% due to the continuingimpact of the lower margin businesses acquired in 2006 and difficult tradingconditions in Health Sciences and Environmental testing activities in the UK andWestern Canada. SSCP Coating Sarl At the beginning of the year, as part of the refinancing of SSCP, itsshareholders agreed that £10.4m of new funding would have share warrantsattaching. Bodycote decided that it was in the Group's interest to maintain itsshareholding in SSCP and thus subscribed to a pro rata share of the new funding,investing £3.4m. The Group currently owns 23.0% of the share capital of SSCP. Bid Response Costs In responding to the approach from Sulzer AG of Switzerland, the Group incurredcosts of £2.1m. Pension Scheme Rule Changes Following a review of the Group's UK final salary pension scheme, which has beenclosed to new members since 2001 but allows benefit accrual for members whoremain employees of the Group, an agreement was reached with the trustees to capincreases in future pensionable salaries at RPI or 3%, whichever is the lower.The Scheme's actuary has calculated that this will reduce liabilities by £4.1m,an exceptional item which has been credited to the income statement in the firsthalf of 2007 in line with the requirements of IAS19. Interest The net finance charge for the Group was £5.0m compared to £4.9m in 2006. Theincrease is a result of higher average net debt levels resulting fromacquisitions in 2006 and 2007, offset by the favourable impact of interest ondebt drawings in currencies other than sterling. Interest cover is 10.7x (2006:8.8x). Profit before tax Headline* profit before tax was £43.2m compared to £35.1m in 2006. Profitbefore tax was £42.6m as against £34.8m in 2006. Taxation The tax charge was £9.5m in the period, £12.2m higher than in the same period of2006. This increase is attributable to higher taxable profits in 2007 and thebenefit of a £10.6m tax credit in 2006, which resulted from settlements reachedwith Tax Authorities in respect of earlier periods. The underlying charge forthe first half of 2007 at 23.4% (full year 2006: 22.5%) represents an underlyingeffective tax rate for the Group, stated prior to goodwill impairment andamortisation of acquired other intangibles and before exceptional items. Theactual effective tax rate represents the weighted average corporation tax rateexpected for the full financial year. Earnings per share Headline* earnings per share, after adding back the post-tax effect of goodwillimpairment, amortisation of acquired intangibles, change in pension schemerules, bid response costs and prior year exceptional tax benefits, rose by 22.6%to 10.3p (2006: 8.4p). Basic earnings per share for the half year were 10.1p(2006: 11.6p) and diluted earnings per share were 10.1p (2006: 11.6p). Dividend The Board has recommended an interim dividend of 2.75p (2006: 2.5p), a 10%increase. The dividend is covered 3.7 times by headline* earnings (2006: 3.4times). This will be paid on 4 January 2008 to all shareholders on the registerat the close of business on 30 November 2007. CAPITAL STRUCTURE Net Debt Group net debt was £163.0m (2006: £143.2m). During the year additional loans of£3.5m were drawn down under committed facilities. The Group continues to beable to borrow at competitive rates and therefore currently deems this to be themost effective means of funding. Gearing at end of June 2007 was 34% (2006:31%). Cash flow Cash flow from operating activities was £48.6m (2006: £47.7m). After allowingfor interest and significantly increased tax payments, the Group generated freecash flow of £9.7m in the first half of the year (2006: £17.5m). There has beencontinued focus on cash collection and debtor days have improved to 66 (2006:68). Acquisitions resulted in net cash outgoings of £6.6m (2006:£51.0m). Dueto the pattern of trading, the Group tends to generate more cash in the secondhalf. This year is expected to follow that pattern. Capital Expenditure As a result of the Group expanding into emerging markets and continuing toinvest in ROCE enhancing outsourcing opportunities, net capital expenditure forthe first half year was £33.9m compared to £25.3m in 2006. The multiple of netcapital expenditure to depreciation was, as forecast, 1.3 times (2006: 1.1times). With buoyant demand in a number of the Group's markets, we anticipatethat capital expenditure will continue at this level for the remainder of theyear and in 2008. Major projects that were started last year and that have been continuing in 2007include the establishment of a combined Thermal Spray and Testing facility inSingapore, expansion of the HIP facility in Camas, USA, additional Kolsterisingcapacity in southern Germany and France, the development of greenfield heattreatment and testing facilities in Mexico and the consolidation of twolaboratories in Manchester, UK. Projects that have been approved in the firsthalf of 2007 include a modernised and expanded heat treatment plant in Tampere,Finland, the enhancement of the former Honeywell Materials Testing facility inFreeport, Illinois, the upgrade of the two newly acquired heat treatment plantsin India and the establishment of new testing facilities in Saudi Arabia,Bahrain and Alberta. Liquidity and Investments Bodycote is financed by a mix of cash flows from operations, short-termborrowings, longer-term loans and finance leases. Bodycote's funding policyaims to ensure continuity of finance at reasonable cost, based on committedfacilities from several sources and arranged for a spread of maturities. At 30June 2007 Bodycote had £122.1m of unutilised committed facilities with averageremaining life of 3.9 years. The Group's principal committed facility of £225m(£81.1m of which was unutilised at 30 June 2007) has a maturity of 3.1 years.The €125m loan facility is committed until July 2013, €61m of which wasunutilised at 30 June 2007. Bodycote also has access to uncommitted and short-term facilities, usedprincipally to manage day-to-day liquidity and working capital requirements. Inaddition pooling, netting and concentration techniques are used to minimiseborrowings. OPERATIONAL FOCUS Training & Education The Bodycote Educational Foundation continues to support work placements as ameans to attract new talent into the Group. The e-learning system we have beendeveloping is being rolled out on a global basis. This system facilitateson-demand training wherever the employee is located. Incorporated into thesystem is a records management system to assure training has been completed.The Talent Development programme currently being trialled in Testing isproviding positive results and will be rolled out into Thermal Processing overthe next year. Health & Safety Our efforts to improve safety performance are starting to pay off through thelower frequency and severity of accidents and we are increasingly focussing oneliminating the root causes of accidents and potential accidents. The companieswe acquire are typically not as mature as Bodycote in this area, resulting inthe need for improvement as we integrate them into our systems and expectations. Environmental By year end all Thermal Processing locations, barring some of those acquired inthe last two years, will be certified to the international environmentalstandard ISO-14001. This is an investment which will pay off in the future aswe continue to reduce our environmental footprint. Our Testing facilities havea very low environmental impact but are expected to achieve ISO 17025 status forlaboratory management, which incorporates basic environmental requirements. CURRENT TRADING AND OUTLOOK We are successfully executing our strategy and remain confident that ourperformance will continue to improve. We are maintaining our focus onoperational excellence and financial discipline. All parts of the Group arefocused on enhancing ROCE through increasing the proportion of high value addedservices provided to our customers. The majority of sectors that we operate in are buoyant and based on currentmarket forecasts we anticipate demand for our services will continue to bestrong through the remainder of the year and beyond. Outsourcing continues tobe a significant theme for manufacturers to reduce their costs, increaseflexibility and assure their global competitiveness. We continue to have apipeline of good acquisition candidates and expect to complete severalacquisitions in the second half with Testing playing a larger role. A number ofgreenfield sites are due to start production in the second half of 2007; mostnotably thermal spray and Oil & Gas testing facilities in Singapore, anAerospace laboratory in Monterrey, Mexico and a heat treatment facility inSilao, Mexico. These, coupled with an increasing number of outsourcingopportunities in North America and Europe, will continue to drive organic growthin the business. With high utilisation in HIP and demand forecast to continue increasing in amarket in which Bodycote is the clear market leader, we expect to investapproximately £30m in additional capability over the next 3 years to supportmarket growth. We have capacity coming into production in the second half inCamas, Washington USA and by mid 2009 we will have a new, large HIP unit inproduction at Surahammar, Sweden and a medium sized high pressure unit in theUSA. With our strategy to grow in the Asia/Pacific region, we anticipateestablishing a HIP facility in that region in the next few years. Our dedicated team of professionals continue to provide each customer withconsistent quality through our Bodycote Management System (BMS) and reliabledelivery at good value, thus allowing them and us to grow profitably. We areproud of our people and the professional reputation they create each day witheach customer. Our second half performance is seasonally slower in Thermal Processing due tothe greater number of customer holidays but stronger in Testing and we expectthis to be so in 2007. With markets generally robust and continuing outsourcingpotential we are confident that the results for the year will meet ourexpectations. Looking beyond 2007, the Board is confident that end market demand, continuedoutsourcing wins and bolt-on acquisitions will support delivery of our StrategicPlan. John D. Hubbard David LandlessChief Executive Group Finance Director 31 July 2007 * Headline values are stated before exceptional items. Refer to Notes 1 and 3 Unaudited consolidated income statement Year ended Half year to Half year to 31 December 2006 30 June 30 June 2007 2006 £m £m £m Revenue 510.3 Existing operations 314.6 263.7 48.3 Acquisitions 3.0 15.6 558.6 Revenue - continuing operations 317.6 279.3 Operating profit 51.3 Existing operations 46.8 36.7 7.2 Acquisitions 0.7 2.7 0.3 Share of results of associates after tax 0.1 0.3 58.8 Operating profit - continuing operations 47.6 39.7 79.1 Operating profit prior to exceptional items 48.2 40.0 (1.0) Amortisation and impairment of acquired intangible fixed (0.8) (0.3) assets (6.0) Impairment of goodwill (1.8) - - Change to pension scheme rules 4.1 - - Bid response costs (2.1) - (8.3) Impairment of investment in associate - - (5.0) Major facility closure costs - 58.8 Operating profit - continuing operations 47.6 39.7 3.4 Investment income 1.6 1.3 (15.6) Finance costs (6.6) (6.2) 46.6 Profit before taxation 42.6 34.8 (2.7) Taxation (9.5) 2.7 43.9 Profit for the period 33.1 37.5 Attributable to: 43.1 Equity holders of the parent 32.6 37.2 0.8 Minority interest 0.5 0.3 43.9 33.1 37.5 Pence Earnings per share Pence Pence From continuing operations: 13.4 Basic 10.1 11.6 13.4 Basic - diluted 10.1 11.6 Unaudited consolidated statement of recognised income and expense Year ended Half year to Half year to31 December 2006 30 June 30 June 2007 2006 £m £m £m (6.7) Exchange differences on translation of foreign operations 0.8 0.6 (3.7) Actuarial gains/( losses) on defined benefit pension 8.2 5.2 schemes 1.6 Tax on items taken directly to equity (2.7) (1.6) (8.8) Net profit/(loss) recognised directly in equity 6.3 4.2 43.9 Profit for the period 33.1 37.5 35.1 Recognised income and expense for the period 39.4 41.7 Attributable to: 34.3 Equity holders of the parent 38.9 41.4 0.8 Minority interests 0.5 0.3 35.1 39.4 41.7 Unaudited consolidated balance sheet As at As at As at 31 December 2006 30 June 30 June 2007 2006 £m £m £m Non-current assets 201.9 Goodwill 202.7 187.9 10.4 Other intangible assets 11.0 6.0 448.4 Property, plant and equipment 458.4 453.3 1.2 Interests in associates 1.3 9.6 1.4 Finance lease receivables 1.3 1.7 23.2 Deferred tax assets 27.3 21.8 0.6 Derivative financial instruments 0.1 - 11.3 Trade and other receivables 13.6 6.1 698.4 715.7 686.4 Current assets 13.7 Inventories 16.3 13.0 0.3 Finance lease receivables 0.2 0.4 1.9 Derivative financial instruments 1.3 139.4 138.1 Trade and other receivables 151.8 38.0 34.7 Cash and cash equivalents 36.8 188.7 206.4 190.8 2.3 Non-current assets classified as held for sale 2.3 1.1 889.4 Total assets 924.4 878.3 Current liabilities 111.1 Trade and other payables 116.2 107.6 8.0 Dividends payable 14.6 13.0 6.7 Current tax liabilities 11.6 7.0 1.4 Obligation under finance leases 1.1 1.2 4.4 Bank overdrafts and loans 6.2 5.8 0.2 Derivative financial instruments 0.3 0.2 2.5 Short-term provisions 1.3 2.2 134.3 151.3 137.0 54.4 Net current assets 55.1 53.8 Non-current liabilities 186.5 Bank loans 189.7 170.3 0.1 Derivative financial instruments 0.1 0.3 32.8 Retirement benefit obligation 19.8 24.7 68.7 Deferred tax liabilities 68.9 70.9 3.3 Obligations under finance leases 2.8 3.9 4.1 Long-term provisions 3.2 4.4 5.7 Other payables 6.4 2.0 301.2 290.9 276.5 435.5 Total liabilities 442.2 413.5 453.9 Net assets 482.2 464.8 Unaudited consolidated balance sheet As at As at As at 31 December 2006 30 June 30 June 2007 2006 £m £m £m Equity 32.2 Share capital 32.4 32.2 302.1 Share premium account 304.5 301.6 (2.4) Own shares (3.9) (2.4) 3.8 Other reserves 5.4 2.7 4.4 Hedging and translation reserves 5.2 11.7 109.4 Retained earnings 132.8 117.2 449.5 Equity attributable to equity holders of the parent 476.4 463.0 4.4 Minority interest 5.8 1.8 453.9 Total equity 482.2 464.8 Unaudited consolidated cash flow statement Year ended Half year to Half year to 31 December 2006 30 June 30 June 2007 2006 £m £m £m 109.2 Net cash from operating activities 48.6 47.7 Investing activities (59.5) Purchases of property, plant and equipment (34.7) (26.0) 4.8 Proceeds on disposal of property, plant and equipment and 1.2 0.9 intangible assets (0.7) Purchases of intangible fixed assets (0.4) (0.2) - Acquisition of investment in an associate - (0.1) (86.3) Acquisition of subsidiaries (6.6) (51.0) 0.1 Disposal of subsidiaries - - (141.6) Net cash used in investing activities (40.5) (76.4) Financing activities 2.9 Interest received 1.5 1.4 (15.7) Interest paid (6.5) (6.3) (20.5) Dividends paid (8.2) (7.5) (0.1) Dividend paid to minority shareholder - - (65.5) Repayments of bank loans (0.8) (201.9) (1.8) Repayments of obligations under finance leases (1.0) (0.9) 46.0 New bank loans raised 6.3 158.3 0.5 New obligations under finance leases 0.2 0.1 1.9 Proceeds on issue of ordinary share capital 2.6 1.4 0.1 Own shares purchased/settlement of share options (1.5) 0.1 (52.2) Net cash used in financing activities (7.4) (55.3) (84.6) Net increase/(decrease) in cash and cash equivalents 0.7 (84.0) 120.7 Cash and cash equivalents at beginning of period 33.4 120.7 (2.7) Effect of foreign exchange rate changes (0.3) (0.7) 33.4 Cash and cash equivalents at end of period 33.8 36.0 Notes to the consolidated financial information 1. Business and geographical segments Half year to Heat Hot Isostatic Testing Head Office and Continuing30 June 2007 Treatment Pressing Eliminations Operations £m £m £m £m £mRevenueExternal sales 210.8 21.3 85.5 - 317.6Inter-segment sales - - 0.4 (0.4) - Total revenue 210.8 21.3 85.9 (0.4) 317.6 ResultSegment result prior toexceptional items andshare of associates'profit after tax 32.9 7.4 11.5 - 51.8Share of associates'operating profit - 0.1 - - 0.1Unallocated corporate - - - (3.7) (3.7)expenses Headline operating profit 32.9 7.5 11.5 (3.7) 48.2Amortisation of acquiredintangible fixed assetsand impairment ofgoodwill (2.2) - (0.4) (2.6) Change to pension scheme 2.0 0.2 1.5 0.4 4.1rulesBid response costs - - - (2.1) (2.1) Segment result 32.7 7.7 12.6 (5.4) 47.6 Share of associates' - -interest and tax Operating profit -continuing operations 47.6Investment revenues 1.6Finance costs (6.6) Profit before tax 42.6Tax (9.5) Profit for the period 33.1 Notes to the consolidated financial information (continued) Half year to Heat Hot Isostatic Testing Head Office and Continuing30 June 2006 Treatment Pressing Eliminations Operations £m £m £m £m £mRevenueExternal sales 192.2 19.7 67.4 - 279.3Inter-segment sales - - 0.3 (0.3) - Total revenue 192.2 19.7 67.7 (0.3) 279.3 ResultSegment result prior toexceptional items andshare of associates'profit after tax 26.7 6.0 9.6 - 42.3 Share of associates'operating profit 0.9 - - - 0.9 Unallocated corporate - - - (2.6) (2.6)expenses Headline operating profit 27.6 6.0 9.6 (2.6) 40.6Amortisation of acquired - - (0.3) - (0.3)intangible fixed assets Segment result 27.6 9.3 (2.6) 40.3 Share of associates' (0.6) (0.6)interest and tax Operating profit -continuing operations 39.7 Investment revenues 1.3Finance costs (6.2) Profit before tax 34.8Tax 2.7 Profit for the period 37.5 Notes to the consolidated financial information (continued) Year ended Heat Hot Isostatic Testing Head Office and Continuing31 December 2006 Treatment Pressing Eliminations Operations £m £m £m £m £mRevenueExternal sales 375.0 38.9 144.7 - 558.6Inter-segment sales 0.6 (0.6) - Total revenue 375.0 38.9 145.3 (0.6) 558.6 ResultSegment result prior to 49.5 12.7 21.3 - 83.5exceptional items and share of associates'profit after tax Share of associates' 0.8 0.1 - - 0.9operating profit Unallocated corporate - - - (4.7) (4.7)expenses Headline operating profit 50.3 12.8 21.3 (4.7) 79.7Amortisation and (10.7) - (4.6) - (15.3)impairment of acquiredintangible fixed assetsand impairment of goodwill and investment in associate Major facility closure (5.0) - - - (5.0)costs Segment result 34.6 12.8 16.7 (4.7) 59.4 Share of associates' (0.6) (0.6)interest and tax Operating profit - 58.8continuing operations Investment revenues 3.4Finance costs (15.6) Profit before tax 46.6Tax (2.7) Profit for the period 43.9 Inter-segment sales are charged at prevailing market prices Notes to the consolidated financial information (continued) 2. Taxation Year ended Half year to Half year to 31 December 30 June 30 June 2006 2007 2007 £m £m £m Current tax (0.7) UK corporation tax (1.0) (1.6) 12.8 Foreign tax 13.3 8.3 12.1 12.3 6.7 Deferred tax (11.2) Tax settlements in respect of prior years - (10.6) 1.8 Other deferred tax (2.8) 1.2 (9.4) (2.8) (9.4) 2.7 9.5 (2.7) The rate of tax for the interim period is 22.3% of profit before tax (2006: -7.8%), which represents the Group's expected effective rate of tax for the year. The Group's underlying rate is 23.4% (2006: 22.5%). The underlying rate represents the tax rate stated prior to exceptional items, and is calculated as a weighted average annual corporation tax rate expected for the full financial year. 3. Earnings per share From continuing operations The calculation of the basic and diluted earnings per share is based on the following data: Year ended Half year to Half year to 31 December 30 June 30 June 2006 2007 2007 £m £m £m Earnings 43.1 Earnings for the purposes of basic earnings per 32.6 37.2 share, being net profit attributable to equity holders of the parent Number of shares Number Number Number 320,462,772 Weighted average number of ordinary shares for 321,230,823 320,191,253 the purposes of basic earnings per share 880,065 Effect of dilutive potential ordinary shares: 899,630 1,200,457 Share options 321,342,837 Weighted average number of ordinary shares for 322,130,453 321,391,710 the purposes of diluted earnings per share Notes to the consolidated financial information (continued) Earnings per share from continuing operations: Pence Pence Pence 13.4 Basic 10.1 11.6 13.4 Diluted 10.1 11.6 Headline earnings Year ended Half year to Half year to 31 December 2006 30 June 30 June 2007 2007 £m £m £m 43.1 Net profit attributable to equity holders of the 32.6 parent 37.2 Add back/(deduct): 6.0 Impairment of goodwill 1.8 - 1.0 Amortisation and impairment of acquired intangible 0.8 0.3 fixed assets - Change to pension scheme rules (4.1) - - Defence costs 2.1 - 8.3 Impairment of investment in associate - - 5.0 Major facility closure costs - - 3.1 Costs of early settlement of US dollar private - - placement debt (11.2) Tax settlements in respect of prior years - (10.6) 55.3 33.2 26.9 Headline earnings Earnings per share from headline earnings: Pence Pence Pence 17.3 Basic 10.3 8.4 17.2 Diluted 10.3 8.4 Notes to the consolidated financial information (continued) 4. Acquisition of subsidiaries The Group acquired the following subsidiaries during the period:Interest Date of % of shares Principal acquisition acquired activity Techmeta SA 01 Feb 2007 87.7% Electron Beam WeldingIonBond do Brasil Tretamento de Superficies Ltda 24 Apr 2007 100.0% PVDIonBond Argentina SA 24 Apr 2007 80.0% PVD In addition, the Group acquired the following businesses during the period: Interest Date of Principal acquisition activity IonBond Coatings Private Limited (Indian facilities) 01 Mar 2007 Heat TreatmentHoneywell International Inc. (Freeport, Illinois 18 May 2007 Testingfacility)Newalta Corporation (Drayton Valley facility) 20 Jun 2007 Testing All transactions have been accounted for by the purchase method of accounting and the provisional fair values are summarised below. These acquisitions have been aggregated as they are considered individually immaterial to the Group's results Total Group £m Book value and fair value of net assets acquired: Intangible assets: At book value - Fair value adjustment 1.2 At provisional fair value 1.2 Property, plant and equipment 2.8 Deferred tax assets 0.8 Inventories 1.3 Trade and other receivables 1.9 Cash and cash equivalents 3.3 Trade payables and other payables (1.7) Current tax liability (0.8) Bank loans (0.1) Finance leases - Deferred tax liabilities - Provisions (0.4) 8.3 Minority interest (0.8) Goodwill 2.4 Total consideration 9.9 Satisfied by: Cash 9.7 Directly attributable costs 0.2 9.9 Net cash outflow arising on acquisition Cash consideration 9.9 Cash and cash equivalents acquired (3.3) 6.6 Notes to the consolidated financial information (continued) The goodwill arising on the acquisitions is attributable to the anticipatedprofitability of the distribution of the Group's services and the anticipatedfuture operating synergies from the combination. The acquired businesses contributed £3.0 million to the Group's revenue and £0.8million to the Group's profit before tax for the period between their dates ofacquisition and the balance sheet date. If the acquisition of all the businesses had been completed on the first day ofthe financial year, Group revenues for continuing operations for the periodwould have been £318.9 million and Group profit attributable to equity holdersof the parent would have been £32.7 million. After the period end the Group acquired Ningbo Jiangdong Ruidahong HeatTreatment Co. Ltd and Nitruvid SAS for a total cash consideration of £5.7million. 5. Movement on reserves Share Own shares Other Hedging and Retained Total premium reserves translation earnings account reserves £m £m £m £m £m £m Half year to 30 June 20071 January 2007Premium arising on issue of equity shares 302.1 (2.4) 3.8 4.4 109.4 417.3Acquired in the year 2.4 - - - - 2.4Share based payments - (1.5) - - - (1.5)Exchange differences on translation of overseas - - 1.6 - - 1.6operations Dividend declared - - - 0.8 - 0.8Net profit for the period - - - - (14.7) (14.7)Items taken directly to equity - - - - 32.6 32.6 5.5 5.530 June 2007 304.5 (3.9) 5.4 5.2 132.8 444.0 Half year to 30 June 20061 January 2006 300.3 (2.5) 1.7 11.1 89.4 400.0Premium arising on issue of equity shares 1.3 - - - - 1.3Settlement of share options - 0.1 - - - 0.1Share based payments - - 1.0 - - 1.0Exchange differences on translation of overseas - - - 0.6 - 0.6operationsDividend declared - - - - (13.0) (13.0)Net profit for the period - - - - 37.2 37.2Items taken directly to equity - - - - 3.6 3.6 30 June 2006 301.6 (2.4) 2.7 11.7 117.2 430.8 Year ended 31 December 20061 January 2006 300.3 (2.5) 1.7 11.1 89.4 400.0Premium arising on issue of equity shares 1.8 - - - - 1.8Settlement of share options - 0.1 - - - 0.1Share based payments - - 2.1 - - 2.1Exchange differences on translation of overseas - - - (6.7) - (6.7)operationsDividend declared - - - - (21.0) (21.0)Net profit for the period - - - - 43.1 43.1Items taken directly to equity - - - - 2.1 (2.1) 31 December 2006 302.1 (2.4) 3.8 4.4 109.4 417.3 Notes to the consolidated financial information (continued) 6. Note to the cash flow statement Reconciliation of operating profit to net cash from operating activities Year ended Half year to Half year to 31 December 30 June 30 June 2006 2007 2006 £m £m £m 58.8 Operating profit from continuing operations 47.6 39.7 0.6 Share of associates' interest and tax - 0.6 44.8 Depreciation of property, plant and equipment 24.2 22.3 1.6 Amortisation and impairment of intangible fixed 1.2 0.6 assets 6.0 Impairment of goodwill 1.8 - - Change to pension scheme rules (4.1) - - Bid response costs 2.1 - 8.3 Impairment of investment in associate - - 5.0 Major facility closure costs - - 125.1 EBITDA* 72.8 63.2 0.3 Loss on disposal of property, plant and equipment 0.1 - (0.9) Income from associates (0.1) (0.9) 2.1 Share-based payments 0.9 1.0 126.6 Operating cash flows before movements in working 73.7 63.3 capital (0.4) Increase in inventories (1.3) - (15.5) Increase in receivables (13.9) (15.5) 9.5 Increase in payables 1.9 4.0 (2.6) Decrease in provisions (2.5) (0.9) 117.6 Cash generated by operations 57.9 50.9 1.0 - Cash inflow from settlement of derivative financial instruments (8.4) Income taxes paid (10.3) (3.2) 109.2 Net cash from operating activities 48.6 47.7 * Earnings before interest, tax, depreciation and amortisation. Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. 7. Related party transactions Transactions between the company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. Transactions between the Group and its associates are disclosed below: Notes to the consolidated financial information (continued) Trading transactions During the period, Group companies entered into the following transactions withrelated parties who are not members of the Group. Year ended Half year to Half year to 31 December 30 June 30 June 2006 2007 2006 £m £m £m 2.1 Sale of goods and services 1.2 0.3 0.7 Purchase of goods and services 0.1 0.1 0.7 Amounts owed to related parties 0.2 0.1 9.3 Amounts owned by related parties 8.4 5.5 Sales of goods and services includes the sale of property, paymentsreceived from finance leases and the provision of management services. Alltransactions were made at arms' length. The amounts outstanding are unsecured and will be settled in cash. Noguarantees have been given or received. No provisions have been made fordoubtful receivables in respect of the amounts owed by related parties. 8. General information The information for the year ended 31 December 2006 does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was not qualified and did notcontain statements under section 237 (2) or (3) of the Companies Act 1985. 9. Accounting policies The interim financial report has been prepared using accounting policiesconsistent with International Financial Reporting Standards (IFRSs) and inaccordance with those disclosed in the annual report for the year ended 31December 2006, which was filed with the Registrar of Companies on 4 June 2007.The requirements of IAS 34 'Interim Financial Reporting' do not apply to thisinterim statement. Copies of this report and the last Annual Report andAccounts are available from the Secretary, Bodycote International plc, HulleyRoad, Macclesfield, Cheshire, SK10 2SG and can each be downloaded or viewed viathe Group's website at www.bodycote.com. Copies of this report have also beensubmitted to the UK Listing Authority and will shortly be available at the UKListing Authority's Document Viewing facility at 25 the North Colonnade, CanaryWharf, London E14 5HS (Telephone +44 (0) 207 676 1000). Enquiries: Tuesday 31 July 2007 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 forthe six months ended 30 June 2007, which comprises the consolidated incomestatement, the consolidated balance sheet, the consolidated statement ofrecognised income and expense, the consolidated cash flow statement and relatednotes 1 to 9. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority, which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) 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 thatshould be made to the financial information as presented for the six monthsended 30 June 2007. Deloitte & Touche LLPChartered AccountantsManchester 31 July 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Bodycote