20th Dec 2006 07:01
Bodycote International PLC20 December 2006 BODYCOTE INTERNATIONAL PLC PRE-CLOSE TRADING UPDATE 20 December 2006 Bodycote International plc, the specialist thermal processing and testingservices company, is issuing this regular trading update prior to entering theclose period ahead of its full year results for the year ending 31 December2006. HIGHLIGHTS Sales growth for the year to date (at constant exchange rates) has been 19%, ofwhich 13% is from acquisitions and 6% is organic. Acquisitions completed duringthe year are expected to contribute approximately £60m in sales in 2006 and £90min a full year. Energy costs have stabilised in most of our markets at record high rates. Wehave been successful in passing these non negotiable costs on to customers,although the recovery lag is typically several months. The execution of the Group's strategy of expanding the Testing business andwidening the geographic coverage of Thermal Processing remains firmly on track.Testing accounts for 28% of Group sales in the second half. The performance of the Group's 20% associate IonBond, has been worse thanpreviously reported to the Group and, as it is highly leveraged, the Boardbelieves it is prudent to write down its equity investment by c. £8m. There isno cash impact. Cash generation remains strong as a result of continued tight control of capitalexpenditure, and the ongoing focus on working capital management. The Board expects to announce full-year sales and headline operating profit1within the range of market forecasts for the Group, although it should be notedthat the second half has been impacted by exchange rates, softness in the US andFrench automotive markets and weak performance at IonBond. Although the Board expects the softness in US and French automotive markets tocontinue all other markets remain buoyant and so it remains confident that theGroup will make further progress in sales growth and margin improvement in 2007. 1 excluding impairment of goodwill and equity investments, amortisation ofacquired intangibles, closure costs and interest and tax on associates GROUP At the time of the interim results announcement we reported that first halfsales, for the continuing business at constant exchange rates, were 22% higherthan in the same period last year at £279.3m and headline operating profit1 was£40.6m compared to £33.1m in the first half of 2005, an increase of 23%. Organicgrowth in the second half has been 5% compared to approximately 7% in the first half, with the reduction primarily due to softer demand from automotive customers. Demand from the power generation, oil & gas, health science and aerospace sectors remain buoyant. We continue to execute the geographic expansion of the Group's network offacilities. Seven bolt-on acquisitions have been completed since the interimresults announcement at a total cost of £31.6m. Five are Testing laboratories,namely; Consult-us in County Cork, Eire, an analytical chemistry andmicrobiology lab; Prova in Camberley, a pharmaceutical testing lab; Foodscan inGlasgow, a food analysis and microbiological testing company; Norpath a CountyDurham, food and consumer products testing lab; and, joining the Group on 12December, Staveley Services, providing metallurgical testing to the steel andaerospace industries from four US locations. The Group has also recently acquired two heat treatment operations. ISTAS (60%equity stake) in six locations in Turkey and Brasimet in six locations inBrazil. A number of other potential acquisitions are at various stages of evaluation andnegotiation, but we expect the pace of additions to the Group to be at a slowerrate in 2007. The impact of exchange rates on currency translation in the first half, comparedto the prior year, was to increase sales by £6.9m and operating profit by £0.8m.In the second half the impact is likely to be negative by a similar amount. STRATEGIC BUSINESS UNIT (SBU) OVERVIEW Heat Treatment sales in local currency are cumulatively running more than 8%ahead of last year, of which 6% is organic, and operating profit is up 13%.Turnover has increased in all geographies although slower automotive demand hasrestricted growth in both North America and France. Margins and ROCE continueto improve in all markets. To improve profitability further, the Group willhave closed four facilities by the end of January 2007. Two are in the US GreatLakes region and two in the UK Midlands. In the US some equipment and saleswill be transferred to other locations but in the UK we are able to transfer themajority of sales along with a significant amount of equipment to otherfacilities. There will be a charge to profit in the year of c. £5m to executethese closures. However, asset realisations are expected to exceed cash closurecosts. Margins for the UK and North America will improve by more than 1% as aresult of these actions. Hot Isostatic Pressing is maintaining its excellent performance, with organicsales growth of 12% (in local currency) compared to 2005, as a result ofcontinued strong demand for aerospace, industrial gas turbine and oil & gascomponents. The Testing SBU maintained its strong ROCE performance, in line with its target,whilst rapidly expanding the business. Sales cumulatively are 66% ahead of2005. This accelerated growth has temporarily impacted margins and organicprofit growth as additional infrastructure is necessary to support a businessthree times larger than it was in 2004, hence the overall margin in Testing iscurrently 15%. Organic sales growth remains solid at 6%. Businesses acquiredin 2006 are performing in line with expectations and have been fully integratedinto our network. We enter 2007 with a sales run rate of circa £170m withmargins expected to be slightly ahead of 2006. The Preliminary Results for 2006 will be announced on 27 February 2007. Commenting on trading, John D Hubbard, Chief Executive, said 'Our strategy remains firmly on track, with the expansion of our Testingbusiness and the widening geographic coverage of Thermal Processing. There hasbeen some softness in the automotive market in the second half but other marketsremain buoyant. We remain well placed for another year of progress in salesgrowth and margin improvement'. An investor and analyst conference call is taking place today, 20 December, at10:00 hours (GMT). The dial-in number is +44 (0) 1452 569 393 Call reference if any problems 4500938 For further information, please contact: Bodycote International plc Tel No: +44 (0)1625 505300John D. Hubbard, Chief ExecutiveDavid Landless, Group Finance Director Financial Dynamics Tel No: +44 (0) 20 7831 3113Jon SimmonsJames Ottignon This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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