Interim Results
Bodycote International PLC
22 August 2006
EMBARGOED UNTIL 07.00 HOURS: 22 AUGUST 2006
BODYCOTE INTERNATIONAL PLC
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2006
Financial Highlights
• Revenue from continuing operations increased by 21.8% to £279.3 million
(2005: £229.3 million)
• Headline operating profit 1, 2 £40.6 million (2005: £33.1 million), up 23%
• Headline profit before tax 1 rose 20.2% to £35.1 million (2005: £29.2
million)
• Profit before tax from continuing operations £34.8 million (2005: £27.3
million), up 28%
• Operating cash flow £50.9 million (2005: £40.2 million) and free cash flow
£17.5 million (2005: £14.3 million)
• Headline earnings per share 3 increased by 24% to 8.4p (2005: 6.8p)
• Interim dividend 2.5 pence per share (2005: 2.35p), up 6.4%
Operational Review
• 10 acquisitions completed in first half for £51 million
• Increased demand in key markets - aerospace, power generation, oil & gas
and health sciences
• Energy costs increasing, but recovery continuing
• Strategic Partnerships and Long Term Agreements represent 20% of sales, up
15% in absolute terms
• ROCE increases by 1.3 percentage points
1 expressed before impairment of goodwill (£nil: 2005: £1.8m) and
amortisation of acquired intangibles (£0.3m, 2005: £0.1m)
2 expressed before interest and tax on associates (£0.6m, 2005: £0.5m).
3 a detailed breakdown can be found in note 3 of the attached consolidated
financial statements
Commenting on the results, John D. Hubbard, Chief Executive, said:
'Bodycote's performance continued to improve in the first half of 2006, with
profit from continuing operations up 28%. Our operational disciplines are now
well entrenched, with an ongoing focus on cost control and operational
efficiency. Bodycote's outsourcing model continues to attract additional
business from manufacturers and several key markets, including aerospace, power
generation, oil & gas and health sciences, showed increased demand. Our efforts
to recover rising energy costs were largely successful.
We continue to successfully implement our strategy of significantly expanding
out Testing business, adding both new services and new geographies, with eight
acquisitions in the first half, while expanding Thermal Processing into
developing economies, most recently with the agreement to acquire a 60% share in
ISTAS, the largest commercial heat treater in Turkey, which operates from six
locations.
Looking ahead, we remain confident that our full year results will be in line
with our expectations. With good outsourcing and acquisition prospects and a
focus on operational flexibility we are well placed to deal with any change in
future market conditions.'
For further information, please contact:
Bodycote International, plc Financial Dynamics
John Hubbard, Chief Executive 020 7831 3113 Jon Simmons 020 7831 3113
David Landless, Group Finance Director 020 7831 3113
2006 INTERIM STATEMENT
INTRODUCTION
Bodycote's performance has continued to improve as a result of ongoing cost
management, close attention to operational efficiency, carefully targeted
investment and focused selling initiatives. Outsourcing wins and increasing
demand in several key markets, most notably aerospace, power generation, oil &
gas and health sciences have improved our organic growth rate. Our strategy to
increase the size of Testing, both geographically and in terms of service
offering, has continued to be successfully executed. Ten acquisitions, eight in
Testing and two in Thermal Processing were completed in the first half. As part
of our continuous review and assessment of operations, in July we sold our heat
treatment business in St Louis USA.
RESULTS
Sales in the first half of 2006 were £279.3m compared to £229.3m in 2005, an
increase of 21.8%. Of this improvement 6.8% was organic, 12.0% was from
acquisitions and 3.0% was due to favourable exchange rates on translation of
overseas sales into sterling. Energy costs have continued to rise during the
first half, particularly in continental Europe, with the exception of France.
Recovery of these costs is, however, proceeding according to expectations, with
essentially all of last year's increases and approximately two thirds of the
current year impact recovered so far. A £0.5m charge has been accrued for the
recently approved new share based long term incentive plan for senior mangers to
reflect the expected payment based on the currently improving results. Headline
operating profit1, 2 was £40.6m versus £33.1m a year ago, up 22.7% of which
11.8% is organic. Headline profit before tax1 was £35.1m compared to £29.2m
last year, ahead 20.2%. Profit before tax from the continuing operations was
£34.8m against £27.3m in the prior year, an improvement of 27.5%, whilst profit
after tax was £37.5m as against £20.0m in 2005, ahead 87.5%. The underlying
effective tax rate for the Group, stated prior to goodwill impairment was 22.5%
(full year 2005: 20.2%). However, the Group has been able to reassess the
benefit of treasury management in 2003 and 2004, resulting in a £10.6m reduction
in the tax liability provided in respect of these periods, which has been
released in the first half. Headline earnings3 per share were 8.4p (2005:
6.8p). Basic earnings per share were 11.6p (2005: 6.2p).
The two most important currencies for translation of Group sales and profit are
the US dollar which, on average, was 5% stronger than a year ago and the Euro,
which was unchanged. The net effect of these and other currency movements was
to increase sales by £6.9m and operating profit by £0.8m. However, if the
recent strength of sterling continues for the remainder of 2006, sales and
operating profit will be lower in the second half by approximately £6.3m and
£0.9m respectively, compared to the same period last year.
Revenue from Strategic Partnerships and Long Term Agreements continues to
account for c. 20% of Group sales and in absolute terms this represents an
increase of more than 15% year on year.
OPERATIONAL REVIEW
Thermal Processing
Heat Treatment
Sales were £192.2m (2005: £175.5m) and operating profit1, 2 was £27.6m (2005:
£23.5m).
Sales increased in all geographies compared to the same period in 2005 being
7.7%4 ahead overall at constant exchange rates, of which 5.4% was organic.
Margins in UK and France have shown the most improvement as a result of
strengthening end markets, greater emphasis on niche processes and outsourcing
wins. Volumes and margins also improved in Germany and Netherlands, while
demand has been soft in Italy and Austria.
North American margins have continued to improve but this region remains our
weakest performer due to the higher level of mass production automotive work
compared to other parts of the Group and a softening in demand from the
electronics sector in California.
Our controlled expansion into Asia continues as planned, with the new Wuxi
facility ready to start production in the second half. This plant which, due to
demand is set to be double the originally intended capacity is initially seeded
by key automotive contracts from existing customers and will also offer
capability for the aerospace and power generation markets. In 2007, we expect
to have included a fully accredited laboratory providing services into the
Chinese market. The start-up development and increased infrastructure costs are
being carried as a current operating expense.
Gross Heat Treatment operational gearing was 62% which is in line with our
expectations. However, the benefit has been reduced by wage settlements, which
have averaged c. 2%, energy cost increases of c. 10% and rises in industrial
gas and transport costs (again, largely energy related), resulting in net
operational gearing for the first half of 28%.
Our IonBond investment (20% shareholding) generated £0.9m of operating profit
(2005: £0.8m). IonBond continues to consolidate the Physical Vapour Deposition
(PVD) industry and is performing in line with expectations. In July we agreed
to make a convertible loan of CHF6.0m (£2.7m) to IonBond, which gives the Group
the right to exercise an option over a further 6% of Ionbond's share capital.
Hot Isostatic Pressing
Sales were £19.7m (2005: £16.8m), which equates to organic growth of 17.3% and
operating profit1 was £6.0m (2005: £4.2m).
Power generation and aerospace continued to demonstrate strong demand, which in
turn improves our capacity utilisation and margins such that our return on
capital is now acceptable. The two previously stored HIP units are ready to
contribute in the second half (located in Germany and the USA). Densal(R)
continues to find more applications as manufacturers seek to improve performance
of aluminium castings. Operational gearing was again excellent at over 80%
gross and 60% net of salary and energy inflation.
Testing
Sales were £67.4m (2005: £37.0m) and operating profit1 was £9.6m (2005: £6.5m).
Our strategy of significantly expanding this business continues to go according
to plan, with all regions performing well. Organic sales growth was 10.2% with
acquisition growth of 63.5%. Whilst the recent acquisitions in the
environmental and metrology segments operate at lower margins than the strategic
business unit (SBU) average, they will meet our target return on investment in
the first year. Acquisitions made in the last twelve months have produced an
annualised ROCE of 14%. Operations are now managed by business streams rather
than strict geography to facilitate better market service and technology
support. Our recent acquisition of globally recognised Warrington Fire has
opened new opportunities including a centre of excellence for fire safety
testing for the Dubai Civil Defence Authority.
The successful expansion of our Testing SBU has also resulted in a more
geographically balanced business. The increase in European operations, notably
in Sweden, where the summer holiday break affects second half sales and hence
margins will reduce the uplift in margin historically experienced in the second
half.
Safety, Health, Environmental
Bodycote is committed to being an industry leader in its Safety, Health and
Environmental (SHE) performance. Each year, the Board sets ambitious targets
for year on year improvement in these areas with the ultimate goal of zero
work-related injuries and illnesses as well as minimum environmental impact.
This period of rapid growth provides a significant challenge to the Group since
most of the companies we acquire are not as mature in this area as Bodycote, so
that working practices and cultural changes are required. Nevertheless, we have
found that our focus on continuous improvement in SHE is welcomed.
ACQUISITIONS
Of the ten acquisitions completed in the first half, nine were bolt-ons and have
been integrated into our existing organisation. We continued the expansion of
our Testing SBU through the addition of Tetra in the UK food sector along with
West Coast Analytical in the USA, Canadian based Norwest Soil Research and in
the UK Seal Land and Water in the health science and environmental sectors. We
also completed the acquisition of ACT Laboratories in the US automotive market,
Warrington Fire Research Group, a provider of specialist fire testing services
to industry on an international basis and Coalescence, a long time provider of
specialist IS support for our Testing division, which will also be utilised in
Thermal Processing. All of these acquisitions offer significant growth
potential and economies of scale through successful integration within our
existing Testing business.
The acquisition of Metech from Saab Aerospace has completed our planned
broadening of testing services by bringing Measurement Solutions into our Group.
The synergies which exist between Measurement Solutions and the rest of the
Group open up further exciting new opportunities for growth.
Our Thermal Processing division has been strengthened by the addition of the
heat treatment division of SGB Solingen in Germany and of Ceramet Plasma
Coatings Limited in the UK, which provides specialist coatings for the oil and
gas industry.
Since the end of June, we have completed the bolt-on acquisition of Norpath
Laboratories which enhances our UK food testing capability. The Group has also
entered into an agreement to acquire a 60% share in ISTAS, the largest
commercial heat treatment group in Turkey, which has six facilities spread
throughout the key industrial areas.
We have now made 30 acquisitions since the beginning of 2004, with excellent
overall success. We review each new company during due diligence and tailor an
integration plan which is implemented upon closing.
In the six months to 30 June, 2006 we spent £51.0m on acquisitions. In a full
year we expect these businesses to add incremental revenues of £50m and
operating profits of £7.3m. Given our disciplined financial and operational
approach to acquisitions, not all potential acquisitions have been completed and
associated legal and professional costs of c. £0.4m have been charged to profit
in the first half. We continue to pursue further opportunities in Testing and
also in emerging markets for our Thermal Processing division. Additional
acquisitions are anticipated in the second half of 2006 and total investment for
the year is expected to be in the order of £90m.
BALANCE SHEET AND CASH FLOW
At 30 June 2006, Group net assets were £464.8m (2005: £417.8m) and net
borrowings stood at £143.2m (2005: £98.0m), which represents net gearing of 31%
(2005: 23%). The Group remains focussed on cash management. Driven by profit
improvement, cash generated by operations in the first half was £50.9m compared
to £40.2m in the first half of 2005. Debtor balances have increased by £15.5m
since the year end, although day's sales outstanding (DSO) has remained
unchanged at 68, reflecting both the overall increase in Group turnover and that
May/June sales are usually higher than in November/December. Free cash flow
(net cash from operating activities, less net capital expenditure and net
interest payments) was £17.5m (2005: £14.3m). Interest cash flow at £4.9m
(2005: £4.8m) and tax payments of £3.2m (2005: £2.6m) are similar to the prior
year.
Capital expenditure continues to be carefully controlled, with numerous organic
growth opportunities in both Thermal Processing and Testing resulting in net
expenditure of £25.3m compared to £18.5m in the first half of 2005. This
represents 1.1 times depreciation (2005: 0.9x). We expect the full year to rise
marginally to 1.2 times. We remain committed to improving our return on
capital, which in the first half of 2006 was at an annualised rate of 11.1%
compared to 9.8% in the same period last year. We are, nonetheless, mindful of
the benefit of investing in current opportunities to enhance returns over the
medium and long term.
In July the Group completed a €125m syndicated banking facility, which is
available for seven years.
Part of these proceeds will be used to prepay $80m of senior notes at 7.79%
originally due in December 2009. This will give rise to a one-off increase in
the interest charge of £3.0m in 2006, however the Group will benefit from lower
interest charge in 2007, 2008 and 2009 of £1.5m per annum.
DIVIDEND
The Directors have declared an increase of 6.4% in the interim dividend to 2.50
pence per share (2005: 2.35p). This will be paid on 5th January 2007 to all
shareholders on the register at the close of business on 1st December 2006.
SHARE BASED LONG TERM INCENTIVE PLAN
At the 2006 AGM, the company's shareholders approved a new share based long term
incentive plan for senior managers, which will vest over rolling three year
periods depending on achievement of challenging economic profit growth targets
and will be self funding by the end of the vesting period. Given on plan
performance, the charge to profit for this plan is expected to be approximately
£1.0m in 2006 (half of which has been charged in the first half), £2.0m in 2007
and £3.1m in 2008.
CURRENT TRADING AND OUTLOOK
We remain optimistic that we will continue to improve our performance, through
strong operational discipline, a commercial focus on value added sectors and
expanding opportunities for outsourcing.
The investments we made in the Americas for Low Pressure Carburizing (LPC) and
Kolsterizing have now come on stream and will start contributing in the second
half. The two HIP units on order (Densal(R) for Europe and Mega-HIP for
Americas) will be in production in the first half of 2007 and first half of 2008
respectively.
Several significant investments in high value added testing services (Strain
Controlled Fatigue, Heavy Duty Transient Emission Test Cells and
Stress-Corrosion Cracking), along with a period of integration of other recent
Testing acquisitions, will help improve Testing margins in the second half.
However, the second half will see a slower rate of acquisitions as we integrate
the new companies and improve the performance of the Testing business as it is
now structured.
Our team of competent and dedicated professionals continue to provide each
customer with consistent quality through our Bodycote Management System (BMS)
and reliable delivery at good value for our customers thus allowing us to grow
profitability. We are proud of our people and the positive reputation they
create each day with each customer.
Based on macro economic data and current trading conditions we remain confident
of meeting our expectations for the remainder of the year. The Group's
outsourcing programme and acquisition pipeline remain strong and we are focused
on operational flexibility. Consequently we are well placed to deal with any
significant change in market conditions should they occur.
John D Hubbard
22 August 2006
1 Expressed pre impairment of goodwill (£nil: 2005: £1.8m), and amortisation
of acquired intangibles
(£0.3m, 2005: £0.1m)
2 Expressed before interest and tax on associates (£0.6m: 2005: £0.5m)
3 A detailed breakdown can be found in note 3 of the attached consolidated
financial statements
4 Stated at constant exchange rates
Unaudited consolidated income statement
Year ended Half year to Half year to
31 December 30 June 30 June
2005 2006 2005
£m £m £m
Revenue
470.9 Existing operations 263.7 229.3
- Acquisitions 15.6 -
470.9 Revenue - continuing operations 279.3 229.3
Operating profit
57.0 Existing operations 36.7 29.4
3.3 Acquisitions 2.7 1.0
0.7 Share of results of associates 0.3 03
61.0 Operating profit - continuing operations 39.7 30.7
67.0 Operating profit prior to amortisation and impairment 40.0 32.6
(0.2) Amortisation of acquired intangible fixed assets (0.3) (0.1)
(5.8) Impairment of goodwill - (1.8)
61.0 Operating profit - continuing operations 39.7 30.7
5.2 Investment income 1.3 3.0
(13.5) Finance costs (6.2) (6.4)
52.7 Profit before taxation 34.8 27.3
(11.8) Taxation 2.7 (7.3)
40.9 Profit for the period 37.5 20.0
Attributable to:
40.7 Equity holders of the parent 37.2 19.9
0.2 Minority interest 0.3 0.1
40.9 37.5 20.0
Earnings per share (pence)
From continuing operations
12.7 Basic 11.6 6.2
12.7 Basic - diluted 11.6 6.2
Unaudited consolidated statement of recognised income and expense
Year to Half year to Half year to
31 December 2005 30 June 2006 30 June 2005
£m £m £m
(5.1) Exchange differences on translation of foreign operations 0.6 (12.0)
(3.7) Actuarial losses on defined benefit pension schemes 5.2 -
0.2 Tax on items taken directly to equity (1.6) -
(8.6) Net income recognised directly in equity 4.2 (12.0)
40.9 Profit for the period 37.5 20.0
32.3 Recognised income and expense for the period 41.7 8.0
Attributable to:
32.1 Equity holders of the parent 41.4 7.9
0.2 Minority interest 0.3 0.1
32.3 41.7 8.0
Unaudited consolidated balance sheet
As at As at As at
31 December 2005 30 June 2006 30 June 2005
£m £m £m
Non-current assets
154.2 Goodwill 187.9 148.6
3.7 Other intangible assets 6.0 3.4
442.9 Property, plant and equipment 453.3 415.1
9.2 Interests in associates 9.6 8.7
1.9 Finance lease receivables 1.7 1.9
22.7 Deferred tax asset 21.8 18.9
6.1 Trade and other receivables 6.1 5.0
640.7 686.4 601.6
Current assets
11.9 Inventories 13.0 10.0
0.3 Finance lease receivables 0.4 0.3
114.5 Trade and other receivables 139.4 112.5
124.8 Cash and cash equivalents 38.0 124.0
251.5 190.8 246.8
1.2 Non-current assets classified as held for sale 1.1 2.4
893.4 Total assets 878.3 850.8
Current liabilities
97.2 Trade and other payables 107.6 86.6
7.5 Dividends payable 13.0 12.4
3.3 Current tax liabilities 7.0 6.2
1.4 Obligation under finance leases 1.2 1.2
6.4 Bank overdrafts and loans 5.8 4.5
- Derivative financial instruments 0.2 -
2.3 Short-term provisions 2.2 2.4
118.1 137.0 113.3
133.4 Net current assets 53.8 133.5
Non-current liabilities
221.6 Bank loans 170.3 212.2
- Derivative financial instruments 0.3 -
29.9 Retirement benefit obligation 24.7 24.5
79.9 Deferred tax liabilities 70.9 71.8
3.9 Obligations under finance leases 3.9 4.1
4.7 Long-term provisions 4.4 4.6
1.8 Other payables 2.0 2.5
341.8 276.5 319.7
459.9 Total liabilities 413.5 433.0
433.5 Net assets 464.8 417.8
Unaudited consolidated balance sheet
As at As at As at
31 December 2005 30 June 2006 30 June 2005
£m £m £m
Equity
32.1 Share capital 32.2 32.1
300.3 Share premium account 301.6 300.1
(2.5) Own shares (2.4) (0.8)
1.7 Other reserves 2.7 1.6
11.1 Hedging and translation reserves 11.7 4.2
89.4 Retained earnings 117.2 79.5
432.1 Equity attributable to equity holders of the parent 463.0 416.7
1.4 Minority interest 1.8 1.1
433.5 Total equity 464.8 417.8
Unaudited consolidated cash flow statement
Year to Half year to Half year to
31 December 2005 30 June 2006 30 June 2005
£m £m £m
95.7 Net cash inflow from operating activities 47.7 37.6
Investing activities
(51.8) Purchases of property, plant and equipment (26.0) (22.4)
8.6 Proceeds on disposal of property, plant and equipment 0.9 4.4
(0.9) Purchases of intangible fixed assets (0.2) (0.5)
(2.3) Acquisition of investment in an associate (0.1) (2.7)
(31.8) Acquisition of subsidiaries (51.0) (15.6)
5.8 Disposal of subsidiaries - 5.9
(72.4) Net cash used in investing activities (76.4) (30.9)
Financing activities
5.4 Interest received 1.4 2.8
(14.9) Interest paid (6.3) (7.6)
(19.5) Dividends paid (7.5) (7.2)
(0.1) Dividend paid to minority shareholder - (0.1)
(10.1) Repayments of bank loans (201.9) (8.8)
(1.6) Payments of obligations under finance leases (0.9) (0.9)
0.1 New bank loans raised 158.3 -
0.1 New obligations under finance leases 0.1 -
0.3 Proceeds on issue of ordinary share capital 1.4 0.1
(1.7) Own shares purchased - -
- Exercise of share options 0.1 -
(42.0) Net cash used in from financing activities (55.3) (21.7)
(18.7) Net decrease in cash and cash equivalents (84.0) (15.0)
(138.7) Cash and cash equivalents at beginning of period 120.7 138.7
0.7 Effect of foreign exchange rate changes (0.7) (2.3)
120.7 Cash and cash equivalents at end of period 36.0 121.4
Notes to the consolidated financial statements
1. Business and geographical segments
Discontinued Operations
Heat Hot Testing Electroplating Discontinued Head Office and Continuing
Treatment Isostatic Operations Eliminations Operations
Pressing
Half year to Half year to Half year to Half year to Half year to Half year to Half year to
30 June 2006 30 June 2006 30 June 2006 30 June 2006 30 June 2006 30 June 2006 30 June 2006
£m £m £m £m £m £m £m
Revenue
External sales 192.2 19.7 67.4 - - - 279.3
Inter-segment
sales - - 0.3 - - (0.3) -
Total Revenue 192.2 19.7 67.7 - - (0.3) 279.3
Result
Segment result
prior to
amortisation of
acquired intangible
assets and
impairment of
goodwill 26.7 6.0 9.6 - - - 42.3
Share of associates'
operating profit 0.9 - - - - - 0.9
Unallocated
corporate expenses - - - - - (2.6) (2.6)
27.6 6.0 9.6 - - (2.6) 40.7
Amortisation of
acquired intangible
assets and
impairment of
goodwill - - (0.3) - - - (0.3)
Segment result 27.6 6.0 9.3 - - (2.6) 40.3
Share of
associates'
interest and tax (0.6) - - - - - (0.6)
Operating profit -
continuing operations 39.7
Investment revenues 1.3
Finance Costs (6.2)
Profit before tax 34.8
Tax 2.7
Profit for the
period 37.5
Notes to the consolidated financial statements (continued)
Discontinued Operations
Heat Hot Testing Electroplating Discontinued Head Office and Continuing
Treatment Isostatic Operations Eliminations Operations
Pressing
Half year to Half year to Half year to Half year to Half year to Half year to Half year to
30 June 2005 30 June 2005 30 June 2005 30 June 2005 30 June 2005 30 June 2005 30 June 2005
£m £m £m £m £m £m £m
Revenue
External sales 175.5 16.8 37.0 1.4 (1.4) - 229.3
Inter-segment
sales - - 0.3 - - (0.3) -
Total Revenue 175.5 16.8 37.3 1.4 (1.4) (0.3) 229.3
Result
Segment result
prior to
amortisation of
acquired intangible
assets and
impairment of
goodwill 22.7 4.2 6.5 - - - 33.4
Share of associates'
operating profit 0.8 - - - - - 0.8
Unallocated
corporate expenses - - - - - (1.1) (1.1)
23.5 4.2 6.5 - - (1.1) 33.1
Amortisation of
acquired intangible
assets and
impairment of
goodwill (1.8) - (0.1) - - - (1.9)
Segment result 21.7 4.2 6.4 - - (1.1) 31.2
Share of
associates'
interest and tax (0.5) - - - - - (0.5)
Operating profit -
continuing operations 30.7
Investment revenues 3.0
Finance Costs (6.4)
Profit before tax 27.3
Tax (7.3)
Profit for the
period 20.0
Inter-segment sales are charged at prevailing market prices
Notes to the consolidated financial statements (continued)
Discontinued Operations
Heat Hot Testing Electroplating Discontinued Head Office and Continuing
Treatment Isostatic Operations Eliminations Operations
Pressing
Year ended Year ended Year ended Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December 31 December 31 December 31 December
2005 2005 2005 2005 2005 2005 2005
£m £m £m £m £m £m £m
Revenue
External sales 349.2 35.2 86.5 1.5 (1.5) - 470.9
Inter-segment
sales - - 0.6 - - (0.6) -
Total Revenue 349.2 35.2 87.1 1.5 (1.5) (0.6) 470.9
Result
Segment result
prior to
amortisation of
acquired intangible
assets and
impairment of
goodwill 43.3 9.5 16.3 - - - 69.1
Share of associates'
operating profit 1.5 - - - - - 1.5
Unallocated
corporate expenses - - - - - (2.8) (2.8)
44.8 9.5 16.3 - - (2.8) 67.8
Amortisation of
acquired intangible
assets and
impairment of
goodwill (5.8) - (0.2) - - - (6.0)
Segment result 39.0 9.5 16.1 - - (2.8) 61.8)
Share of
associates'
interest and tax (0.8) - - - - - (0.8)
Operating profit -
continuing operations 61.0
Investment revenues 5.2
Finance Costs (13.5)
Profit before tax 52.7
Tax (11.8)
Profit for the
period 40.9
Inter-segment sales are charged at prevailing market prices
Notes to the consolidated financial statements (continued)
2. Taxation
Year ended Half year to Half year to
31 December 30 June 30 June
2005 2006 2005
£m £m £m
Current tax
(0.2) UK corporation tax (1.6) 0.4
9.6 Foreign tax 8.3 5.9
9.4 6.7 6.3
Deferred tax
Reassessment of treasury management benefit in
- 2003 and 2004 (10.6) -
2.4 Other deferred tax 1.2 1.0
2.4 (9.4) 1.0
11.8 (2.7) 7.3
Corporation tax for the interim period is charged at 28% (2005: 27%), representing the best estimate
of the weighted average annual corporation tax rate expected for the full financial year. However,
the release of a tax liability following the reassessment of treasury management has resulted in an
overall effective rate in the 2006 interim financial statements of -8%.
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
2005 2006 2005
£m £m £m
Earnings
Earnings for the purposes of basic earnings
per share being net profit attributable to
40.7 equity holders of the parent 37.2 19.9
Number of shares
Number
Weighted average number of ordinary shares for
319,719,955 the purposes of basic earnings per share 320,191,253 320,281,966
Effect of dilutive potential ordinary shares:
546,590 Share options 1,200,457 381,650
Weighted average number of ordinary shares for
320,266,545 the purposes of diluted earnings per share 321,391,710 320,663,616
Notes to the consolidated financial statements (continued)
Earnings per share from continuing operations
Pence Pence Pence
12.7 Basic 11.6 6.2
12.7 Diluted 11.6 6.2
Headline earnings
Year ended Half year to Half year to
31 December 30 June 30 June
2005 2006 2005
£m £m £m
Net profit attributable to equity holders of the
40.7 parent 37.2 19.9
Add back:
5.8 Impairment of goodwill - 1.8
0.2 Amortisation of acquired intangible fixed assets 0.3 0.1
Reassessment of treasury management benefit in
- 2003 and 2004 (10.6) -
46.7 Headline earnings 26.9 21.8
Earnings per share from headline earnings
Pence Pence Pence
14.6 Basic 8.4 6.8
14.6 Diluted 8.4 6.8
Notes to the consolidated financial statements (continued)
4. Acquisition of subsidiaries
The Group acquired the following subsidiaries during the period:
Interest Date of % of shares Principal activity
Acquisition acquired
Coalescence Ltd 05 Jan 2006 100.0% IS for Testing
West Coast Analytical Services Inc 31 Jan 2006 100.0% Testing
Norwest Soil Research Ltd 03 Feb 2006 100.0% Testing
Warrington Fire Research Group Ltd and 25 Mar 2006 100.0% Testing
subsidiaries
Saab Metech AB and subsidiaries 26 Apr 2006 100.0% Testing
Ceramet Plasma Coatings Ltd 28 Apr 2006 100.0% Thermal Spray
In addition the Group acquired the following businesses during the period
Interest Date of % of shares Principal activity
Acquisition acquired
SGB Harterei GmbH & Co KG 01 Jan 2006 Heat Treatment
Tetra-Labs Ltd 04 Jan 2006 Testing
ACT laboratories Inc, Testing & Engineering
Services Division
20 Feb 2006 Testing
Stanger Environmental Analysis Ltd 05 Jun 2006 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 0.1
Fair value adjustment 2.8
At fair value 2.9
Property, plant and equipment 11.7
Deferred tax assets 0.1
Inventories 1.1
Trade and other receivables 10.6
Cash and cash equivalents 3.4
Trade payables and other payables (7.2)
Current tax liability (0.2)
Bank loans (0.6)
Finance leases (0.7)
Deferred tax liabilities (0.4)
Provisions (0.4)
20.3
Goodwill 34.1
Total consideration 54.4
Satisfied by:
Cash 54.0
Directly attributable costs 0.4
54.4
Net cash outflow arising on acquisition
Cash consideration 54.4
Cash and cash equivalents acquired (3.4)
51.0
Notes to the consolidated financial statements (continued)
The goodwill arising o the acquisitions is attributable to the anticipated
profitability of the distribution of the Group's services and the anticipated
future operating synergies from the combination.
The acquired businesses contributed £15.6 million revenue and £2.7 million to
the Group's profit before tax for the period between their dates of acquisition
and the balance sheet date.
If the acquisition of all the businesses had been completed on the first day of
the financial year, Group revenues for continuing operations for the period
would have been £290.6 million and Group profit attributable to equity holders
of the parent would have been £38.5 million.
5. Movement on reserves
Hedging and
Share translation
premium Own shares Other reserves Retained
account reserves earnings Total
£m £m £m £m £m £m
Half year to 30 June 2006
1 January 2006 300.3 (2.5) 1.7 11.1 89.4 400.0
Profit for the period attributable to
equity holders of the parent - - - - 37.2 37.2
Dividend declared - - - - (13.0) (13.0)
Actuarial gains on defined benefit
pension schemes - - - - 5.2 5.2
Tax on items taken directly to equity - - - - (1.6) (1.6)
Premium on shares issued 1.3 - - - - 1.3
Exercise of share options - 0.1 - - - 0.1
Share based payments - - 1.0 - - 1.0
Currency adjustments - - - 0.6 - 0.6
30 June 2006 301.6 (2.4) 2.7 11.7 117.2 430.8
Half year to 30 June 2005
1 January 2005 300.0 (0.8) 1.5 16.2 72.0 388.9
Profit for the period attributable to
equity holders of the parent - - - - 19.9 19.9
Dividend declared - - - - (12.4) (12.4)
Actuarial gains on defined benefit
pension schemes - - - - - -
Tax on items taken directly to equity - - - - - -
Premium on shares issued 0.1 - - - - 0.1
Exercise of share options - - - - - -
Share based payments - - 0.1 - - 0.1
Currency adjustments - - - (12.0) - (12.0)
30 June 2005 300.1 (0.8) 1.6 4.2 79.5 384.6
Year ended 31 December 2005
1 January 2005 300.0 (0.8) 1.5 16.2 72.0 388.9
Profit for the period attributable to
equity holders of the parent - - - - 40.7 40.7
Dividend declared - - - - (19.8) (19.8)
Actuarial gains on defined benefit
pension schemes - - - - (3.7) (3.7)
Tax on items taken directly to equity - - - - 0.2 0.2
Premium on shares issued 0.3 - - - - 0.3
Exercise of share options - (1.7) - - - (1.7)
Share based payments - - 0.2 - - 0.2
Currency adjustments - - - (5.1) - (5.1)
31 December 2005 300.0 (2.5) 1.7 11.1 89.4 400.0
Notes to the consolidated financial statements (continued)
6. Notes to the cash flow statement
Year ended Half year to Half year to
31 December 30 June 2006 30 June 2005
2005
£m £m £m
61.0 Operating profit from continuing operations 39.7 30.7
0.8 Share of associates' interest and tax 0.6 0.5
40.5 Depreciation of property, plant and equipment 22.3 20.1
0.9 Amortisation of intangible assets 0.6 0.4
5.8 Impairment of goodwill - 1.8
109.0 EBITDA* 63.2 53.5
(0.6) (Gain)/loss on disposal of property, plant and - -
equipment
(1.5) Income from associates (0.9) (0.8)
0.2 Share-based payments 1.0 0.1
107.1 Operating cash flows before movements in working 63.3 52.8
capital
(2.1) Increase in inventories - (1.5)
(8.4) Increase in receivables (15.5) (10.5)
2.7 Increase/(decrease) in payables 4.0 (0.6)
4.7 (Decrease)/increase in provisions (0.9 -
104.0 Cash generated by operations 50.9 40.2
(8.3) Income taxes paid (3.2) (2.6)
95.7 Net cash from operating activities 47.7 37.6
* Earnings before interest, tax, depreciation and amortisation.
Cash and cash equivalents (which are presented as a single class of assets on
the face of the balance sheet) comprise cash at bank and other short-term highly
liquid investments with a maturity of three months or less.
7. Contingent liabilities
Under the terms of the transfer of the Group's assets into the IonBond
associated undertaking, IonBond has a commitment to purchase equipment from a
third party supplier in 2006 to the value of €1.7 million (£1.2 million). If
IonBond does not meet this commitment, Bodycote International plc is required to
reimburse the supplier at a rate of 35% of any shortfall resulting in a maximum
contingent liability of €0.6 million (£0.4 million).
8. Related party transactions
Transactions between the company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Transactions between the Group and its associates are disclosed below:
Notes to the consolidated financial statements (continued)
Trading transactions
During the period, Group companies entered into the following transactions
with related parties who are not members of the Group.
Year to Half year to Half year to
31 December 30 June 2006 30 June 2005
2005
£m £m £m
3.6 Sale of goods and services 0.3 0.3
0.2 Purchase of goods and services 0.1 0.1
0.2 Amounts owed to related parties 0.1 0.1
5.7 Amounts owned by related parties 5.5 6.8
Sales of goods and services includes the sale of property, payments
received from finance leases and the provision of management services. All
transactions were made at arms length.
The amounts outstanding are unsecured and will be settled in cash. No
guarantees have been given or received. No provisions have been made for
doubtful debts in respect of the amounts owed by related parties.
9. Events after the balance sheet date
On 10 July 2006 the Group acquired the entire share capital of Norpath
Laboratories Ltd.
10. General information
The information for the year ended 31 December 2005 does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditors' report on those accounts was not qualified and did not
contain statements under section 237 (2) or (3) of the Companies Act 1985.
11. Accounting policies
The interim financial report has been prepared using accounting policies
consistent with International Financial Reporting Standards (IFRSs) and in
accordance with those disclosed in the annual report for the year ended 31
December 2005, published by the company on 21 April 2006. 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 22 August 2006:
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 2006, which comprises the income statement, the
balance sheet, the statement of recognised income and expense, the cash flow
statement and related notes 1 to 11. 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.
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 2006.
Deloitte & Touche LLP
Chartered Accountants
Manchester
22 August 2006
Notes: A review does not provide assurance on the maintenance and integrity of
the website, including controls used to achieve this, and in particular on
whether any changes may have occurred to the financial information since first
published. These matters are the responsibility of the directors but no control
can provide absolute assurance in this area.
Legislation in the United Kingdom governing the preparation and
dissemination of financial information differs from legislation in other
jurisdictions.
This information is provided by RNS
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