2008 interim results - bodycote · 7/28/2008 11 profit reconciliation 10 2008 interim results 1 pre...

2008 INTERIM RESULTS

7/28/2008

2

Highlights

1 Pre exceptional items and interest and tax on associates.

1 2008 Interim results

� Revenue £383m +21%

� Organic Revenue Growth £18m +6%

� Headline Operating Profit 1 £53m +9%

� ROCE 1 11.9% +80bps

� 14 Greenfield Sites

� £32m Invested in Acquisitions

� Testing disposal progressing well

7/28/2008

3

Interim Results


1 Pre exceptional items, interest, tax, depreciation, amortisation and share-based payments.2 Pre exceptional items and interest and tax on associates.3 Pre exceptional items and tax on associates.4 Pre exceptional items.

H1 2008 H1 2007 Change £m £m %

Revenue 382.6 317.6 +21

EBITDA 1 83.4 74.4 +12

Headline Operating Profit 2 52.5 48.2 +9

Operating Profit 50.8 47.6 +7

Headline Profit Before Tax 3 46.4 43.2 +7

Headline EPS 4 10.8p 10.3p +5

Dividend/Share 2.95p 2.75p +7

7/28/2008

4

Profit Bridge – Thermal Processing


(£m)

Headline Operating Profit is stated pre exceptional items and interest and tax on associates.

45.8

+2.6 -0.9 -0.8

-6.3+2.6 +4.6 +3.6

40.4

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

Headline O

P2007

Price increases

Volum

e growth

Input prices

NA

DC

AP

Accreditation

Greenfield &

closed sites

Acquisitions

Foreign exchange

Headline O

P2008

7/28/2008

5

Profit Bridge - Testing


(£m)

Headline Operating Profit is stated pre exceptional items and interest and tax on associates.

+0.5 -1.1+0.5 -1.2

-1.4+1.0 +1.7

11.5 11.5

0.0

5.0

10.0

15.0

20.0

Headline O

P2007

Price increases

Volum

e growth

Input prices

Greenfield &

closed sites

Acquisitions

Infrastructure

Foreign exchange

Headline O

P2008

7/28/2008

6

Revenue and Operating Profit - By Region

1 Pre exceptional items and interest and tax on associates.

* MEM: Materials Testing / Engineering Technology / Measurement Technology.

** HSE: Health Sciences and Environmental.5 2008 Interim results

H1 2007 H1 2008 Western Europe North America Emerging M arkets£m Revenue £m £m £m £m

210.8 Heat Treatment 256.6 171.6 56.9 28.121.3 Hot Isostatic Pressing 26.2 14.3 11.9 -

232.1 Thermal Processing 282.8 185.9 68.8 28.1

60.8 MEM* 71.4 39.0 20.1 12.324.7 HSE** 28.4 13.3 15.1 -

85.5 Testing 99.8 52.3 35.2 12.3

Head Office -

317.6 Group 382.6 238.2 104.0 40.4

Headline Operating Profit 1

32.9 Heat Treatment 37.7 29.1 6.6 2.07.5 Hot Isostatic Pressing 8.1 3.9 4.2 -

40.4 Thermal Processing 45.8 33.0 10.8 2.0

10.0 MEM* 9.0 5.5 2.1 1.41.5 HSE** 2.5 1.3 1.2 -

11.5 Testing 11.5 6.8 3.3 1.4

(3.7) Head Office (4.8)

48.2 Group 52.5 39.8 14.1 3.4

7/28/2008

7

YoY Change in Revenue


TOTAL OrganicWestern Europe Organic

North America Organic

Emerging Markets Organic

% % % % % % % %Heat Treatment 22 4 24 5 8 1 40 13

Hot Isostatic Pressing 23 13 33 13 11 12 - -

Thermal Processing 22 5 25 5 9 3 40 13

Testing MEM 17 7 19 3 1 (4) 55 51Testing HSE 15 4 7 6 23 3 - -

Testing 17 6 15 4 9 (2) 55 51

GROUP 20 6 23 5 9 1 44 24

7/28/2008

8

Headline Operating Margins

7 2008 Interim results 1 Pre exceptional items and interest and tax on associates.

2008 2007 2008 2007 2008 2007 2008 2007

Heat Treatment 14.7 15.6 17.0 18.5 11.6 11.2 7.1 8.3Hot Isostatic Pressing 30.9 35.2 27.3 32.2 35.3 36.0 - -

Thermal Processing 16.2 17.4 17.8 19.4 15.7 15.4 7.1 8.3

Testing MEM 12.6 16.4 14.1 16.3 10.4 18.1 11.4 13.3Testing HSE 8.8 6.1 9.8 8.7 7.9 3.3 - -

Testing 11.5 13.5 13.0 14.2 9.4 12.5 11.4 13.3

GROUP 13.7 15.2 16.7 18.2 13.6 14.5 8.4 9.8

Emerging Markets %Headline Operating Margins 1

TOTAL% Western Europe% North America%

7/28/2008

9

Revenue By Market - Group


H1 2008 H1 2007 YoY Change

Sector % % in Revenue %

� Aerospace/Defence 18 20 +9� Automotive

- Cars & Light Truck 19 19 +14 - Heavy Truck & Bus 5 5 +15

� Civil Engineering, Agricultural, Railways & Marine 19 15 +52� Oil & Gas 8 8 +24� Tooling 8 7 +29� Medical/Health Science & Environmental 6 7 +13� Consumer Products 5 6 +13� Power Generation 5 6 +17� Electronics & Telecoms 3 3 +10� Miscellaneous 4 4 +9

100 100 +20

7/28/2008

10

Revenue By Market – Thermal Processing




� Aerospace/Defence 18 19 +14� Automotive

- Cars & Light Truck 23 24 +19 - Heavy Truck & Bus 6 6 +8

� Civil Engineering, Agricultural, Railways & Marine 19 16 +45� Tooling 10 10 +30� Oil & Gas 6 6 +18� Power Generation 6 6 +21� Consumer Products 4 4 +17� Electronics & Telecoms 3 3 +12� Medical/Health Science & Environmental 1 2 +12� Miscellaneous 4 4 +15

100 100 +22

7/28/2008

11

Profit Reconciliation

10 2008 Interim results 1 Pre exceptional items and tax on associates.

H1 2008 H1 2007 Change

£m £m %

Headline Profit Before Taxation 1 46.4 43.2 +7

Amortisation of acquired intangibles (1.0) (0.8)

Share of associates' interest and tax (0.1) -

Impairment of goodwill - (1.8)

Change to pension scheme rules - 4.1

Bid response costs - (2.1)

Disposal costs - Testing SBU (0.6) -

Profit Before Taxation 44.7 42.6 +5

Taxation (11.0) (9.5)

Profit After Taxation 33.7 33.1 +2

7/28/2008

12

Summary Cash Flow and Financial Ratios


1 Pre exceptional items, interest, tax, depreciation, amortisation and shared-based payments.

2 EBITDA based on rolling 12 months basis.

3 Pre exceptional items, interest, tax and share of results of associates.

H1 2008 H1 2007£m £m

EBITDA 1 83.4 74.4Working capital movement (17.3) (16.5)Net capital expenditure (36.6) (33.9)Other (0.5) -Operating Cash Flow 29.0 24.0Interest (6.7) (5.0)Tax (8.9) (10.3)

Free Cash Flow 13.4 8.7

Net debt/EBITDA 2 1.6x 1.2x

Interest cover 3 9.3x 10.7xGearing 46% 34%Free cash flow 4% 3%Capex/depreciation 1.2x 1.3x

7/28/2008

13

Balance Sheet


H1 2008 H1 2007£m £m

Goodwill 240.5 202.7Tangible and intangible fixed assets 554.0 469.4Interests in associates 6.4 1.3Trading working capital 118.5 94.2Other net assets (162.9) (122.4)

Net assets before borrowings 756.5 645.2

Shareholders' funds 510.0 476.4Minority interests 7.2 5.8Net borrowings 239.3 163.0

Equity and borrowings 756.5 645.2

7/28/2008

14

Heat Treatment

• Revenue + 22%

• Operating margin 15%

• Utilisation 75%

• Some cost pressures

• Outsourcing continues growth

• Technology roll-out progressing

• Emerging market presence growing but impact of start-up costs

H1 Revenue (£m)

165.0175.5

192.2

210.8

256.6

0

50

100

150

200

250

300

2004 2005 2006 2007 2008


H1 Operating Profit - Margins

21.9

27.6

32.9

37.7

23.5

0

5

10

15

20

25

30

35

40

45

2004 2005 2006 2007 20080

5

10

15

20

25

30

£m

%

7/28/2008

15

Hot Isostatic Pressing

• Revenue + 23%


• ROCE > 20%

• Utilisation 73%

• Additional capacity, temporary margin impact

• New applications

H1 Revenue (£m)

16.016.8

19.7

21.3

26.2

0

5

10

15

20

25

30

2004 2005 2006 2007 2008



3.5

4.2

6.0

7.58.1

0

1

2

3

4

5

6

7

8

9

2004 2005 2006 2007 20080

10

20

30

40

50

£m

%

7/28/2008

16

Testing MEM

• Revenue + 17%


• Organic growth 7%

• Emerging market presence

• Integrating acquisitions

H1 Revenue (£m)

25.628.9

46.7

60.8

71.4

0

10

20

30

40

50

60

70

80

2004 2005 2006 2007 2008



5.1 5.5

7.0

10.09.0

0

5

10

15

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

£m

%

7/28/2008

17

Testing HSE

• Revenue +15%

• Operating margin – a significant improvement

• Lab rationalisation in Canada and UK

• Focus on client oriented Information Systems

H1 Revenue (£m)

4.9

8.1

20.7

24.7

28.4

0

5

10

15

20

25

30

2004 2005 2006 2007 2008



0.2

1.0

2.6

1.5

2.5

0

2

4

2004 2005 2006 2007 20080

2

4

6

8

10

12

14

16

18

20

£m

%

7/28/2008

18

Delivering the Strategy

• Realise value of Testing

• Enhance performance of existing Thermal Processing network

• Improve cash generation

• Continue outsourcing initiatives

• Selective acquisitions


7/28/2008

19

Testing Division – Value Realisation

• Strategic Review Completed Q1

• Divestiture Decision Announced Completed April 30

• Information Memorandum Issued Completed June

• First Round Bids Received Completed June

• Debt Staple agreed Completed July

• Management Presentations Completed July

• Final Bids Due August

• Sale Agreed Early Autumn

• Final Completion Late Autumn


7/28/2008

20

Enhance Performance of Thermal Processing

• Greenfields move to profit

• Under performers (fix, sell or close)

• Recover energy cost increases

• Advanced training of local leaders


7/28/2008

21

Improve Cash Generation

• Margin improvement

• Working Capital – D.S.O.

• Capex back to 1.0x in 2009


7/28/2008

22

Continue Outsourcing Initiatives

• Reduces carbon footprint

• Cost of materials

• Increases utilisation of assets

• Reduces cyclicality

• Improves visibility

• Organic growth driver


7/28/2008

23

Selective Acquisitions

• Niche technologies

• Developing economies

• Market consolidation


7/28/2008

24

Current Trading and Prospects

• July in line with our expectations

• Aerospace, power generation, oil & gas continue to grow

• Automotive gaining share

• Energy costs continue to be recovered

• Outsourcing initiatives continue to deliver growth

• Markets are uncertain but we expect continued progress in H2



Appendix

7/28/2008

27

Financial Highlights H1

231.4 230.7

279.3

317.6

382.6

2004 2005 2006 2007 2008

£m

CAGR13%

27.1 33.1

40.6

48.2 52.5

2004 2005 2006 2007 2008

£m

CAGR18%

24.7 27.3

35.1

43.2 46.4

2004 2005 2006 2007 2008

£m

CAGR17%

1 Including discontinued operations.2 Pre exceptional items and interest and tax on associates.3 Pre exceptional items and tax on associates.

4 Pre exceptional items and tax settlements in respect of prior year.24 2008 Interim results

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2004 2005 2006 2007 2008

Dividend per share Series2

Pen

ce6.0

8.4

6.7

10.310.8

CAGR16%

Divide nd P e r S ha re 2.25 2.35 2.50 2.75 2.95

Revenue 1 Headline Operating Profit 2

Headline Profit Before Tax 3 Headline Earnings Per Share 4

7/28/2008

28

Financial Key Performance Indicators H1

ROCE 1 EBITDA 2

Organic revenue growth 3 People costs as a percentage of revenue 4

1 to 4 see definitions Appendix page 36.25 2008 Interim results

Target: Mid teens%

Target: Mid to high single digit% Target: TP: 40% Testing: 50%

0.0%

8.7%

10.5%11.1%

11.9%

0

0

0

0

0

0

0

0

2004 2005 2006 2007 2008

6%

5%

7%

8%

6%

0

0

0

0

0

0

0

0

0

0

2004 2005 2006 2007 2008

42.4 42.6 40.8 39.1 39.1

51.1 50.9 50.9 52.7 54.4

0

10

20

30

40

50

60

2004 2005 2006 2007 2008

%

Thermal Processing Testing

48.6 53.5

63.2

74.4

83.4

0

10

20

30

40

50

60

70

80

90

100

2004 2005 2006 2007 2008

£m

CAGR14%

7/28/2008

29

Non Financial Key Performance Indicators H1

Utilisation Heat Treatment 6

ISO 14001/17025 compliant facilities 7 Accident frequency 8

6 to 8 see definitions Appendix page 36.26 2008 Interim results

Utilisation HIP 6

Target: >80% Target: >80%

Target: All facilities Target: Zero

67% 66%72% 74% 75%

0

0

0

0

0

1

1

1

1

2004 2005 2006 2007 2008

58%62%

70%75% 73%

0

0

0

0

0

1

1

1

1

2004 2005 2006 2007 2008

165

227

261

0

50

100

150

200

250

300

2006 2007 2008

2.8

2.0

2.6

1.7

1.2

0

1

1

2

2

3

3

2004 2005 2006 2007 2008

7/28/2008

30

Acquisitions, Capital Expenditure & Depreciation

27 2008 Interim results 5 see definitions Appendix page 36.

10

34

44

32

4441

51

2523

7

34

25

3237

30

2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8

£m

Acquisitions

Net Capital Expenditure

Depreciation

0.8x 1.1x 1.1xCapex/Dep. 1.2x1.3x

7/28/2008

31

Analysis Of Organic/Acquisition Growth

28 2008 Interim results1 Pre exceptional items and interest and tax on associates.

Head

RevenueHT £m

HIP £m

MEM £m

HSE £m

Office £m

Total £m

2007 210.8 21.3 60.8 24.7 317.6Organic 9.4 2.7 4.3 1.1 17.5Acquisition 13.8 1.0 2.4 1.1 18.3Currency 22.6 1.2 3.9 1.5 29.22008 256.6 26.2 71.4 28.4 382.6

Headline Operating Profit 1

2007 32.9 7.5 10.0 1.5 (3.7) 48.2Organic (1.1) 0.3 (1.9) 0.9 (1.1) (2.9)Acquisition 2.5 0.1 0.4 0.1 - 3.1Currency 3.4 0.2 0.5 - - 4.12008 37.7 8.1 9.0 2.5 (4.8) 52.5

% on sales2008 14.7% 30.9% 12.6% 8.8% 13.7%2007 15.6% 35.2% 16.4% 6.1% 15.2%

Testing

7/28/2008

32

Impact Of Exchange Rates

1 Pre exceptional items and interest and tax on associates.29 2008 Interim results

Revenue£m £m

H1-2008 As Reported 382.6 46.4

H1-2008 Using H1-2007 Rates 353.4 42.3

Impact 29.2 4.1

Headline Profit before tax 1

7/28/2008

33

Taxation

30 2008 Interim results 1 Pre exceptional items and tax on associates.

H1 2008 H1 2007 FY 2007

£m £m £m

Headline Profit before tax 1 46.4 43.2 81.0

Tax on associates (0.1) - -

Exceptional items & amortisation (1.6) (0.6) (12.5)

Profit after exceptional items 44.7 42.6 68.5

Current year tax charge 1 11.0 10.1 15.4

Tax effect of exceptional items - (0.6) (0.7)

Total tax charge 11.0 9.5 14.7

Pre exceptional effective tax rate 23.7% 23.4% 19.0%

Post exceptional effective tax rate 24.6% 22.3% 21.5%

7/28/2008

34

Revenue By Market – Testing




� Medical/Health Science & Environmental 20 21 +13� Civil Engineering, Agricultural, Railways & Marine 19 13 +74� Aerospace/Defence 18 21 -2� Oil & Gas 15 13 +32� Consumer Products 10 11 +10� Automotive

- Cars & Light Truck 5 7 -25 - Heavy Truck & Bus 4 3 +55

� Power Generation 3 4 +2� Electronics & Telecoms 3 3 +5� Miscellaneous 2 3 -12� Tooling 1 1 +3

100 100 +17

7/28/2008

35

Emerging Markets


1.9

8.7

2.2

8.6

3.6

8.39.4

9.5 9.9

12.3

0.00.10.10.20.20.30.30.40.40.50.50.60.60.70.70.80.80.90.91.01.01.11.11.21.21.31.31.41.41.51.51.61.61.71.71.81.81.91.92.02.02.12.12.22.22.32.32.42.42.52.52.62.62.72.72.82.82.92.93.03.03.13.13.23.23.33.33.43.43.53.53.63.63.73.73.83.83.93.94.04.04.14.14.24.24.34.34.44.44.54.54.64.64.74.74.84.84.94.95.05.05.15.15.25.25.35.35.45.45.55.55.65.65.75.75.85.85.95.96.06.06.16.16.26.26.36.36.46.46.56.56.66.66.76.76.86.86.96.97.07.07.17.17.27.27.37.37.47.47.57.57.67.67.77.77.87.87.97.98.08.08.18.18.28.28.38.38.48.48.58.58.68.68.78.78.88.88.98.99.09.09.19.19.29.29.39.39.49.49.59.59.69.69.79.79.89.89.99.910.010.010.110.110.210.210.310.310.410.410.510.510.610.610.710.710.810.810.910.911.011.011.111.111.211.211.311.311.411.411.511.511.611.611.711.711.811.811.911.912.012.012.112.112.212.212.312.312.4

2004 2005 2006 2007 H1-2008

Emerging Markets as a % of Business Unit revenue

Thermal Processing Testing

7/28/2008

36

Worldwide Operational LocationsWorldwide Operational Locations


North AmericaNorth America:

45 Thermal Processing

37 Testing

Western EuropeWestern Europe:


63 Testing

Emerging Markets:Emerging Markets:


20 Testing

7/28/2008

37

End Market Demand

60

10 38 2

13 3 5 6 14 1730 3 2 3 5

15

2 0

2 6

192 1 2 1 23

2 4 3 028 3 2 3 2

10

8

13

104 8

1211

2 225

2 5 2 56

15

10

6

911

1111

16

14 12 8

40

30 57

50

179

11779

77

8982 84 85

0

50

100

150

200

250

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

NAFTA Europe Middle East/Africa Latin America Asia

6 2 04 9 1 5 2 7

3 8 128 1 2 8 5 29 0

3 9 8 45 3 5 20 5 6 0 5 00 4 7 0 4 3 0 4 40 4 9 5 5 40

2 9 4

3 113 2 5

30 3

3 0 5 3 2 0 37 8

4 3 44 4 1

4 855 0 5

4 704 0 0

3 4 0 3 353 8 0

4 40

0

200

400

600

800

1000

1200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Boeing Airbus

5039

50 52 57 6070

88

116

138120 125 130

12

12

1112

13 14

15

18

2 1

2 3

2 12 1

2 2

8

65 5

4 4

3

3

4

4

44

4

0

20

40

60

80

100

120

140

160

180

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F 2010F 2011F

$bn

Upstream Downstream Chemicals

Gas Turbine Orders Boeing & Airbus Deliveries

Oil & Gas Industry Capex ($bn )


Commercial Vehicle Production (‘000 Units)

Source: Lehman Brothers Equity Research – Q2 2008

0

10,000

20,000

30,000

40,000

50,000

60,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

North America Total Eastern Europe Western Europe Asia / Pacific

7/28/2008

38

Light Vehicle assembly (‘000 Units)

0

5,000

10,000

15,000

20,000

25,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

0

5,000

10,000

15,000

20,000

25,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

0

5,000

10,000

15,000

20,000

25,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

North America


Western Europe

Eastern Europe Asia Pacific

Source: Lehman Brothers Equity Research - Q2 2008

0

5,000

10,000

15,000

20,000

25,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

7/28/2008

39

Key performance indicators definitions


1. Headline operating profit as a percentage of average capital employed. Capital employed includes tangible and intangible assets including all previously amortised/impaired goodwill and all non interest bearing assets and liabilities. Headline operating profit is stated pre exceptional items and interest and tax on associates.

2. Pre exceptional items, interest, tax, depreciation, amortisation and shared-based payments.

3. Year on year increase in revenue, at constant currencies from continuing operations excluding revenue from acquisitions made within the prior twelve months.

4. The salary and benefit costs of all employees as a percentage of revenue from continuing operations.

5. Net capital expenditure divided by depreciation.

6. Actual revenues expressed as a percentage of theoretical maximum revenue assuming that heat treatment facilities operate 24 hours per day, 365 days per year.

7. The number of facilities holding registrations for ISO 14001 or ISO 17025.

8. Accident frequency - the number of accidents x 200,000 (approximating 100 man years), divided by the total hours worked.

2008 interim results - bodycote · 7/28/2008 11 profit reconciliation 10 2008 interim results 1 pre...

Documents