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annual report 2014
www.bodycote.com | Stock code: BOY
23846.02 9 March 2015 12:35 PM Proof 2
At a glance
Operating an international network of facilities, Bodycote is the
At a glance
world’s leading provider of thermal processing services.
Experienced in supporting large multinational customers and their supply
Ope rating an in ternational net work of facilities , Bod yco te is the world’s
chains, as well as local niche specialists, Bodycote provides a vital link
leading p rovider of the rmal p rocessing services.
in the manufacturing process for virtually every market sector including
aerospace and defence, automotive, power generation, oil & gas,
Experienced in supporting large multi-national customers and their supply chains, as well as local
niche specialists, Bodycote provides a vital link in the manufacturing process for virtually every market
construction, medical and transportation.
sector including aerospace and defence, automotive, power generation, oil & gas, construction,
medical and transportation.
Our structure
The Group operates in two major areas:
Our st ruc ture
The Group operates in two major areas:
Aerospace, Defence & Energy (ADE)
Aerospace, De fence & Energy (ADE )
Read more
page 16
Automotive & General Industrial (AGI)
Automotive & General Industrial ( AGI)
Read more
page 18
Throughout this report you will see illustrations which link our business and strategy:
Strategy & Core Values
Aerospace, Defence
& Energy markets
Automotive & General
Industrial markets
£
Return on capital employed
Headline earnings per share
Key Performance Indicators
Rapid growth countries
Technology
Return on sales
Headline operating cash flow
Customer service
Core values
Accident frequency
Carbon footprint
Governance
36 Board of Directors
Governance
38 Corporate governance statement
33 Board of Directors
35 Directors’ report
43 Directors’ report
38 Corporate governance statement
45 Report of the Nomination
Report of the Nomination
42
Committee
committee
47 Report of the Audit Committee
43 Report of the Audit committee
51 Board report on remuneration
46 Board report on remuneration
66 Directors’ responsibilities
Directors’ responsibilities
52
statement
statement
Strategic report
01 Financial highlights
Business review
02 Chairman’s statement
01 Financial highlights
02 Business model
04 Chief Executive’s review
03 Core technologies
06 Strategic report
04 Strategy and objectives
07 Strategy and objectives
05 Measuring our progress
08 Business model
06 Global network
09 Measuring progress
08 Markets we serve
10 Core technologies
10 Chairman’s statement
11 In gear - a component journey
12 Chief Executive’s review
Bottle it – a component journey
14
12 Global network
15 Business performance
14 Markets
16
15 Business performance
17 Markets
16 Business review – Aerospace,
Business review – Aerospace,
18
Defence & Energy
Defence & Energy
18 Business review – Automotive &
Business review – Automotive &
20
General Industrial
General Industrial
20 Finance Director’s report
22 Finance Director’s report
26 Principal risks and uncertainties
24 Principal risks and uncertainties
Corporate responsibility and
28
28 Corporate responsibility and
sustainability
sustainability
Touch down – a component journey
35 Controlling the flow - a component
journey
Financial statements
53
Financial statements
67 Independent auditor’s report
70 Consolidated income statement
Independent auditor’s report –
70 Consolidated statement of
54 Consolidated income statement
comprehensive income
Consolidated statement of
54
71 Consolidated balance sheet
comprehensive income
72 Consolidated cash flow
55 Consolidated balance sheet
56
statement
tatements
ow
Additional information
120 Principal subsidiary undertakings
122 Shareholder enquiries
123 Company information
Additional information
105 Principal subsidiary undertakings
107 Shareholder enquiries
108 Company information
57
73 Consolidated statement
statement
Consolidated statement
of changes in equity
of changes in equity
74 Group accounting policies
58 Group accounting policies
83 Notes to the consolidated
Notes to the consolidated
66
financial statements
tatements
97 Five Year Summary
98
113 Five year summary
114 Company balance sheet
Independent auditor’s report –
tatements
Compan
115 Company accounting policies
117 Notes to the company financial
99 Company balance sheet
100 Company accounting policies
statements
102 Notes to the compan
statements
For the online version of this report go
to bodycote.annualreport2012.com
For the online version of this report go to
bodycote.annualreport2014.com
Cover image
This photo-microstructure shows a typical untreated carbon chromium bearing steel with the presence of alloy carbides (carbon c
Cover image
as they are di
This photo-micrograph shows an austenitic stainless steel microstructure having been treated by Bodycote’s proprietary S3P process. The S3P process provides a unique surface hardening
machineability and a better response to subsequent heat treatment. Credit: Klaus-Peter Rezsni, Bodycote.
solution for stainless steel, nickel-based and cobalt-chromium alloys and produces improved mechanical and wear properties without adversely affecting corrosion resistance.
ompounds). In this case, the presence of alloy carbides can be undesirable
tment, which will break down the alloy carbides into a form which has less eect on
by a normalising or annealing heat trea
c
Bodycote plc annual report for the year ended 31 December 2012
23846.02 9 March 2015 12:35 PM Proof 2
Financial highlights
Revenue
Headline operating profit1
Return on sales2
Operating profit
Headline profit before taxation1
Profit before taxation
Headline operating cash flow3
Operating cash flow4
Net cash
Basic headline earnings per share5
Basic earnings per share
Ordinary dividend per share6
Special dividend per share6
Return on capital employed7
2014
£609.1m
£111.1m
18.2%
£107.0m
£107.8m
£103.7m
£100.0m
£96.8m
£35.7m
43.8p
41.7p
14.4p
20.0p
20.7%
2013
£619.6m
£107.4m
17.3%
£102.1m
£103.7m
£98.4m
£108.9m
£104.6m
£15.0m
41.2p
38.5p
13.5p
10.0p
19.9%
1 Headline operating profit and headline profit before taxation exclude amortisation of acquired intangibles of £3.9m (2013: £4.5m), reorganisation costs of £nil
(2013: £0.8m) and acquisition costs of £0.2m (2013: £nil).
2 Return on sales is defined as headline operating profit as a percentage of revenue.
3 Headline operating cash flow is defined as operating cash flow stated before cash flow relating to restructuring of £3.0m (2013: £4.3m) and acquisition costs
of £0.2m (2013: £nil).
4 Operating cash flow is defined as cash generated by operations of £150.6m (2013: £161.9m) less net capital expenditure of £53.8m (2013: £57.3m).
5 A detailed reconciliation is provided in note 9 on page 91.
6 See note 8 on page 90.
7 Return on capital employed is defined as headline operating profit of £111.1m (2013: £107.4m) divided by the average of opening and closing capital employed
of £538.0m (2013: £539.6m) as adjusted for certain items of goodwill written off. Capital employed is defined as net assets adjusted for net cash/(debt).
Revenue
£m
570.7
587.8
619.6
609.1
499.8
Headline operating profit
£m
£609.1m
(1.7)%
(2013: £619.6m)
51.3
107.4
111.1
97.5
84.9
£111.1m
+3.4%
(2013: £107.4m)
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Dividend per share
pence
12.3
10.9
8.7
13.5
14.4
Headline earnings per share
pence
41.2
43.8
37.5
32.6
18.1
43.8p
+6.3%
(2013: 41.2p)
14.4p
+6.7%
(2013: 13.5p)
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
23846.02 9 March 2015 12:35 PM Proof 2
01
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Chairman’s statement
“With its strong operating and
financial performance throughout
2014, the Group has again delivered
a positive result for all of its
stakeholders.”
A.M. Thomson l Chairman
Overview
2014 was a year in which the Group experienced uncertain trading
conditions in several of its major markets, together with significant
fluctuations in the exchange rates used to translate the results of its
overseas subsidiaries into sterling.
I am pleased to report that the Group, under the stewardship
of Stephen Harris and his executive team, made solid progress
throughout the year by continuing to execute the strategy
of improving the mix of sales, towards higher value and
positive growth areas, while maintaining focus on productivity
improvements and strict cost control. Together this has again
enabled the Group to grow its profitability, backed by strong cash
generation and an impressive return on capital employed. Going
forward we will continue to invest in suitable opportunities, either
organically, in both developed and emerging markets, or through
the acquisition of high quality businesses at sensible prices.
Headline earnings per share of 43.8p grew by 6.3% in the year
while headline operating margins exceeded 18% and headline
operating cash flow is 90% of headline operating profit. As a result
the Group is reporting another year of strong cash generation
with £35.7m of net cash at 31 December 2014. Return on capital
employed increased to 20.7% for the year.
Dividend
The Board is proposing a final ordinary dividend of 9.8p, an
increase of 8%, which will be paid on 1 May 2015 subject to
shareholder approval at the 2015 Annual General Meeting (AGM).
This brings the total ordinary dividend for 2014 to 14.4p (2013:
13.5p) costing £27.4m, which represents a year-on-year increase
of 7%. Recognising the strong net cash position of the Group, the
Board is again recommending a supplemental distribution, by way
of a special dividend, amounting to 20.0p per share (2013: 10.0p),
costing £38.1m (2013: £19.1m).
Governance and reporting
As Chairman, my key role is to lead the Board effectively. An
important factor in achieving this is ensuring that good corporate
governance procedures are practiced across all 26 countries in
which the Group operates. In order to enable all shareholders to
understand how this is achieved we have provided a Corporate
governance statement on page 38 of this Annual Report. This
describes how the governance structure underpins the delivery of
the Group’s business strategy. On page 24 we have also outlined
the principal risks that may prevent the Group from achieving its
objectives and the actions being taken to mitigate these potential
obstacles.
02
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Summary
With its strong operating and financial performance throughout
2014, the Group has again delivered a positive result for all of its
stakeholders. The share price remains strong, despite the economic
and political turbulence which the Group has experienced in a
number of the countries in which it operates. The Group’s returns
have continued to move in the right direction and the balance sheet
is strong.
I remain confident that the executive team, supported by the
Board, will continue to deliver first class returns as they develop our
activities across the globe. With a talented and motivated workforce
I anticipate further progress in the periods ahead.
A.M. Thomson
Chairman
26 February 2015
Hand in hand with good governance goes transparent reporting,
and this year we have made a number of changes to the Annual
Report to ensure that this is achieved. Some of this is mandated by
changes in UK reporting regulations, others through changes to the
UK Corporate Governance Code, and some by pro-actively adopting
best practice as it evolves.
The drive for ongoing improvement in environmental and
safety reporting is described in the Corporate responsibility and
sustainability section of this Annual Report on pages 28 to 34.
Board composition
It is the responsibility of every board to ensure that there is an
appropriate succession planning process in place across the
business, including for the board of directors. This is integral
to the successful delivery of the Group strategy and underpins
the effectiveness of the Board. During the year the Nomination
Committee reviewed its plan for Board succession. With three of
the four independent directors in place for more than six years, we
plan to progressively transform the composition of the Board in the
coming years. As a result of this exercise, John Biles, the Senior
Independent Director and Chairman of the Audit Committee, will
retire at the 2015 AGM. John joined the Board in 2007 and his wise
counsel has been important as the transformation of the Group has
taken place. He leaves us with all good wishes for the future.
In November 2014, following an extensive search, Ian Duncan,
who is a qualified chartered accountant, joined the Board. Ian is a
highly experienced independent director having previously gained
excellent executive experience with a number of international
organisations. His biography can be found on page 37.
During the year I again met with a number of Bodycote’s leading
shareholders and received positive, constructive feedback from
them on their views of the Group. Going forward I will maintain
this valuable dialogue and also look forward to meeting increasing
numbers of shareholders at this year’s AGM, when there will be an
opportunity to discuss the Group’s business and future prospects
with Board members.
People
It is the employees of Bodycote who make this company special.
Investing in all aspects of the workforce is an important feature
in creating a successful future for the business. Over the last 12
months we have upgraded our human resource strategy, having
identified talent management as a crucial factor if the Group is to
deliver further operational improvement. I remain convinced that
investment in all levels of the workforce will help to ensure that our
staff will find Bodycote to be a company where they can continue
to enjoy rewarding careers. On behalf of the Board I congratulate
them for the dedication and professionalism that they have
demonstrated throughout another successful year.
23846.02 9 March 2015 12:35 PM Proof 2
03
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Chief Executive’s review
“The Group delivered another good
performance in 2014. Revenue,
at constant exchange rates, was
ahead 4% and we achieved further
improvement in margin and return
on capital employed, in addition to
strong cash generation.”
S.C. Harris l Group Chief Executive
Overview
I am pleased to be able to report on another successful financial
year for Bodycote. The Group delivered 4.0% revenue growth
at constant exchange rates, although after taking account of the
foreign exchange impact revenue declined 1.7%. This performance
was particularly encouraging given the lacklustre macro-economic
background. Bodycote outperformed the market in many of its
sectors and increased its market share in the year.
Group headline margins were expanded by 90 basis points to
18.2% driven by mix improvements across the business and
increases in operating efficiency, particularly in Europe. Headline
margins in Aerospace, Defence & Energy (ADE) were flat at 26.8%
(2013: 27.0%) in keeping with the Group’s strategy of preferentially
pursuing growth in this part of the business but without targeting
further increases in margin. Meanwhile, Automotive & General
Industrial (AGI) headline margins increased by 90 basis points to
15.6%. Much of this increase was generated in Western Europe,
which has been an area of focus and increased management
attention. Progress has been good but there is still work left to do
to achieve the full potential of this part of the Group’s activities.
Group headline operating profit increased by 3.4% to £111.1m (2013:
£107.4m) despite the decline in reported revenues. At constant
exchange rates, growth was 9.2%. Headline earnings per share grew
by 6.3% to 43.8p, helped by a one-off reduction in taxes.
Net capital expenditure of £53.8m (2013: £57.3m) was 1.0 times
depreciation (2013: 1.0 times), although gross capital expenditure
before the benefit of asset sales was 1.1 times depreciation (2013:
1.0 times). Return on capital employed is now 20.7% (2013: 19.9%).
Headline operating cash flow was £100.0m (2013: £108.9m)
corresponding to a 90.0% cash conversion rate (2013: 101.4%). The
company finished the year with a £35.7m net cash position (2013:
£15.0m).
Bodycote’s strong cash flow generation is a feature of its business
model and remains a high priority. This ability to consistently
generate high levels of cash has been repeatedly demonstrated
over the past several years. While the Group’s top priorities for the
use of this cash are funding organic growth and enhancing the
core dividend, the Group is continually on the lookout for value
enhancing acquisitions to boost growth and increase shareholder
value. If no such acquisitions are imminent and available funds
exceed the immediate needs of the business, then it is our
intention to make supplemental distributions to shareholders,
as the Board is recommending once again this year. Free cash
generation was £75.1m and has comfortably exceeded £70.0m in
each of the last three years.
04
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Strategic progress
The strategy of preferential investment and expansion in our
Specialist Technologies that has been pursued since 2009 has again
made a meaningful impact on Group financial performance. In 2014
these technologies contributed some 24% to Group revenue, which
was up from 14% in 2007. The six Specialist Technologies are HIP
Product Fabrication (HIP PF), Specialty Stainless Steel Processes
(S3P), HIP Services, Surface Technology, Low Pressure Carburising
and Corr-I-Dur®. In 2014 they had a combined operating margin of
over 30% (stated before central costs) and in total contributed 38%
of Group headline operating profit. Depending on the technology,
Bodycote occupies either a unique or a very strong position in the
market. Our success with these technologies will, sooner or later,
attract greater competition but notwithstanding this, the market size,
future growth potential and ability to generate superior margins from
these processes are all very significant. Year-on-year growth in this
area of the business was 17%, at constant exchange rates.
Our strategy of expanding in the rapid growth countries saw new
plants announced in Turkey, Poland, China and Mexico. However,
the total number of facilities in the Group fell to 188 as several
uneconomic, commodity oriented sites were closed in Europe.
Usable equipment was or will be transferred to other sites in
the Group, but the exit from commodity work offset the growth
achieved elsewhere in the classical heat treatment side of the
business and overall the increase was constrained to 1% at
constant exchange rates as a result.
The results of the ongoing pursuit of operational excellence
continue to be rewarding. One of the methods used to enhance
margins and improve pricing and mix is the Bodycote Margin
Model. This is a tool that has been developed by the Group over
the last five years and the rate of adoption of the methodology
is increasing, now with particular success in Germany and the
Netherlands. This approach and other practices such as lean
manufacturing are helping to drive the performance improvement of
the Classical Heat Treatment business.
Summary and outlook
The Group delivered another good performance in 2014. Revenue,
at constant exchange rates, was ahead 4% and we achieved further
improvement in margin and return on capital employed, in addition
to strong cash generation.
As we begin 2015 a number of macro-economic uncertainties
persist. Nevertheless, at this early stage in the year, the Board
believes that the strength of the Group’s Specialist Technologies
and management’s continued focus on business improvement,
particularly in the Classical Heat Treatment business, should enable
further progress in 2015.
S.C. Harris
Group Chief Executive
26 February 2015
23846.02 9 March 2015 12:35 PM Proof 2
05
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Strategic report
The Group Strategic report provides a review of the business for the
financial year and describes how we manage risks.
The report outlines the developments and performance of the Group
during the financial year, the position at the end of the year and discusses
the main trends and factors that could affect the future.
Key performance indicators are published to show the performance and
position of the Group. Pages 7 and 8 outline the Group’s strategy and
objectives, along with the business model.
The directors, in preparing this Strategic report, have complied with s414C of the Companies Act 2006.
This Strategic report has been prepared for the Group as a whole and therefore gives greater emphasis to those
matters which are significant to Bodycote plc and its subsidiary undertakings when viewed as a whole.
The Strategic report discusses the following areas:
Strategy and objectives
Business model
Measuring progress (key performance indicators)
Core technologies
Global network
Markets
Business performance
Business review – Aerospace, Defence & Energy
Business review – Automotive & General Industrial
Finance Director’s report
Principal risks and uncertainties
Corporate responsibility and sustainability
06
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Strategy and objectives
Our strategy and objectives
Our strategy and objectives
Our strategy and objectives
Bodycote’s objective is to create superior shareholder returns through the provision of
Bodycote’s objective is to create superior shareholder returns through the provision of
selected thermal processing services that are highly valued by our customers, giving full regard to a safe
Bodycote’s objective is to create superior shareholder returns through the provision of
selected thermal processing services that are highly valued by our customers, giving full regard to a safe
working environment for our employees and minimal environmental impact .
selected thermal processing services that are highly valued by our customers, giving full regard to a safe
working environment for our employees and minimal environmental impact .
working environment for our employees and minimal environmental impact .
£
£
£
Serving the aerospace, defence
and energy markets, with a
Serving the aerospace, defence
focused network of globally
and energy markets, with a
Serving the aerospace, defence
coordinated facilities, attuned to
focused network of globally
and energy markets, with a
these customers’ specific needs
coordinated facilities, attuned to
focused network of globally
and requirements.
these customers’ specific needs
coordinated facilities, attuned to
and requirements.
these customers’ specific needs
and requirements.
Serving the automotive and
chosen general industrial markets
Serving the automotive and
through a regionally organised
chosen general industrial markets
Serving the automotive and
business, catering to these
through a regionally organised
chosen general industrial markets
customers’ specific local needs
business, catering to these
through a regionally organised
and proximity requirements.
customers’ specific local needs
business, catering to these
and proximity requirements.
customers’ specific local needs
and proximity requirements.
Our strategy
Our strategy
is based on these
Our strategy
is based on these
fundamentals
is based on these
fundamentals
fundamentals
Capitalising on our Specialist
Technologies to provide our
Capitalising on our Specialist
customers with the ability to
Technologies to provide our
Capitalising on our Specialist
create innovative, differentiated
customers with the ability to
Technologies to provide our
products.
create innovative, differentiated
customers with the ability to
products.
create innovative, differentiated
products.
Expanding with our customers
to rapid growth countries with
Expanding with our customers
an emphasis on Eastern Europe
to rapid growth countries with
Expanding with our customers
and China.
an emphasis on Eastern Europe
to rapid growth countries with
and China.
an emphasis on Eastern Europe
and China.
Achieving the highest levels of
customer service in terms of
Achieving the highest levels of
quality, delivery, reliability and
customer service in terms of
Achieving the highest levels of
technical problem solving.
quality, delivery, reliability and
customer service in terms of
technical problem solving.
quality, delivery, reliability and
technical problem solving.
The core values underpinning everything we do
The core values underpinning everything we do
The core values underpinning everything we do
Honesty and Transparency
Honesty and Transparency
We are honest and act with
Honesty and Transparency
We are honest and act with
integrity. This is not something we
integrity. This is not something we
take for granted. Bodycote lives by
We are honest and act with
take for granted. Bodycote lives by
a culture of honest and transparent
integrity. This is not something we
a culture of honest and transparent
behaviour, which is at the core of
take for granted. Bodycote lives by
behaviour, which is at the core of
all our business relationships.
a culture of honest and transparent
all our business relationships.
behaviour, which is at the core of
all our business relationships.
Our progress measured - KPIs (for further details see page 9)
Our progress measured - KPIs (for further details see page 9)
Our progress measured - KPIs (for further details see page 9)
Respect and Responsibility
Respect and Responsibility
We manage our business with
Respect and Responsibility
We manage our business with
respect, applying an ethical
respect, applying an ethical
approach to our dealings with
We manage our business with
approach to our dealings with
those with whom we interact.
respect, applying an ethical
those with whom we interact.
We believe in taking ownership
approach to our dealings with
We believe in taking ownership
for, and being mindful of the impact
those with whom we interact.
for, and being mindful of the impact
of, our actions.
We believe in taking ownership
of, our actions.
for, and being mindful of the impact
of, our actions.
Creating Value
Creating Value
Creating value is the very essence
Creating Value
Creating value is the very essence
of our business and needs to be
of our business and needs to be
the focus of our endeavours. We
Creating value is the very essence
the focus of our endeavours. We
create value for our customers,
of our business and needs to be
create value for our customers,
our employees and our
the focus of our endeavours. We
our employees and our
shareholders.
create value for our customers,
shareholders.
our employees and our
shareholders.
Return on sales
Return on sales
Headline operating cash flow
Headline operating cash flow
Return on sales
Headline operating cash flow
Accident frequency
Accident frequency
Carbon footprint
Carbon footprint
Accident frequency
Carbon footprint
Return on capital employed
Return on capital employed
Headline earnings per share
Headline earnings per share
Return on capital employed
Headline earnings per share
£
£
£
23846.02 9 March 2015 12:35 PM Proof 2
07
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Business model
Provider of essential services to engineering manufacturers
Heat Treatment and Metal Joining
Heat treatments are controlled processes
Hot Isostatic Pressing (HIP)
HIP combines very high temperature
used to alter the microstructure of
materials such as metals and alloys to
impart properties which benefit the
working life of a component.
with inert gas under very high pressure.
HIP can be used to eliminate porosity
in castings and manufacture specialist
components with unique properties.
Metal joining includes specialised
processes used to join and assemble
parts, sometimes dissimilar in material.
The global leader
➔
Customer focus
Bodycote is focused on continual
Global network
Bodycote’s global network of 188 market-
improvement of our quality of service and
takes an active role in finding solutions
to technical issues and promoting
mutual business development with our
customers.
Bodycote seeks to secure service-specific
arrangements with our customers which
provide protection from supply disruption
by leveraging Bodycote’s unique facility
network.
focused facilities12,13 in 26 countries
brings economies of scale, particularly
for logistics and equipment utilisation.
This makes Bodycote’s processing
inherently more efficient than customers’
in-house operations32 and enhances our
competitive position in the sub-contract
market.
The capital intensive nature of Bodycote’s
business also provides significant barriers
to entry. The scope of Bodycote’s network
enables us to specialise more effectively
than competitors at individual locations
and provides comprehensive back-up for
our customers.
➔
Surface Technology
Surface technologies are used extensively
to prolong the working life of components
and protect them from environmental
factors such as corrosion and abrasion.
Transferable know-how
The global Bodycote network provides
unique opportunities for the transfer of
knowledge and skills, and the transfer of
technology.
With some of the best metallurgists,
engineers and technicians in the industry,
Bodycote is ideally placed to provide
solutions for customers, whatever their
market or wherever in the world they
may be.
Bodycote’s scale enables continuous yet
focused investment, both in the latest
processes and in the most efficient and
environmentally friendly equipment.
The supplier of choice
Service
Bodycote has become the supplier of
choice10 for many of the world’s most
respected and innovative engineering
companies by providing highly efficient,
cost-effective services to the highest
quality standards through strategic
investment in people and the latest
technology, equipment and quality
systems.
Creating value
For customers
Value-adding services.
Global supplier which can meet multiple
Quality
Bodycote’s quality management systems,
validated by major engineering OEMs,
have been developed to meet the
requirements of international and national
accrediting bodies. All Bodycote facilities
hold industry and customer approvals
appropriate to the services they offer and
the markets they serve.
➔
Expertise
Bodycote’s extensive facilities and
expertise mean that projects can extend
beyond customers’ in-house capabilities,
combining identification and provision
of technical solutions which address
in-service specification and deliver value-
adding material properties.
Our own enhancements and
improvement of standard processes
has led to Bodycote offering a range
of proprietary processes which far
outperform their standard counterparts.
For Bodycote
Mutually beneficial customer
relationships.
For investors
Financially stable and sustainable
business.
processing needs.
Wide customer base means Bodycote is
Good growth drivers.
Access to entire Bodycote knowledge
base and expertise.
Cost and environmental benefits versus
in-house operations.
not reliant on any one customer.
Ideally positioned to promote growth
in emerging markets and selected
technologies.
Clearly focused strategy.
Superior return on investment.
Strong margins and cash flow.
08
Superscript numbers indicate references to other pages in the
report where further information can be found.
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Measuring progress
Return on capital employed
(%)
Performance
Return on capital employed increased by 0.8 percentage points during the year, from 19.9%
to 20.7%.
£
19.9%
20.7%
17.9%
16.3%
Headline operating profit increased by 3.4% from £107.4m to £111.1m, while average capital
employed reduced by 0.3% to £538.0m.
10.2%
2010
2011
2012
2013
2014
Definition
Headline operating profit as a percentage of the average of opening and closing capital
employed as adjusted for certain items of goodwill written off.
Capital employed is defined as net assets adjusted for net cash/(debt).
Headline earnings per share
(pence)
43.8p
41.2p
37.5p
32.6p
Performance
Headline earnings per share increased by 2.6 pence during the year, from 41.2 pence to 43.8
pence.
Headline earnings increased by 6.9% from £78.0m to £83.4m, while the average number of
shares in issue remained static.
18.1p
2010
2011
2012
2013
2014
Return on sales
(%)
16.6% 17.3%
18.2%
14.9%
10.3%
2010
2011
2012
2013
2014
Headline operating cash flow
(£m)
110.8m 108.9m 100.0m
96.0m
77.3m
2010
2011
2012
2013
2014
Accident frequency
(number)
1.8
1.7
1.5
1.9
1.7
2010
2011
2012
2013
2014
Carbon footprint
(tonne CO2e/£m sales)
653.4
614.2
617.4
632.1
610.2
2010
2011
2012
2013
2014
Definition
Headline earnings per share is defined in note 9 to the Group financial statements.
Performance
Return on sales increased by 0.9 percentage points during the year, from 17.3% to 18.2%.
Headline operating profit increased by 3.4% from £107.4m to £111.1m, while revenue decreased
by 1.7% from £619.6m to £609.1m.
Definition
Headline operating profit as a percentage of revenue.
Performance
Headline operating cash flow for the Group was £100.0m (2013: £108.9m). This was 90.0% of
headline operating profit (2013: 101.4%).
Definition
Operating cash flow stated before cash flow relating to restructuring of £3.0m (2013: £4.3m)
and acquisition costs of £0.2m (2013: £nil).
Performance
Bodycote works tirelessly to reduce workplace accidents and is committed to providing a
safe environment for everyone who works at or visits our locations. The accident frequency
rate has decreased to 1.7 in the year (2013: 1.9). Further details are included in the Corporate
responsibility and sustainability section on page 32.
Definition
Accident frequency is defined as the number of lost time accidents × 200,000 hours
(approximately 100 man years), divided by the total number of employee hours worked.
Performance
On a normalised basis, the carbon footprint decreased by 3.5% from 632.1 tonnes per £m sales
to 610.2 tonnes per £m sales. Further details are included in the Corporate responsibility and
sustainability section on page 34.
Definition
Carbon footprint is defined as tonnes of CO2 equivalent emissions divided by £m revenue.
CO2 equivalent emissions are calculated by taking electricity and gas usage in kilowatt hours
and multiplying by country specific conversion factors provided by DEFRA (Department for
Environment, Food & Rural Affairs). Normalised emissions statistics restate prior year figures
using current year country specific conversion factors and current year average exchange rates.
23846.02 9 March 2015 12:35 PM Proof 2
09
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Core technologies
Thermal processing
The supplier of choice
Bodycote has become the supplier of choice for the world’s
most respected and innovative engineering companies by
providing highly efficient, cost-effective services to the highest
quality standards through strategic investment in people and
the latest technology, equipment and quality systems.
By outsourcing non-core but vitally important thermal processing
requirements to Bodycote, customers are able to concentrate
their business resources where they are needed most. Bodycote’s
services offer tangible benefits to customers such as reduced
equipment maintenance, capital expenditure, energy costs, people
costs and a major reduction in CO2 emissions.
Bodycote has a long history of successful outsourcing
relationships, working with a range of customers from global to
local manufacturers. In many cases, these relationships lead to
component and service-specific arrangements, which provide
protection for the customer from supply disruption by leveraging
Bodycote’s unique facility network, and optimising asset utilisation.
Such arrangements are normally exclusive in character and
provide the basis for mutual business development, with both
companies freed to concentrate capital and other resources on core
competencies.
Making innovations possible
Bodycote’s extensive facilities and expertise mean the identification
and provision of technical solutions can expand far beyond
customers’ in-house capabilities, helping to realise goals more
quickly and more cost-effectively.
Bodycote’s experienced staff are able to innovatively apply existing
or enhanced technologies to optimise customers’ specifications,
tailoring and combining processes to deliver value-adding services.
This may include the enhancement of specific processes and
equipment for a customer or verification of materials or designs,
prior to their application.
Bodycote provides thermal processing services which improve
material properties such as strength, durability and corrosion
resistance, enabling manufacturers’ components to work more
efficiently with significantly extended operational lifetimes.
Bodycote’s services consist of a number of core technologies:
heat treatment and metal joining, hot isostatic pressing (HIP)
and surface technology.
Heat treatment and metal joining
Heat treatments are controlled processes used to alter the
microstructure of materials, such as metals and alloys, to impart
properties which benefit the working life of a component, for
example, increased surface hardness, temperature resistance,
ductility and strength. Metal joining includes specialised processes
such as electron beam welding, vacuum and honeycomb brazing –
complex operations requiring a fusion of expertise and technology.
Bodycote offers an extensive range of heat treatment services and
metal joining techniques – including three of the Group’s Specialist
Technologies: Specialty Stainless Steel Processes (S3P), Corr-I-Dur®
and Low Pressure Carburising – from facilities around the world.
With unmatched capacity and computerised systems, Bodycote
facilities can process a wide range of component sizes to exacting
standards with reliable, repeatable results.
Hot isostatic pressing (HIP)
HIP Services and HIP Product Fabrication (HIP PF) – two
of Bodycote’s Specialist Technologies – combine very high
temperature (up to 2,000 °C) with inert gas under very high
pressure (up to 30,000 psi – equivalent to that found at an ocean
depth of 11,000m such as at the bottom of the Mariana Trench
in the Pacific Ocean). HIP can be used to eliminate porosity
in castings and, by using HIP PF, enables the consolidation of
encapsulated powders into dense materials and the bonding
of dissimilar materials to manufacture unique cost-effective
components. Every week a typical Bodycote HIP plant will process
many tons of titanium, aluminium, steel and super-alloy castings,
removing porosity and improving the performance of parts such as
turbine blades and oilfield components.
With the largest operational capacity in the world and a wide
variety of equipment sizes, Bodycote HIP is able to accommodate
large volumes of small product as economically as large individual
components.
Surface technology
The Group’s Specialist Surface Technologies are used extensively
to prolong the working life of components and protect them from
environmental factors such as corrosion and abrasion. The range
of surface technologies available from Bodycote covers a wide
variety of applications, providing manufacturers with solutions to
meet requirements such as durability, wear resistance, improved
hardness and electrical conductivity.
Bodycote is a provider of specialised plasma spray, high velocity
oxy fuel (HVOF) and thermochemically formed coatings treatments
and is able to surface engineer components (including complex
geometric shapes and internal bores) that are designed to operate
in the most demanding of industrial applications.
10
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 In gear - a component journey
IN GEAR – A COMPONENT JOURNEY
PINION GEAR
A pinion gear is a critical automotive component used
in virtually all transmission units. During use, a vehicle
places heavy demand on its transmission, requiring a
fast and reliable response to the drive controls.
The gears require high strength and wear resistance
in order to withstand the stresses applied to each gear
during use. Bodycote’s heat treatment processes,
in particular Low Pressure Carburising (LPC), enable
modern transmissions to deliver high performance
and seamless response, even reducing noise during
gear changes.
The gears begin life
as low alloy steel.
The gears are machined
to shape using a shaving
or hobbing method.
The gears are quenched using
Nitrogen gas to minimise part
distortion, then tempered to
relieve internal stresses.
The parts are inspected and
tested for surface hardness,
core hardness and effective
case depth.
The gears are dimensionally
measured before heat
treatment to monitor and
maintain repeatability of
distortion. The gears are
then heat treated using LPC
to enhance functionality by
adding a ‘case depth’
to provide strength and
resistance to wear and tear.
The gears are shot peened to add
residual stress – this allows the parts
to withstand more wear and tear.
The gears are measured again after
heat treatment to check any distortion
is within limits.
The gears are assembled
into the transmission unit.
BODYCOTE COMPONENT JOURNEYS
This is just one example of how Bodycote brings together the
huge wealth of knowledge and expertise from across the Group
to provide the vital engineering services our customers need...
For more component journeys visit www.bodycote.com
Denotes the parts of the component journey undertaken by Bodycote
ID183789_pinion_gear.indd 1
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End application – automobile.
11
02/03/2015 11:03
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Global network
Bodycote is experienced in all major market sectors and is able to
combine the capability and expertise of a network of 188 worldwide
locations to deliver global, or local, services for customers.
Overview
As the only truly global provider of subcontract thermal processing
services, Bodycote is able to offer significant advantages to its
customers. Through an international network of plants, Bodycote
can effectively utilise a wealth of knowledge, experience and
specialist expertise to deliver quality service when and where it is
needed.
The network operates from 188 worldwide locations, with
customers able to benefit from Bodycote’s comprehensive range
of services from multiple locations. Customers know that if their
business expands, Bodycote will have the capability to meet
their needs. They recognise that if they were to broaden their
manufacturing footprint, Bodycote would be able to assist them.
They are aware that they can obtain the same process to the same
quality standards from multiple locations.
Such a large network brings economies of scale, with technology
developed at one location being available globally if the market
requires it.
The Bodycote network has a wealth of technical accreditations,
some industry or customer specific, others more general. Individual
operations concentrate on the accreditations suited to their market.
Although Bodycote is headquartered in the UK, 90% of the Group’s
revenue is derived outside the UK. With facilities in 26 countries,
Bodycote is truly global.
North America
Bodycote is the largest provider of thermal processing services
in North America by a significant margin, with a comprehensive
network coverage. This network offers locations convenient to
customers in all areas where manufacturing and technical industries
are concentrated.
Our facilities offer the widest and deepest range of processes for
aerospace and energy applications and all the leading technologies
for automotive applications.
Group revenue by market sector
£m
Revenue by market sector — North America
£m
Aerospace and Defence
133.0
Aerospace and Defence
Energy
Automotive
General Industrial
Total
84.4
151.0
240.7
609.1
Energy
Automotive
General Industrial
Total
74.5
34.5
47.5
58.9
215.4
12
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Although Bodycote is headquartered in the UK, 90% of the Group’s revenue
is derived outside the UK. With facilities in 26 countries, Bodycote is truly
global.
Western Europe
Emerging markets
Bodycote is the number one provider of thermal processing
services in Western Europe, with by far the largest network and a
comprehensive service offering.
The range of process offerings varies somewhat by country and
region, reflecting which types of industry are prominent in those
locations, thus enabling the Group to best meet the needs of
customers.
Bodycote has 30 facilities in emerging geographies covering
Eastern Europe, China, Brazil, Mexico, India, Singapore and Dubai.
Bodycote is the number one thermal processing provider in Eastern
Europe and is the leading western provider in China. These markets
have a special emphasis in the Group’s growth strategy for the
future.
Revenue by market sector — Western Europe
£m
Revenue by market sector — Emerging markets
£m
Aerospace and Defence
Energy
Automotive
General Industrial
Total
57.1
47.6
80.5
164.5
349.7
Aerospace and Defence
Energy
Automotive
General Industrial
Total
1.4
2.3
23.0
17.3
44.0
23846.02 9 March 2015 12:35 PM Proof 2
13
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Markets
Aerospace, Defence & Energy markets
Automotive & General Industrial markets
Civil aerospace revenues increased in 2014 by 4% at constant
exchange rates (1% decline at actual exchange rates), reflecting a
combination of new contract gains and market demand, despite
significant OEM destocking in the UK. Original equipment sales
improved during the year in both the USA and France. Available
seat kilometres grew by 6% indicating a continued increase in
aircraft flying hours, which in turn resulted in increased demand for
aftermarket parts.
Sales into the defence sector, which accounted for just under 5%
of Group revenues, were weak as the effect of the widespread
reduction in military budgets continued. Revenues were 6% lower
than in 2013 at constant exchange rates (11% decline at actual
exchange rates).
Demand for the Group’s services in the power generation sector
softened as the year progressed, with revenues below 2013 by 4%
at constant exchange rates (7% at actual exchange rates).
The performance in oil & gas was strong, helped by significantly
increased requirements for the Group’s HIP Product Fabrication
offering for major subsea projects, along with an end to destocking
by onshore oil field service providers. Overall Group revenues were
up 13% (at constant exchange rates) compared to 2013 and by 7%
at actual exchange rates. Sales into the oil & gas sectors accounted
for 10% of Group revenue.
Revenues in car and light truck markets increased year-on-year by
5% at constant exchange rates (1% decline at actual exchange
rates). Particularly pleasing was an increase in revenues above
4% in Western Europe, at constant exchange rates (1% decline at
actual exchange rates), notwithstanding continued weak consumer
demand.
Revenues from the heavy truck sector in North America grew
strongly in 2014 and were ahead of the prior year by 6% at constant
exchange rates (flat at actual exchange rates). In contrast, demand
in Western Europe was very weak and revenues declined by 8% at
constant exchange rates (15% decline at actual exchange rates).
Bodycote provides thermal processing services for a wide range of
machinery and heavy equipment customers. Most sectors served
by Bodycote grew well in 2014. This was particularly noteworthy
in Western Europe against a background of generally soft macro-
economic conditions. Of the more important sectors for the Group,
demand was robust in tooling, construction equipment and general
machinery, whilst consumer goods was soft. Overall revenues grew
4% at constant exchange rates (2% decline at actual exchange rates).
14
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Business performance
Revenue
Operating profit
Acquisition costs
Reorganisation costs
Operating profit prior to exceptional items
Amortisation of acquired intangible fixed assets
Headline operating profit
2014
£m
609.1
107.0
0.2
–
107.2
3.9
111.1
2013
£m
619.6
102.1
–
0.8
102.9
4.5
107.4
Group revenue was £609.1m, a decrease of 1.7%, with revenues at constant exchange rates up 4.0% and foreign exchange rate
movements having a negative impact of 5.7%.
Headline operating profit for the year increased by 3.4% from £107.4m to £111.1m, and headline operating margin was 18.2% (2013: 17.3%).
Headline operating profit at constant exchange rates increased by £9.9m, but adverse foreign exchange rate movements reduced the
reported increase by £6.2m to £3.7m.
Cash flow is analysed as follows:
Headline operating profit
Add back non-cash items:
Depreciation and amortisation
Impairment of fixed assets
Share-based payments
Profit on disposal of property, plant and equipment
Headline EBITDA1
Net capital expenditure
Net working capital movement
Headline operating cash flow
Cash cost of restructuring
Acquisition costs
Operating cash flow
Interest
Taxation
Free cash flow
2014
£m
111.1
51.2
2.7
1.9
(1.4)
2013
£m
107.4
52.9
5.1
3.6
(0.1)
165.5
(53.8)
(11.7)
168.9
(57.3)
(2.7)
100.0
(3.0)
(0.2)
96.8
(2.7)
(19.0)
75.1
108.9
(4.3)
–
104.6
(3.3)
(22.5)
78.8
Profit growth, disciplined capital spending and working capital control have resulted in an operating cash inflow of £96.8m (2013: £104.6m).
Group net cash at 31 December 2014 was £35.7m (2013: £15.0m).
Capital expenditure continued to be managed carefully. Capital spend (net of asset sales) in 2014 was £53.8m (2013: £57.3m), being 1.0
times depreciation2 (2013: 1.0 times). There has been a continued focus on cash collection and receivable days at 31 December 2014
were 60 days (31 December 2013: 59 days). The net working capital outflow in the year is primarily a result of increases in inventories and
receivables, in line with trading activity, in addition to a decrease in payables, resulting from the timing of capital expenditure payments and
the utilisation of environmental provisions.
1 Earnings before interest, tax, depreciation, amortisation, share-based payments, impairment of fixed assets, profit or loss on disposal of property, plant and
equipment and exceptional items.
2 Net capital expenditure to depreciation ratio is defined as capital expenditure less proceeds from asset disposals as a proportion of depreciation and
amortisation plus impairment of fixed assets.
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Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Business review
Aerospace, Defence & Energy
Industrial gas turbines
Power generation requires reliable moving parts that can operate for long periods
under high loads and extreme temperatures. For example, the compressor
comprises various stages of stationary and rotating blades, each progressively
increasing air pressure prior to mixing with fuel and igniting. Around the clock,
turbine blades and vanes must be resistant to oxidation, corrosion and wear,
and provide longevity in service. A combination of heat treatment, Hot Isostatic
Pressing (HIP) and coatings allows industrial gas turbine blades and vanes to
operate reliably at these high temperatures for extended periods of time.
For further information about our services go to
www.bodycote.com/services
16
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Average capital employed in ADE in 2014 was £236.3m (2013:
£235.4m). The Group continues to invest in high-return projects in
the ADE business. Return on capital employed in 2014 was 26.6%
(2013: 26.1%).
Achievements in 2014
The ADE divisions made further progress during the year in gaining
new agreements with a range of customers and for a variety of
end uses. The HIP division made excellent progress with its HIP
PF offering and revenues advanced strongly at constant exchange
rates. It should be noted, however, that unusually for Bodycote, HIP
PF tends to be used in large capital projects by our customers and
consequently revenue patterns can be expected to be uneven.
Organisation and people
Total full-time equivalent headcount at 31 December 2014 was
1,898 (2013: 1,938), a decrease of 2.1% compared to revenue
growth in ADE of 0.5%.
Looking ahead
Order books for commercial aerospace OEMs remain strong, but
notable destocking at certain OEMs and their supply chains is
expected to continue during 2015. If the oil price remains at current
levels we expect demand from this sector to weaken as the year
progresses. Defence markets are expected to remain soft. Despite
this, Bodycote expects to be able to continue to capitalise on its
world leading position in ADE and again outperform the market.
Within the Aerospace, Defence & Energy (ADE) business, our
customers think and operate globally and increasingly expect
Bodycote to service them in the same way. Consequently, the
ADE business is organised globally. This gives Bodycote a notable
advantage as the only thermal processing company with a global
footprint and knowledge of operating in all of the world’s key
manufacturing areas. A number of Bodycote’s most important
customers fall within the compass of ADE and Bodycote intends
to continue to leverage its unique market position to increase
revenues in these market sectors. The business incorporates the
Group’s activities in hot isostatic pressing and surface technology
as well as the relevant heat treatment services, encompassing 63
facilities in total.
Results
Revenues for the ADE business were £263.0m in 2014 compared to
£261.8m in 2013, an increase of 0.5% (5.4% at constant exchange
rates). Overall, revenues from the commercial aerospace sector
remained solid but there have been significantly varying levels of
demand in different OEM supply chains. Some have focused on
significant destocking, while others have had robust growth on the
back of new engine series and airframes. Defence demand has been
subdued, resulting in further modest declines in revenue. In energy
there has been a mixed picture. Requirements for industrial gas turbine
have softened as the year progressed, especially in North America.
Onshore oil & gas revenues grew strongly as the destocking seen in
2013, following the substantial decline in US gas prices, ended. The
Group recorded strong growth in subsea revenues driven by increased
uptake of the Group’s HIP PF technology.
Headline operating profit1 for ADE was £70.6m (2013: £70.7m) and
headline operating profit margin reduced slightly from 27.0% to 26.8%.
In 2014, the Group added capacity in a number of facilities,
including a new large furnace for aerospace aluminium heat
treatments in California, USA, upgraded vacuum heat treatment
capability in France and additional high pressure HIP capacity in
Massachusetts, USA. In the coming year it is expected that capital
expenditure will be slightly above depreciation as further capacity
and capability are added to support continuing growth in the
Group’s high value activities.
Net capital expenditure in 2014 was £18.4m (2013: £20.4m) which
represents 0.9 times depreciation (2013: 1.1 times).
1 Headline operating profit is reconciled to operating profit in note 2 to the financial statements. Bodycote plants do not exclusively supply services to
customers of a given market sector (see note 2 to the financial statements).
ADE revenue by geography
£m
ADE revenue by market sector
£m
Western Europe
North America
Emerging markets
Total
129.7
130.8
2.5
263.0
Aerospace & Defence
123.2
Energy
Automotive & General
Industrial
Total
73.0
66.8
263.0
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Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Business review
Automotive & General Industrial
Medical tools
Stainless steel is used widely in medical applications. It is valued as an inert
material, able to withstand cleaning and sterilisation, while maintaining corrosion
resistance. Demanding applications such as cutting instruments, trauma,
electromechanical devices and motors require the benefits of stainless steel.
These parts must resist galling, wear, and maintain a sharp edge. Bodycote’s S3P
processes for stainless steel provide hardened surfaces that do not crack or chip,
and give superior wear resistance and strength without compromising the base
material’s corrosion resistance.
For further information about our services go to
www.bodycote.com/services
18
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Whilst the Automotive & General Industrial (AGI) marketplace
has many multinational customers which tend to operate on a
regionally-focused basis, it also has very many medium-sized
and smaller businesses. Generally, there are more competitors
to Bodycote in AGI and much of the business is locally oriented,
meaning that proximity to the customer is very important.
Bodycote’s uniquely large network of 125 AGI facilities enables
the business to offer the widest range of technical capability
and security of supply, continuing to increase the proportion of
technically differentiated services that it offers. Bodycote has a long
and successful history of serving this wide-ranging customer base.
Results
AGI business revenues were £346.1m in 2014, compared to
£357.8m in 2013, a decrease of 3.3% (3.1% increase at constant
exchange rates).
In 2014 sales into car & light truck have been good in all
geographies, with revenues increasing by 6.0% at constant
exchange rates. Revenues to heavy truck increased by 4.2% (at
constant exchange rates) in North America as demand recovered
well but weak economic conditions in Europe saw revenues to
the sector decline by 7.6% (at constant exchange rates). General
industrial markets have shown good growth in most sectors in both
North America and Western Europe, with overall revenue growth of
3.4% (at constant exchange rates). Robust sales growth was seen
in agricultural equipment, construction machinery and tooling, the
latter typically being a leading indicator of industrial production.
In the emerging markets, AGI revenues increased by 2.8% (at
constant exchange rates). Notable was strong heavy truck growth in
China as a result of specific contracts won by the Group.
Headline operating profit1 in AGI was £54.1m compared to £52.7m
in 2013. Headline operating margin increased to 15.6% (2013:
14.7%) reflecting improved mix and strong cost control, particularly
in areas of demand weakness. Revenues from the Group’s
Specialist Technologies, and especially its S3P technology, grew
strongly at high margins.
Net capital expenditure in 2014 was £31.1m (2013: £34.2m), which
represents 0.9 times depreciation (2013: 1.0 times).
In 2015 we expect that capital expenditure will be just above
depreciation as we accelerate capacity expansion in the rapid
growth countries and for our Specialist Technologies. Return
on capital employed in 2014 was 16.0% (2013: 15.1%). The
increase reflects continuing focus on improving capital returns by
increasingly targeting higher added-value activities. On average,
capital employed in 2014 was £301.8m (2013: £304.2m).
Achievements in 2014
The Group continued to win business across all geographies. In
both North America and Europe our ability to support automotive
manufacturers as they move to newer technologies in pursuit of
better fuel efficiency continues to provide Bodycote with market
share growth. New outsourcing contracts and contributions from
our AGI focused Specialist Technologies of S3P, Low Pressure
Carburising and Corr-I-Dur® resulted in growth at constant exchange
rates in all regions. Overall, revenues grew by 3.1% at constant
exchange rates.
AGI continued to see the benefits of mix improvement and market
focus. Together with an emphasis on improved efficiency these
factors have been crucial in the achievement of ongoing margin
enhancements in this business.
Organisation and people
At 31 December 2014, the number of full-time equivalent
employees in AGI was 3,567 compared to 3,585 at the end of 2013
and 1,677 less than its peak in July 2008. AGI revenues of £346.1m
compare to £339.6m in 2008 (at 2014 exchange rates), an increase
of 1.9%.
Looking ahead
The AGI businesses will continue to build on the success of
enhancing margins through capturing high value work. The focus
on improving customer service helps drive this effort while the
prioritisation of existing capacity in favour of higher value work and
investing in Specialist Technologies provides additional momentum.
In addition the Group will continue with its strategy of adding to its
existing footprint in the rapid growth countries.
1 Headline operating profit is reconciled to operating profit in note 2 to the financial statements. Bodycote plants do not exclusively supply services to
customers of a given market sector (see note 2 to the financial statements).
AGI revenue by geography
£m
AGI revenue by market sector
£m
Western Europe
North America
Emerging markets
Total
220.0
84.6
41.5
346.1
General Industrial
Automotive
Aerospace, Defence &
Energy
Total
182.1
142.8
21.2
346.1
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Finance Director’s report
Exceptional costs
Total exceptional costs charged to the income statement amounted to
£0.2m (2013: £0.8m). Acquisition costs of £0.2m (2013: £nil) have been
incurred and no reorganisation costs were expensed in the year (2013:
£0.8m).
Restructuring provisions outstanding at 31 December 2014 totalled
£9.4m (2013: £8.6m). Of the remaining costs, £5.2m is expected to
be spent in 2015 and £4.2m in 2016 and later. All expenditure after the
end of 2015 relates to ongoing environmental remediation, primarily in
the USA.
Profit before taxation
Headline profit before taxation was £107.8m (2013: £103.7m). Profit
before taxation was £103.7m (2013: £98.4m). These amounts are
reconciled as follows:
Headline operating profit
Net finance charge
Headline profit before taxation
Amortisation of acquired intangible
fixed assets
Profit before taxation prior to
exceptional items
Acquisition costs
Reorganisation costs
Profit before taxation
2014
£m
111.1
(3.3)
107.8
2013
£m
107.4
(3.7)
103.7
(3.9)
(4.5)
103.9
(0.2)
–
103.7
99.2
–
(0.8)
98.4
1 Headline operating cash flow is reconciled on page 15.
2 Free cash flow is reconciled on page 15.
3 Headline EBITDA is reconciled on page 15.
Financial overview
Revenue
Headline operating profit
Amortisation of acquired intangible
fixed assets
Operating profit prior to exceptional
items
Acquisition costs
Reorganisation costs
Operating profit
Net finance charge
Profit before taxation
Taxation
Profit for the year
2014
£m
609.1
111.1
2013
£m
619.6
107.4
(3.9)
(4.5)
107.2
(0.2)
–
107.0
(3.3)
103.7
(24.4)
79.3
102.9
–
(0.8)
102.1
(3.7)
98.4
(25.3)
73.1
Group revenue was £609.1m, a decrease of 1.7%, with revenues
at constant exchange rates up 4.0% and foreign exchange rate
movements having a negative impact of 5.7%.
Headline operating profit for the year increased by 3.4% from £107.4m
to £111.1m and headline operating margin was 18.2% (2013: 17.3%).
Headline operating profit at constant exchange rates increased by
£9.9m, but adverse foreign exchange rate movements reduced the
reported increase by £6.2m to £3.7m.
The amortisation of acquired intangible assets arises from acquisitions
in the current and prior years. The charge has decreased to £3.9m (2013:
£4.5m).
Operating profit was £107.0m (2013: £102.1m) after charging £3.9m
(2013: £4.5m) in respect of the amortisation of acquired intangible assets
and £0.2m (2013: £nil) of acquisition costs. During 2013 reorganisation
costs of £0.8m were also charged to the income statement.
Headline operating cash flow1 for the Group was £100.0m (2013:
£108.9m). This was 90.0% of headline operating profit (2013: 101.4%).
Net capital expenditure was 1.0 times depreciation (2013: 1.0 times) as
the Group continued to focus on increasing the utilisation of existing
equipment. There was a working capital outflow in the year mainly due
to a decrease in the level of payables, resulting from the timing of capital
expenditure payments and the utilisation of environmental provisions,
and an increase in the levels of inventories and receivables, in line with
trading activity.
After deducting interest and tax, the Group recorded positive free cash
flow2 of £75.1m (2013: £78.8m).
20
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Finance charge
The net finance charge was £3.3m compared to £3.7m in 2013. The
decrease primarily results from lower average net debt in 2014 than in
2013, offset by higher financing costs due to facility arrangement fees
related to the extension of the Revolving Credit Facility completed in
July 2014.
Net interest payable
Financing costs
Bank and other charges
Pension finance charge
Net finance charge
2014
£m
0.2
1.6
0.9
0.6
3.3
2013
£m
0.6
1.5
1.0
0.6
3.7
Taxation
The taxation charge was £24.4m for the year (2013: £25.3m).
The effective taxation rate of 23.5% (2013: 25.7%) resulted from the
blending of differing tax rates in each of the countries in which the Group
operates. The reduction in the taxation rate is primarily due to a one-off
benefit in the year following the settlement of historical overseas tax
matters.
The headline taxation rate for 2014 was 22.7% (2013: 24.7%), being
stated before accounting for exceptional items and amortisation of
goodwill and acquired intangibles, which are generally not allowable for
tax purposes.
Earnings per share
Basic headline earnings per share (as defined in note 9) increased to
43.8p from 41.2p. Basic earnings per share for the year increased to
41.7p from 38.5p.
Dividend
The Board has recommended a final ordinary dividend of 9.8p (2013:
9.1p) bringing the total ordinary dividend to 14.4p per share (2013:
13.5p). The Board has also recommended a supplemental distribution,
by way of a special dividend, amounting to 20.0p per share (2013: 10.0p).
If approved by shareholders, the final ordinary dividend of 9.8p per share
for 2014 and the supplemental distribution of 20.0p per share for 2014
will be paid on 1 May 2015 to all shareholders on the register at the
close of business on 27 March 2015.
Capital structure
The Group’s balance sheet at 31 December 2014 is summarised
below:
Property, plant and
equipment
Goodwill and intangible
assets
Current assets and
liabilities
Other non-current assets
and liabilities
Retirement benefit
obligations
Deferred tax
Total before net cash
Net cash
Net assets as at
31 December 2014
Net assets as at
31 December 2013
Assets
£m
Liabilities
£m
Net Assets
£m
434.6
172.1
–
–
434.6
172.1
151.1
(159.6)
(8.5)
1.6
–
27.2
786.6
38.5
(14.1)
(12.5)
(17.0)
(60.7)
(251.4)
(2.8)
(17.0)
(33.5)
535.2
35.7
825.1
(254.2)
570.9
808.6
(261.2)
547.4
Net assets increased by £23.5m (4.3%) to £570.9m (2013: £547.4m). At
constant exchange rates, net assets increased by £42.6m (7.8%). The
major movements compared to 31 December 2013 were an increase in
net cash of £20.7m and a decrease in payables of £12.8m, together with
a decrease in property, plant and equipment of £10.0m.
The decrease in property, plant and equipment was due predominantly
to additions of £55.3m offset by depreciation of £50.3m, asset
impairments of £2.7m and foreign exchange movements of £10.7m.
Trade and other payables decreased by £12.8m due to the impact of
foreign exchange and the timing of capital expenditure payments.
Retirement benefit obligations decreased by £1.5m during the year,
largely as a result of the increase in the value of scheme assets
exceeding the increase in liabilities, the latter being principally due to
reduced bond yields.
Net cash
Group net cash at 31 December 2014 was £35.7m (2013: £15.0m). The
Group continues to have access to committed facilities at competitive
rates and therefore currently deems this to be the most effective means
of funding.
23846.02 9 March 2015 12:35 PM Proof 2
21
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Finance Director’s report continued
Cash flow
The net increase in cash and cash equivalents was £21.3m (2013:
£13.7m), made up of net cash from operating activities of £131.6m
(2013: £139.4m), less investing activities of £54.8m (2013: £58.2m)
and less cash used in financing activities of £55.5m (2013: £67.5m).
The decrease in net cash flow from operating activities from
£139.4m to £131.6m was driven primarily by the decrease in
headline EBITDA3 from £168.9m to £165.5m and the £9.6m
decrease in payables.
Net cash outflows from investing activities decreased from £58.2m
to £54.8m, primarily as a result of greater proceeds on disposal of
property, plant and equipment in 2014 compared to the prior year.
The level of net capital expenditure in 2014 was £53.8m (2013:
£57.3m), consistent with plans to maintain and improve the capacity
and capability of the Group, whilst keeping expenditure levels close
to depreciation.
Net cash outflows used in financing activities decreased
from £67.5m to £55.5m, due primarily to the reduction in loan
repayments, from £36.6m in 2013 to £0.5m in 2014, offset by the
increase in dividend payments, from £24.0m in 2013 to £45.2m in
2014.
There has been a continued focus on cash collection, although
receivable days at 31 December 2014 increased by one to 60 days
(2013: 59 days).
Net interest payments for the year were £2.7m (2013: £3.3m). Tax
payments were £19.0m (2013: £22.5m).
Capital expenditure
Net capital expenditure (capital expenditure less proceeds from
asset disposals) for the year was £53.8m (2013: £57.3m). The
multiple of net capital expenditure to depreciation was 1.0 times
(2013: 1.0 times), which reflects the Group’s continued careful
management of its capital expenditure programme. Major capital
projects that were in progress during 2014 included expansion
of our production facilities in Mexico, completion of the Kunshan
facility in China, and expansion of our S3P capacity. The Group also
continued to invest in the implementation of a new ERP system.
As a consequence of the timing of these key projects, the value of
assets under construction has increased by £9.9m, from £32.1m in
2013 to £42.0m in 2014.
Borrowing facilities
The Group is financed by a mix of cash flows from operations,
short-term borrowings, longer term loans and finance leases. The
Group’s funding policy aims to ensure continuity of finance at
reasonable cost, based on committed and uncommitted facilities
and loans from several sources over a spread of maturities.
The Group continues to have access to committed facilities at
competitive rates and therefore currently deems this to be the
most effective means of longer term funding.
On 2 July 2014, the £125m and €125m revolving credit facilities
were replaced by a single committed revolving credit facility for
£230m, maturing on 3 July 2019. The amendment and maturity
profile extension gave rise to a reduction in both the drawn margin
and undrawn commitment fees.
The total undrawn committed facility funding available to the Group
at 31 December 2014 was £230.0m (2013: £229.0m). The Group
also has access to a US$10m committed letter of credit facility
maturing in August 2016.
At 31 December 2014, the Group had the following committed
facilities:
Facility
Expiry
Date
£230m
Revolving Credit
$10m
Letter of Credit
3 July
2019
31 August
2016
Loan and
Letter of
Credit
Utilisation
£m
Facility
Headroom
£m
–
1.7
1.7
230.0
4.7
234.7
Facility
£m
230.0
6.4
236.4
Capital management
The Group manages its capital to ensure that entities in the Group
will be able to continue as going concerns, while maximising the
return to shareholders. The capital structure of the Group consists
of debt, which includes borrowings, cash and cash equivalents,
and equity attributable to equity holders of the parent, comprising
capital, reserves and retained earnings.
The capital structure is reviewed regularly by the Board. The Group’s
policy is to maintain gearing, determined as the proportion of net
debt to total capital, within defined parameters, allowing movement
in the capital structure appropriate to the business cycle and
corporate activity. Due to the net cash position at 31 December
2014 the gearing ratio is 0% (2013: 0%).
Defined benefit pension arrangements
The Group has defined benefit pension obligations in the UK,
Germany, Switzerland, Liechtenstein and the USA and cash lump
sum obligations in France, Italy and Turkey, the liabilities for which
are reflected in the Group balance sheet.
The net deficits in these arrangements are as follows:
Funded
UK
Other Western Europe
North America
Unfunded
Western Europe
Emerging markets
Total deficit
2014
£m
1.0
1.6
0.6
3.2
13.7
0.1
13.8
17.0
2013
£m
4.8
1.2
0.2
6.2
12.1
0.2
12.3
18.5
The UK plan is closed to new entrants but the 82 active members
continue to accrue benefits. The arrangements in France, Italy and
Turkey are open to new members. All other arrangements are
closed to new entrants.
UK Scheme liabilities have increased by £17.6m over the year
(2013: £85.7m, 2014: £103.3m). This is primarily due to a change in
the discount rate which has been reduced to 3.3% (2013: 4.5%),
reflecting lower bond yields. The value of scheme assets has
increased in the year by £21.4m, from £80.9m in 2013 to £102.3m
in 2014, reflecting the significant proportion of bonds in the
portfolio. The accounting deficit has consequently reduced to £1.0m
at 31 December 2014 (2013: £4.8m).
22
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 The liability for all other schemes was £16.0m (2013: £13.7m). The
increase is driven by lower bond yields and hence the discount
rates used to evaluate the present value of the liabilities.
Post balance sheet events
There are no post balance sheet events that require disclosure in
the financial statements.
Going concern
In determining the basis of preparation for the Annual Report, the
directors have considered the Group’s business activities, together
with the factors likely to affect its future development, performance
and position. This includes an overview of the Group’s financial
position, cash flows, liquidity position and borrowing facilities.
The Group meets its working capital requirements through a
combination of cash resources, committed and uncommitted
facilities and overdrafts. The overdrafts and uncommitted facilities
are repayable on demand but the committed facilities are due
for renewal as set out below. There is sufficient headroom in the
committed facility covenants to assume that these facilities can be
operated as contracted for the foreseeable future.
The committed facilities as at 31 December 2014 were as follows:
£230m Revolving Credit Facility maturing 3 July 2019
$10m Letter of Credit Facility maturing 31 August 2016
The December 2014 weighted average life of the committed
facilities was 4.4 years.
The Group’s forecasts and projections, taking account of reasonable
potential changes in trading performance, show that the Group
should be able to operate within the level of its current committed
facilities.
The directors have reviewed forecasts and projections for the
Group’s markets and services, assessing the committed facility and
financial covenant headroom, central liquidity and the Group’s ability
to access further funding. The directors also reviewed downside
sensitivity analysis over the forecast period, thereby taking into
account the uncertainties arising from the current economic
environment. Following this review, the directors have formed a
judgement, at the time of approving the financial statements, that
there is a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. For this reason the directors continue to adopt the going
concern basis in preparing the financial statements.
D.F. Landless
Group Finance Director
26 February 2015
23846.02 9 March 2015 12:35 PM Proof 2
23
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Principal risks and uncertainties
Effective management of risks is essential to the delivery of the Group’s objective of creating superior shareholder returns. The Board
is responsible for the Group’s risk management and the review of financial risk has been delegated to the Audit Committee. Under the
leadership of the Group Head of Risk, Bodycote has developed the risk management framework to identify, report and manage its business
critical risks. The Risk Committee, established in 2012, continued to meet during the year, attended by senior managers from each of the
operating divisions. The role of the Risk Committee is to embed risk management and facilitate the implementation of risk management
measures throughout the Group.
A variety of approaches are used to identify and report risks, which are aggregated first at a sub-divisional level and then at Group level.
For each business critical risk, assurance activities have been documented in risk assurance maps and these are used to direct assurance
activity.
The Group Head of Risk provides an update to the Audit Committee on the Group’s risk activities at every meeting and a comprehensive
review of the Group’s business critical risks is presented in December. In addition, the Board examines a specific risk topic at each Board
meeting.
The table below highlights the major risks that may affect Bodycote’s ability to deliver the strategy, as laid out on page 7. Details of the
Group’s financial risks (funding, foreign exchange, interest rate and counterparty risks), which are managed by the Group’s treasury function
are provided in note 18 to the financial statements. The mitigating activities described below will help to reduce the impact or likelihood of
the major risk occurring, although the Board recognises that it will not be possible to eliminate these risks entirely. Furthermore, there could
be risks that may be unknown or that may be judged to be insignificant at present, but may later prove to be significant. For this reason
business continuity plans have been prepared for all plants to provide for situations where specific risks have the potential to severely
impact the business.
Risk description
Impact
Mitigation and control
Relevance to
strategy
Market and customer risks
Markets
Bodycote operates in 26 countries
and a substantial amount of sales
are closely linked to the economic
cycle and the general macro-
economic environment.
The high proportion of fixed costs in
the business means that a drop in
sales will have a significant impact
on profitability. Sales in the markets
served by the AGI businesses (64%
of the total Group) tend to develop in
line with or ahead of the economic
cycle, whereas aerospace and
defence sales (22%) tend to track
behind the economic cycle. Sales to
the energy sectors (14%) are closely
linked to energy prices, which in turn
can be affected by general economic
activity.
Bodycote’s presence in 26
countries in a wide variety of end-
markets acts as a natural hedge
to neutralise localised economic
volatility.
There is some flexibility in the
cost base e.g. by ensuring that
a proportion of the workforce is
employed on temporary contracts.
Changes in customer demand on
a local or a group-wide level are
responded to quickly.
Loss of key customers
Bodycote benefits from many
long-term relationships with key
customers and the damage to, or
loss of, any of these relationships
would be detrimental to the Group.
The loss of a key customer could
adversely affect the Group’s financial
results and the viability of one or
more of Bodycote’s facilities.
There is no significant customer
dependency, with the Group’s top
ten customers accounting for less
than 14% of sales and the balance
made up by many thousands of
customers.
There is a continued focus
on customer service and
quality processes to maintain
excellent relationships with
major customers. Key account
management is in place
and customer satisfaction is
monitored.
24
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Risk description
Impact
Mitigation and control
Relevance to
strategy
Market and customer risks (continued)
Competitor action
The entry of competitors into one
or more of the Group’s Specialist
Technologies.
The erosion of market share
resulting in loss of revenue and
profit.
Corporate and community risks
Safety and health
The nature of Bodycote’s activities
presents safety and health risks.
Bodycote is committed to providing
a safe work environment for
its employees but Bodycote’s
operations, if not properly managed,
could have a significant impact on
individual employees. Furthermore,
poor safety and health practices
could lead to disruption of business,
financial penalties and loss of
reputation.
Environment
Bodycote’s operations could lead to
damage to the environment.
Operations, if not properly managed,
could result in environmental
contamination with disruption of
business, financial costs and loss of
reputation.
Historical use of solvents and other
hazardous chemicals by plants
operated by Bodycote or by plants
acquired by Bodycote could have
led to ground contamination. The
environmental regulations in many
of the jurisdictions that Bodycote
operates in impose actual or
potential obligations on Bodycote to
remediate contaminated sites.
Bodycote incurs costs annually
(2014: £1.5m) in meeting its
obligations and maintains a provision
of £14.0m. If the provision is
insufficient to meet the cost of
remediation, then this could have
an impact on the Group’s results.
Some of the Group’s heat treatment
plants continue to use solvents
and hazardous chemicals in small
quantities.
The close control of proprietary
knowledge.
Rapid increase in the scale of the
Group’s offerings to maintain the
position as supplier of choice.
Group-wide health and safety
policies set by the Group Chief
Executive.
OHSAS 18001 and ISO 14001
compliant SHE management
systems being used by Group
Head of Safety, Health and
Environment with support of
divisional safety and health teams.
Programme in place to focus on
reduction of incidents which could
have a high impact.
Safety compliance audits at all
plants at least every two years.
Oversight of safety and health
framework provided by the Group
SHE Committee.
Remediation of contaminated
sites as required by local
legislation.
Reduction in the use of hazardous
substances, such as chlorinated
solvents.
Environmental procedures and
measures in place conforming to
ISO 14001 (2014: 87% of plants).
Environmental due diligence of
businesses for acquisitions.
23846.02 9 March 2015 12:35 PM Proof 2
25
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Principal risks and uncertainties continued
Impact
Mitigation and control
Relevance to
strategy
Risk description
Operational risks
Service quality
The Bodycote brand is reliant on
the repeatable delivery of parts to
agreed specification to an agreed
time.
Deterioration in quality or service
levels can cause serious long-term
damage to Bodycote’s reputation
with financial consequences such as
the loss of a customer and the cost
of damages or litigation. Work that
is released into use which is not in
compliance with specification could
arise as a result of system or human
failure.
Major disruption at a facility
Bodycote’s business processes
are inherently risky and there
is a possibility that a major fire
or utility outage could lead to
closure of a facility’s operation.
In addition a number of sites are
exposed to natural hazards, such as
earthquakes, flooding and storms.
Any significant incident at a site
could result in the service to
Bodycote’s customers from the
affected site being disrupted.
Information technology projects
The efficient operation of the
Group will rely increasingly on the
proper development and operation
of its IT systems. Bodycote is
currently undergoing a group-wide
implementation of a new ERP
system.
Failure to manage the
implementation of the ERP
programme successfully could result
in cost overruns and, potentially,
disruption to the business.
Bodycote has stringent quality
systems in place managed by
qualified staff.
Quality systems and processes
operated at plant level with
oversight by divisional quality
teams.
Where necessary plants maintain
industry relevant accreditations,
such as ISO 9001, Nadcap and TS
16949.
All plants subjected to internal
and external quality audits and
inspections at least once a year.
Bodycote has a global network
of 188 facilities that creates a
framework to provide back-up
capability for any affected facility.
Business continuity plans
developed for all plants.
Independent insurer inspections
to assess hazard and business
interruption risks.
Scheduled equipment
maintenance and inspections.
Project approval and progress
subject to regular Board review.
Project teams made up of
skilled subject matter experts
supplemented with third party
advisers.
Best practice project management
processes in place with assurance
provided by third parties.
Defined disaster recovery
planning and data backup
procedures.
26
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Risk description
Regulatory risks
Regulatory and legislative
compliance
The global nature of Bodycote’s
operations means that the Group
has to comply with a wide range
of local and international legislative
requirements, including anti-bribery
and anti-competition legislation,
taxation legislation, employment law
and import and export controls.
Impact
Mitigation and control
Relevance to
strategy
Failure to comply with legislation
could lead to substantial financial
penalties, disruption to business,
diversion of management time,
personal and corporate liability and
loss of reputation.
Business processes are
supported by HR policies and
the Group Code of Conduct
alongside training and awareness
programmes.
The “Open Door Line”
whistleblower facility which is
managed by a third party.
Engagement of local specialists
to support Bodycote at local,
divisional and Group level.
Regular audit of the effectiveness
of implemented procedures.
23846.02 9 March 2015 12:35 PM Proof 2
27
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Corporate responsibility and sustainability
As a Group, Bodycote is
committed to acting responsibly
as a good corporate citizen, to
reducing the environmental impact
of the Group’s activities and to
providing our employees with a
safe working environment.
28
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Bodycote’s stakeholder model shows how its interactions on various
levels contribute towards socioeconomic growth and development. These
exchanges, based on mutually beneficial relationships, provide the basis
for the Group’s growth and sustainability, which in return provides benefits
to employees, investors, suppliers, customers, the public sector and wider
society.
Investors / Funders
Capital is rewarded
through dividends and
share price.
Capital
Funds
Return on
Investment
Productivity
Sales
Employees
5,800 employees’
knowledge, expertise and
skill are a major part of the
Group’s intangible value.
£234.9m was paid out as
remuneration.
Bodycote:
Provides thermal processing
services that improve material
properties such as strength,
durability and corrosion resistance,
which in turn . . .
Improves the lifetime and
performance of products
Supports businesses and
protects lives
Remuneration
Products
Payment
Suppliers
Suppliers profit from the
location of the Group in
local communities and
from the Group’s need for
long-term stable supply
partnerships.
Services
Taxes
Public Sector
Tax payments fund
services available to the
public. In total employer social
taxes, net VAT, corporate
and other transactional
taxes amount to £121.3m
for the year.
Customers
Our services are provided
aerospace, defence,
energy and general
industrial industries.
Services
Society
Bodycote generates wealth
for society and contributes
to socioeconomic
development through its
sustainable business
practices, investments
23846.02 9 March 2015 12:35 PM Proof 2
29
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Corporate responsibility and sustainability continued
Accident frequency1
1.8
1.7
1.5
1.9
1.7
2010
2011
2012
2013
2014
Carbon footprint2
(tonne CO2e/£m sales normalised3)
653.4
614.2
617.4
632.1
610.2
2010
2011
2012
2013
2014
Water consumption
(thousand m3/£m sales normalised3)
1.83
1.79
1.65
1.56
1.36
2010
2011
2012
2013
2014
Chlorinated solvents
(kg/£m sales normalised3)
208.5
168.4
153.7
136.8
108.5
2010
2011
2012
2013
2014
ISO 14001 accredited facilities
(%)
81
81
78
85
87
Our approach
Bodycote’s objective is to create superior shareholder returns
through the provision of selected thermal processing services that
are highly valued by our customers and to achieve this in a safe
working environment, while continually seeking to minimise the
impact on the environment.
Bodycote is dedicated to improving the management of corporate
responsibility issues and is implementing policies and initiatives to
achieve this goal. The future success and growth of the Group is
intrinsically linked to our ability to ensure the Group’s operations are
sustainable and that we can nurture and develop our talent.
Our people
The strength of the Group primarily rests in its people and one
of the key challenges for management is to ensure availability of
appropriately qualified people to support its continued growth.
Bodycote is fortunate to have a competent and committed
international team that is well-respected in technical and business
circles.
Bodycote invests in the training and development of its people both
at local and Group level. At a local level the Group is committed
to providing the appropriate skills and technical training which will
allow its employees to operate effectively and safely in their roles
and deliver excellent customer service. At Group level a number
of initiatives are currently being rolled out to drive excellence in
management.
A tool to develop further understanding and skill in the area of
performance management is in place and is being used globally
through the management population. Through communication of
clear messages coupled with skills development, the organisation
aims to raise the capability of its management population in
driving performance. This initiative is backed by a performance
management information system which supports the process.
Bodycote’s employment policies are non-discriminatory, complying
with all current legislation to engender equal opportunity
irrespective of age, race, gender, ethnic origin, nationality, religion,
health, disability, marital status, sexual preference, political or
philosophical opinions or trade union membership. Harassment is
not tolerated.
Female representation on our Board is currently 14% (2013: 17%)
and at manager level it is 27% (2013: 23%). Female representation
on the Board has decreased due to the appointment of Ian Duncan
in November 2014, and will increase to 17% when John Biles steps
down at the 2015 AGM in April 2015. Females represent 17% (2013:
17%) of our total workforce. We will increase female representation
on the Board if appropriate candidates are available when Board
vacancies arise.
Male Female
Total
Male Female
Total
Directors
Managers
6
55
1
20
7
75
Other staff 4,677
939
5,616
4,738
960
5,698
86%
73%
83%
83%
14% 100%
27% 100%
17% 100%
17% 100%
2010
2011
2012
2013
2014
1 Accident frequency is defined as the number of lost time accidents
×200,000 hours, divided by the total number of employee hours worked.
2 CO2e is carbon dioxide equivalent, which represents the CO2 release due to
our energy usage.
3 Normalised statistics restate prior year figures using current year national
carbon conversion factors and current year average exchange rates.
30
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Core values
It is not just important what we do, but how we do it and how
we behave in our company. How we operate as a Group and the
behaviours that we expect from all our employees are expressed in
our Core Values. Our values represent Bodycote and its people and
our commitment to the company and the business.
Our Core Values are straightforward and are summarised as
follows:
Honesty and Transparency
We are honest and act with integrity. This is not something we take
for granted. Bodycote lives by a culture of honest and transparent
behaviour, which is at the core of all our business relationships.
Respect and Responsibility
We manage our business with respect, applying an ethical approach
to our dealings with those with whom we interact. We believe
in taking ownership for, and being mindful of the impact of, our
actions.
Creating Value
Creating value is the very essence of our business and needs to be
the focus of our endeavours. We create value for our customers,
our employees and our shareholders.
Human rights
Bodycote’s human rights policy is consistent with the Universal
Declaration of Human Rights and the UN Global Compact’s ten
principles.
We prohibit forced, compulsory and underage labour and any
form of discrimination based on age, race, gender, ethnic origin,
nationality, religion, health, disability, marital status, sexual
preference, political or philosophical opinions or trade union
membership. Appropriate mechanisms are in place to minimise the
potential for any contravention of these rules.
By publicly posting our human rights policy on www.bodycote.com,
stakeholders worldwide can alert us to potential breaches of the
policy. Our internal systems also support compliance with our policy
and we have a robust Open Door Line for employees to report
alleged violations of law and/or our policies on a confidential basis
and in their own language. In the jurisdictions in which we employ a
majority of our employees, there are laws applicable to many of the
areas dealt with in our human rights policy.
Customers and suppliers
Bodycote has no significant suppliers who are wholly dependent
upon the Group’s business. Suppliers are paid in line with
contractual and legal obligations.
We endeavour to respond quickly to changing customer demand,
to identify emerging needs and to improve service availability and
quality. We stay close to our current and potential customers,
building long-term relationships.
Community
Bodycote seeks to play a positive role in the local communities
in which it operates by providing employment opportunities,
and building goodwill and a reputation as a good neighbour and
employer.
Responsible business ethics
All Bodycote personnel are expected to apply a high ethical
standard, consistent with an international UK-listed company.
Directors and employees are expected to ensure that their personal
interests do not at any time conflict with those of Bodycote.
Shareholder employees are advised of and comply with share
dealing codes.
Bodycote has systems in place that are designed to ensure
compliance with all applicable laws and regulations, and conformity
with all relevant codes of business practice. Furthermore, Bodycote
does not make political donations.
With regard to competition, Bodycote aims to win business in a
differentiated high-value manner. The Group does not employ unfair
trading methods and it competes vigorously but fairly within the
requirements of the applicable laws. Employees are prohibited from
either giving or receiving any inducements.
Our Open Door Policy has been translated into all languages used
throughout the Group. The policy allows employees to report their
concern verbally or in writing and in confidence to an independent
third party provider, ensuring anonymity. Reports are transcribed
and sent to the Group Head of Risk, who then passes the matter to
the appropriate individual in the business to be addressed.
Online training courses in respect of Bribery and Competition Law
have been designed and translated into the major languages used
throughout the Group. All relevant employees have completed the
interactive courses.
23846.02 9 March 2015 12:35 PM Proof 2
31
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Corporate responsibility and sustainability continued
Operational SHE performance
Bodycote is committed to continual improvement in our safety,
health and environmental performance (SHE). We are committed
to complying with all local legislative requirements and additionally
establishing consistent and robust best practices at all of our sites
to deliver consistently high performance across all aspects of SHE
management.
Safety and health
The nature of the Group’s operations is such that employees are
inevitably exposed to hazards in the workplace. Bodycote aims to
manage these hazards and thereby minimise risks to employees
through the deployment of robust safety control systems and
procedures, and seeks to establish these at all sites.
Bodycote introduced a new online incident reporting and
management tool in 2013, which enabled more consistent and
thorough reporting of workplace injuries, near misses and unsafe
conditions. Following this there was an increase in the lost time
injury rate frequency (LTI rate) in 2013 as sites were better able
to record and report incidents. In 2014, the LTI rate fell to 1.7, re-
establishing the previous trend of annual improvements in LTI rates
in recent years. Although regrettable and not acceptable, accidents
represent learning opportunities and so accurate reporting is an
essential part of building a robust safety management system.
Accident frequency (lost time injury rate)
Accident frequency is defined as the number of lost time accidents
×200,000 hours (approximately 100 man years), divided by the total
number of employee hours worked.
In addition to encouraging the reporting of work related injuries,
Bodycote has sought to encourage the reporting of near misses
and unsafe conditions. This has worked very well since the
introduction of the new global incident reporting system and a
common near miss/unsafe condition reporting system at every
operational site. The much improved reporting of incidents permits
us to address hazards before injury occurs. As our database
continues to develop we will be able to analyse and prioritise our
safety action programmes more effectively.
All reportable incidents and lost time injuries are reviewed during
executive management meetings. In addition, the executive
management team reviews incidents which did not result in injury
but were considered to have been serious or to have had a high
potential impact. All serious incidents and high potential incidents
are also reviewed by the Group SHE Committee and are cascaded
within the business as appropriate to ensure that preventive actions
are taken.
Environment
A proactive approach to improving energy efficiency means that
Bodycote has implemented a variety of systems to reduce water
and gas consumption, and to re-use heat energy. The ongoing effort
to lessen the impact on the environment has resulted in Bodycote
seeking ISO 14001 accreditation at all of its facilities.
At every stage where Bodycote is involved in the manufacturing
cycle, our operational aim is to reduce the overall impact on the
environment, not just in our own operations, but also those of our
customers. Bodycote operates modern, efficient equipment, which
is operated around the clock so as to optimise thermal processing
cycles. Without Bodycote, many companies would be using older
in-house technology and running their equipment at reduced
capacity, both of which drain energy resources. Working with
Bodycote enables our customers to commit more easily to carbon
reduction initiatives.
Bodycote also reduces the carbon footprint of our customers’
activities by increasing the lifespan of their products, by improving
metallurgical properties and by enhancing corrosion resistance.
For example, surface treatment technology is widely used in the
reclamation of damaged and worn components, offering a cost-
effective and energy-efficient alternative to the need to manufacture
new replacement parts, and treated parts often last up to twenty
times longer than the original.
So, whilst thermal processing is an energy-intensive business, it is
a vital part of the manufacturing chain and its use saves the energy
it consumes many times over.
32
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Stacking up the benefits
Stacking up the benefits
Modern thermal processing techniques have allowed designers and manufacturers to use much lighter materials, such as aluminium and
titanium, and have significantly prolonged component lifetimes. Through the effective use of thermal processing, parts can now be lighter
and overall component weight reduced, leading to improved efficiency and reduced fuel consumption of products in service.
Modern thermal processing techniques have allowed designers and manufacturers to use much lighter
materials, such as aluminium and titanium, and have significantly prolonged component lifetimes.
Through the effective use of thermal processing, parts can now be lighter and overall component
weight reduced, leading to improved efficiency and reduced fuel consumption of products in service.
40%
the average reduction in fuel
consumption of a 3.5 ton
truck attributable to Bodycote
heat treatment of transmission
components
4x
the amount by which
Bodycote’s carburising
processes increase the
fatigue and wear resistance
of gears
up to 500%
the increase in strength Bodycote heat treatment
can provide to automotive transmission components
20%
reduction in weight of a
transmission component due
to the higher strength given
by Bodycote heat treating
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100%
the improvement in a
gear’s lifetime due to a
25% increase in fatigue
strength through Bodycote
heat treatment
Stock code: BOY
www.bodycote.com
03
33
23846.02 9 March 2015 12:35 PM Proof 2
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Corporate responsibility and sustainability continued
Greenhouse gas emissions
2014
2013
2013 (normalised†)
CO2e
emissions
(ktCO2e)
Intensity
ratio† †
(tCO2e/£m)
CO2e
emissions
(ktCO2e)
Intensity
ratio† †
(tCO2e/£m)
CO2e
emissions
(ktCO2e)
Intensity
ratio† †
(tCO2e/£m)
Scope 1
Scope 2
Statutory total*
158.2
213.4
371.6
259.7
350.5
610.2
154.0
220.0
374.0
248.7
354.9
603.6
155.2
215.3
370.5
264.8
367.3
632.1
* Statutory carbon reporting disclosures required by Companies Act 2006.
† Normalised statistics restate prior year emissions using current year national carbon conversion factors and current year average exchange rates.
† † Emissions per £m of turnover.
Scope 1 emissions are direct emissions resulting from fuel usage
and the operation of facilities. Scope 2 emissions are indirect
energy emissions resulting from purchased electricity, heat, steam
or cooling for own use.
The financial control consolidation approach has been used to report
the above data. This method aligns with the reporting scope in the
financial statements. The Group collects electricity and natural gas
usage information from each facility on a monthly basis. The Group
then applies the UK Government’s Department for Environment,
Food and Rural Affairs (DEFRA) published national carbon
conversion factors to calculate the total tonnage of CO2e produced.
Group operational management actively monitors their monthly
CO2e emissions reported and the Group’s Executive Committee
reviews the level of CO2e emissions on a monthly basis.
All entities and facilities under financial control are included within
the disclosure. Emissions less than 1% of the Group’s total CO2e
relating to fugitive emissions and owned vehicles are not significant
and are excluded. As such there are no significant omissions from
this disclosure.
ISO 14001 accredited facilities
Reducing the environmental impact of the Group’s activities is
taken very seriously. Compliance with the requirements of ISO
14001 helps to minimise the risk of adverse environmental effects
at Bodycote’s locations. At the end of 2014, 87% of our operating
facilities had achieved ISO 14001 accreditation (2013: 85%).
Operational plants which have not yet received accreditation to the
standard are working towards it, including several of the facilities
acquired and constructed during 2012–2014. Some older sites,
which were accredited, have been closed. This explains why the
increase has been relatively modest.
The fall in percentage in 2012 was due to the facilities acquired in
that year which had not obtained accreditation.
Carbon footprint and water consumption
The absolute energy usage increased by 0.8%, despite normalised
sales increasing by 4.0%.
The total CO2e emissions per £m sales in 2014 were 610.2 Te (2013:
as previously reported 603.6 Te; normalised† 632.1 Te).
The Group’s total CO2e emission data is based on Scope 1 and
Scope 2 emissions, as defined by the UK Government’s DEFRA,
and data relating to this has been calculated to include country-
specific electricity conversion factors.
Water usage per £m sales decreased by 8.0%. On a normalised†
basis, water usage per £m sales decreased by 12.8%.
Chlorinated solvent use
The use of chlorinated solvents in Bodycote’s thermal processing
activities has been reduced in recent years as aqueous degreasing
facilities have been introduced. In 2014, the normalised† solvent use
decreased by 20.7% compared with the previous year.
Cautionary statement
The Strategic report has been prepared solely to provide additional
information to shareholders to assess the Group’s strategies and
the potential for those strategies to succeed.
The Strategic report contains certain forward-looking statements.
These statements are made by the directors in good faith based on
the information available to them up to the time of their approval of
this report and such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
Approval
The Group Strategic report of Bodycote plc was approved by the
Board of Directors and signed on its behalf by:
S.C. Harris
Group Chief Executive
26 February 2015
34
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Controlling the flow – a component journey
CONTROLLING THE FLOW – A COMPONENT JOURNEY
GATE VALVE
Gate valves and seats are used in the oil & gas industry
to control the flow of oil-containing fluid extracted from
the reserve. Within the well, pressures may be in excess of
15,000psi (or 6.5 tonnes per square inch) combined with high
temperature. Such an extreme environment requires high
performing components and reliable surface coating treatment.
Bodycote applies a tungsten carbide coating to the valve and
seat to provide a metal-to-metal seal that is highly wear and
corrosion resistant.
The coated surface is
ground to specification
to prepare it for polishing.
The part is super polished to
provide a metal-to-metal sealing
surface capable of withstanding
pressures in excess of 20,000psi.
The part is assembled into
the operating control valve
and leak checked.
The valve component
is machined from high
grade stainless steel or
nickel based alloy.
The valve component is coated
with gas tight tungsten carbide
to provide a wear and corrosion
resistant surface.
BODYCOTE COMPONENT JOURNEYS
This is just one example of how Bodycote brings together the
huge wealth of knowledge and expertise from across the Group
to provide the vital engineering services our customers need...
For more component journeys visit www.bodycote.com
Denotes the parts of the component journey undertaken by Bodycote
ID183789_gate_valve.indd 1
23846.02 9 March 2015 12:35 PM Proof 2
End application – subsea assembly
or land-based rig
35
02/03/2015 11:01
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Board of Directors
Board of Directors
David Landless
Stephen Harris
Alan Thomson
Executive Directors
Non-Executive Directors
S.C. Harris, 56 | Group Chief Executive
Executive Directors
Appointed: November 2008
Committees: Nomination and Executive (Chairman)
S.C. Harris, 55 l Group Chief Executive
Qualifications: Chartered Engineer, graduated from Cambridge
Appointed: November 2008
University, masters degree in business administration from the
Committees: Nomination and Executive (Chairman)
University of Chicago, Booth School of Business
Qualifications: Chartered Engineer, graduated from Cambridge University,
Experience: Spent his early career in engineering with Courtaulds
masters degree in business administration from the University of Chicago,
Booth School of Business
plc and then moved to the USA to join APV Inc from 1984 until
Experience: spent his early career in engineering with Courtaulds plc and
1995, where he held several senior management positions. He
then moved to the USA to join APV Inc from 1984 until 1995, where he held
was appointed to the Board of Powell Duffryn plc as an Executive
several senior management positions. He was appointed to the Board of
Director in 1995 and then went on to join Spectris plc as an
Powell Duffryn plc as an executive director in 1995 and then went on to join
Executive Director from 2003 to 2008. He was also a Non-
Spectris plc as an executive director from 2003 to 2008. He was also a
Executive Director of Brixton plc from 2006 to 2009.
Non-Executive Director of Brixton plc from 2006 to 2009.
External appointments: Non-Executive Director of Mondi plc.
External appointments: Non-Executive Director of Mondi plc
A.M. Thomson, 68 | Chairman
Non-Executive Directors
Appointed: December 2007
Committees: Nomination (Chairman) and Remuneration
A.M. Thomson, 68 l Chairman
Qualifications: Chartered Accountant, graduated from Glasgow
Appointed: December 2007
University with a masters degree
Committees: Nomination (Chairman) and Remuneration
Experience: Worked on a variety of audits for Arthur Andersen
Qualifications: Chartered Accountant, graduated from Glasgow University
and Price Waterhouse, followed by senior management positions
with a masters degree
Experience: worked on a variety of audits for Arthur Andersen and Price
with Rockwell International plc, Raychem Ltd and Courtaulds plc.
Waterhouse, followed by senior management positions with Rockwell
Joined Rugby Group plc as a Group Finance Director from 1992
International plc, Raychem Ltd and Courtaulds plc. Joined Rugby Group plc as
to 1995 followed by Smiths Group plc from 1995 to 2006. He was
a Group Finance Director from 1992 to 1995 followed by Smiths Group plc
also a Non-Executive Director of Laporte Plc from 1996 to 2002 and
from 1995 to 2006. He was also a Non-Executive Director of Laporte Plc from
of Johnson Matthey Plc from 2002 to 2011. Past President of the
1996 to 2002 and of Johnson Matthey Plc from 2002 to 2011. Past President
Institute of Chartered Accountants of Scotland.
of the Institute of Chartered Accountants of Scotland.
External appointments: Chairman of Hays PLC and Polypipe Group
External appointments: Chairman of Hays PLC and Polypipe Group plc as well
plc as well as Non-Executive Director of Alstom SA.
as Non-Executive Director of Alstom SA.
D.F. Landless, 55 | Group Finance Director
Appointed: March 1999
D.F. Landless, 54 l Group Finance Director
Committees: Executive
Appointed: March 1999
Qualifications: Chartered Management Accountant, graduated from
Committees: Executive
the University of Manchester Institute of Science and Technology
Qualifications: Chartered Management Accountant, graduated from the
Experience: Started his career with Bowater and Carrington Viyella
University of Manchester Institute of Science and Technology
and then at Courtaulds plc from 1984, being appointed a Finance
Experience: started his career with Bowater and Carrington Viyella and then
Director in UK and US divisions of Courtaulds plc from 1989 to 1997
at Courtaulds plc from 1984, being appointed a Finance Director in UK and
US divisions of Courtaulds plc from 1989 to 1997 and as Finance Director of
and as Finance Director of Courtaulds Coatings (Holdings) Limited
Courtaulds Coatings (Holdings) Limited from 1997 to 1999.
from 1997 to 1999.
External appointments: Non-Executive Director of Luxfer Holdings plc
External appointments: Non-Executive Director of Luxfer
Holdings plc
J.A. Biles, 67 | Senior Independent Director
J.A. Biles, 65 l Senior Independent Director
Appointed: August 2007
Appointed: August 2007
Committees: Audit (Chairman), Remuneration and Nomination
Committees: Audit (Chairman), Remuneration and Nomination
Qualifications: Chartered Accountant, qualified with Price
Qualifications: Chartered Accountant, qualified with Price Waterhouse & Co
Waterhouse & Co after graduating from Exeter University in
after graduating from Exeter University in Chemistry and Physics.
Chemistry and Physics.
Experience: worked on a variety of audits and M&A activities at Price
Experience: Worked on a variety of audits and M&A activities
Waterhouse, followed by 5 years at EMI plc. In 1981 he joined Racal
Electronics and held three successive financial director roles in defence and
at Price Waterhouse, followed by 5 years at EMI plc. In 1981 he
energy electronics. From 1991 to 1997 he was Group Finance Director of
joined Racal Electronics and held three successive financial director
Chubb Security PLC and then from 1998 to 2004 he was Finance Director
roles in defence and energy electronics. From 1991 to 1997 he
of FKI PLC, the international engineering group. He was a Non-Executive
was Group Finance Director of Chubb Security PLC and then from
Director and Chairman of the Audit Committee of ArmorGroup International
1998 to 2004 he was Finance Director of FKI PLC, the international
plc from 2004 until 2008, from 2005 to 2012 of Charter International plc,
engineering group. He was a Non-Executive Director and Chairman
from 2005 to 2011 of Hermes Fund Managers Limited and from 2005 to 2011
of the Audit Committee of ArmorGroup International plc from
of Northern Ireland Electricity plc (previously Viridian Group plc).
2004 until 2008, of Charter International plc from 2005 to 2012,
External appointments: Non-Executive Director of Sutton & East Surrey
of Hermes Fund Managers Limited from 2005 to 2011 and from
Water plc, HellermanTyton Group plc and Skypharma plc.
Northern Ireland Electricity plc (previously Viridian Group plc) from
2005 to 2011.
External appointments: Non-Executive Director of Sutton & East
Surrey Water plc, HellermanTyton Group plc and Skyepharma plc.
36
XX
Bodycote plc
annual report for the year ended 31 December 2014
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Board of Directors
Board of Directors
Ian Duncan
Ian Duncan
Eva Lindqvist
Eva Lindqvist
Raj Rajagopal
Raj Rajagopal
John Biles
John Biles
R. Rajagopal, 61 | Non-Executive Director
Appointed: September 2008
Committees: Audit, Remuneration and Nomination
K. Rajagopal, 60 l Non-Executive Director
Qualifications: A Chartered Mechanical Engineer, graduated with a
K. Rajagopal, 60 l Non-Executive Director
Appointed: September 2008
BTech (Mechanical Engineering) from IIT Madras, India, followed by
Appointed: September 2008
Committees: Audit, Remuneration and Nomination
a PhD in Mechanical Engineering from the University of Manchester
Committees: Audit, Remuneration and Nomination
Qualifications: A Chartered Mechanical Engineer, graduated with a BTech
and was awarded a honorary doctor of science degree by Cranfield
Qualifications: A Chartered Mechanical Engineer, graduated with a BTech
(Mechanical Engineering) from IIT Madras, India, followed by a PhD in
University. A Fellow of the Royal Academy of Engineering, the
(Mechanical Engineering) from IIT Madras, India, followed by a PhD in
Mechanical Engineering from the University of Manchester and was
Institute of Engineering and Technology (IET) and the Institute of
Mechanical Engineering from the University of Manchester and was
awarded a honorary doctor of science degree by Cranfield University.
awarded a honorary doctor of science degree by Cranfield University.
Mechanical Engineers.
A Fellow of the Royal Academy of Engineering, the Institute of Engineering
A Fellow of the Royal Academy of Engineering, the Institute of Engineering
Experience: Joined BOC Edwards after obtaining his PhD and
and Technology (IET) and the Institute of Mechanical Engineers.
and Technology (IET) and the Institute of Mechanical Engineers.
worked in various positions in operations management including
Experience: Joined BOC Edwards after obtaining his PhD and worked in
Experience: Joined BOC Edwards after obtaining his PhD and worked in
various positions in operations management including Operations Director.
Operations Director. Promoted to Managing Director of Edwards
various positions in operations management including Operations Director.
Promoted to Managing Director of Edwards in 1993 and Chief Executive of
in 1993 and Chief Executive of BOC Edwards in 1996. Appointed
Promoted to Managing Director of Edwards in 1993 and Chief Executive of
BOC Edwards in 1996. Appointed Executive Director of BOC Group plc in
Executive Director of BOC Group plc in 2000 until 2006. Past
BOC Edwards in 1996. Appointed Executive Director of BOC Group plc in
2000 until 2006. Past member of UK Council for Science and Technology
member of UK Council for Science and Technology and the Audit
2000 until 2006. Past member of UK Council for Science and Technology
and the Audit Commission. He was Non-Executive Director of Foseco plc
Commission. He was Non-Executive Director of Foseco plc from
and the Audit Commission. He was Non-Executive Director of Foseco plc
from 2005 until 2008 and FSI International (A NASDAQ company) 2000
2005 until 2008 and FSI International (a NASDAQ company) 2000
from 2005 until 2008 and FSI International (A NASDAQ company) 2000
to 2005.
to 2005.
to 2005.
External appointments: Chairman of UMI3 since 2010 and of HHV Pumps
External appointments: Chairman of UMI3 since 2010 and of HHV Pumps
External appointments: Chairman of UMI3 since 2010 and of HHV
Ltd since 2009. Non-Executive Director of W.S. Atkins plc since 2008,
Ltd since 2009. Non-Executive Director of W.S. Atkins plc since 2008,
Pumps Ltd since 2009. Non-Executive Director of W.S. Atkins
Spirax-Sarco Engineering plc from 2009, E2V Technologies PLC from 2010
Spirax-Sarco Engineering plc from 2009, E2V Technologies PLC from 2010
and Porvair plc from 2014.
plc since 2008, Spirax-Sarco Engineering plc from 2009, E2V
and Porvair plc from 2014.
Technologies PLC from 2010 and Porvair plc from 2014.
I.B. Duncan, 53 l Non-Executive Director
I.B. Duncan, 53 | Non-Executive Director
I.B. Duncan, 53 l Non-Executive Director
Appointed: November 2014
Appointed: November 2014
Appointed: November 2014
Committees: Remuneration, Audit and Nomination
Committees: Remuneration, Audit and Nomination
Committees: Remuneration, Audit and Nomination
Qualifications: Chartered Accountant, qualified with Deloitte and Touche after
Qualifications: Chartered Accountant, qualified with Deloitte and Touche after
Qualifications: Chartered Accountant, qualified with Deloitte and
graduating from St. Catherine’s College, University of Oxford in Geography.
graduating from St. Catherine’s College, University of Oxford in Geography.
Touche after graduating from St. Catherine’s College,
Experience: worked on a variety of audits with Deloitte and Touche, followed
Experience: worked on a variety of audits with Deloitte and Touche, followed
by four years with Dresdner Kleinwort Wasserstein. From 1990 to 1992 he
University of Oxford in Geography.
by four years with Dresdner Kleinwort Wasserstein. From 1990 to 1992 he
worked for Lloyds Bank plc and then switched to British Nuclear Fuels plc
Experience: Worked on a variety of audits with Deloitte and Touche,
worked for Lloyds Bank plc and then switched to British Nuclear Fuels plc
from 1993 to 2006. In 2006 he took on the role of Group Finance Director
followed by 4 years with Dresdner Kleinwort Wasserstein. From
from 1993 to 2006. In 2006 he took on the role of Group Finance Director
with Royal Mail Holdings plc leaving in 2010. Non-executive director of
1990 to 1992 he worked for Lloyds Bank plc and then for British
with Royal Mail Holdings plc leaving in 2010. Non-executive director of
Fiberweb plc from 2013 to 2013.
Nuclear Fuels plc from 1993 to 2006. In 2006 he took on the role of
Fiberweb plc from 2013 to 2013.
External appointments: Appointed as Non-Executive Director and Chairman
External appointments: Appointed as Non-Executive Director and Chairman
Group Finance Director with Royal Mail Holdings plc leaving in 2010.
of the Audit Committees of Babcock International Group plc in 2010,
of the Audit Committees of Babcock International Group plc in 2010,
Non-Executive Director of Fiberweb plc from 2013 to 2013.
WANdisco plc in 2012 as well as Mouchel Group in 2013.
WANdisco plc in 2012 as well as Mouchel Group in 2013.
External appointments: Appointed as Non-Executive Director
and Chairman of the Audit Committees of Babcock International
Group plc in 2010, WANdisco plc in 2012 as well as Mouchel Group
in 2013.
E. Lindqvist, 57 | Non-Executive Director
Appointed: June 2012
Committees: Remuneration (Chair, appointed 1 January 2013), Audit
E. Lindqvist, 56 l Non-Executive Director
and Nomination.
E. Lindqvist, 56 l Non-Executive Director
Appointed: June 2012
Qualifications: Engineer, graduated with a Masters from Linköping
Appointed: June 2012
Committees: Remuneration (Chair, appointed 1 January 2013), Audit and
Institute of Technology, Diploma in Marketing from IHM Business
Committees: Remuneration (Chair, appointed 1 January 2013), Audit and
Nomination
School and MBA Financial Analysis from University of Melbourne
Nomination
Qualifications: Engineer, graduated with a Masters from Linköping Institute
Experience: Began her career in various positions with Ericsson
Qualifications: Engineer, graduated with a Masters from Linköping Institute
of Technology, Diploma in Marketing from IHM Business School and MBA
working in Continental Europe, North America and Asia from 1981
of Technology, Diploma in Marketing from IHM Business School and MBA
Financial Analysis from University of Melbourne
Financial Analysis from University of Melbourne
to 1990 followed by Director roles with Ericsson from 1993 to
Experience: Began her career in various positions with Ericsson working in
Experience: Began her career in various positions with Ericsson working in
1999. Joined Teliasonera in 2000 as Senior Vice President moving
Continental Europe, North America and Asia from 1981 to 1990 followed by
Continental Europe, North America and Asia from 1981 to 1990 followed by
to Xelerated as Chief Executive from 2007 to 2011. Non-Executive
Director roles with Ericsson from 1993 to 1999. Joined Teliasonera in 2000
Director roles with Ericsson from 1993 to 1999. Joined Teliasonera in 2000
as Senior Vice President moving to Xelerated as Chief Executive from 2007
Director of Transmode Holdings AB from 2007 to 2013 and of
as Senior Vice President moving to Xelerated as Chief Executive from 2007
to 2011. Non-Executive Director of Transmode Holdings AB from 2007 to
Blekinge Institute of Technology from 2010 to 2013.
to 2011. Non-Executive Director of Transmode Holdings AB from 2007 to
2013 and of Blekinge Institute of Technology from 2010 to 2013.
External appointments: Appointed as Non-Executive Director of
2013 and of Blekinge Institute of Technology from 2010 to 2013.
External appointments: Appointed as Non-Executive Director of Assa
Assa Abloy AB in 2008, Tieto Corporation from 2010 as well as
External appointments: Appointed as Non-Executive Director of Assa
Abloy AB in 2008, Tieto Corporation from 2010 as well as Sweco AB,
Sweco AB, Caverion Oy and Mycronic AB since 2013 and ComHem
Abloy AB in 2008, Tieto Corporation from 2010 as well as Sweco AB,
Caverion Oy and Micronic Mydata AB since 2013 and ComHem Holding AB
Holding AB in 2014.
Caverion Oy and Micronic Mydata AB since 2013 and ComHem Holding AB
in 2014.
in 2014.
l
l
Group Company Secretary
U.S. Ball - FCIS
Group Company Secretary
U.S. Ball - FCIS
Springwood Court, Springwood Close, Tytherington Business Park,
U.S. Ball | Group Company Secretary
Springwood Court, Springwood Close, Tytherington Business Park,
Macclesfield, Cheshire SK10 2XF.
Springwood Court, Springwood Close, Tytherington Business Park,
Macclesfield, Cheshire SK10 2XF.
Tel: +44 (0)1625 505300 Fax: +44 (0)1625 505313.
Macclesfield, Cheshire, SK10 2XF.
Tel: +44 (0)1625 505300 Fax: +44 (0)1625 505313.
Registered Number 519057 England and Wales.
Tel: +44(0)1625 505300 Fax: +44(0)1625 505313.
Registered Number 519057 England and Wales.
Registered Number 519057 England and Wales.
Stock code: BOY
Stock code: BOY
23846.02 9 March 2015 12:35 PM Proof 2
www.bodycote.com
www.bodycote.com
37
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYGovernanceStrategic report
Corporate governance statement
Chairman’s message
As Chairman I believe that the way any organisation is governed is fundamental to its success and for Bodycote this means the
effectiveness of the Board and our governance arrangements. Effective governance starts at the top, with clear roles, responsibilities and
lines of reporting. Directors have to operate within applicable laws and regulations, which include corporate governance rules. In addition,
directors have to operate within the mandate given to them by shareholders, for example, in the Company’s Articles of Association. On a
more practical level the directors operate under agreed Board procedures such as the schedule of matters reserved for the Board, the role
and descriptions of the Chairman, Group Chief Executive and Senior Independent Director, and service contracts and appointment letters.
The important governance developments at Bodycote over the last year are detailed in the governance reporting section below.
The policy of the Board is to manage the affairs of the Group in accordance with the principles of corporate governance contained in the
UK Corporate Governance Code, by promoting wide discussions on topics to which Board members contribute and demonstrate mutual
engagement. We strive to maintain best practice and continually seek to improve our practices for the benefit of our shareholders.
The main group-wide governance documents are our Core Values and the Code of Conduct, which set out the values and standards that
we expect of our employees. These documents, together with our policies, govern how we conduct our business and set the standards
that drive performance. Compliance training helps to enforce this. Board oversight, reviews and audits form part of the monitoring and
supervision process.
I also wish to invite all shareholders to attend the AGM, which will be held at our Macclesfield head office on 23 April 2015. This event
provides an excellent opportunity to meet the executive and independent non-executive directors.
A.M. Thomson
Chairman
Board performance
2014 key actions
2014 achievements
Priorities for 2015
Implement actions from the 2014
Accelerated growth from Specialist
Process recommendations from the
strategy review
Technologies and enhanced business
processes
2015 external Board Evaluation
Continued focus on management
The Board and management reviewed
development and succession planning
management resources during the year
Recruit a new independent director to
continue the refreshment of the Board
Appointment of a new Non-Executive
Ian Duncan was appointed on
Director
17 November 2014
Appointment of new Audit Committee
Chairman and smooth transition with a
handover
Continued emphasis on external Board
training and development
Continued review of the risk register,
including major programme risks
The Board visited Sweden and the
USA during the year and developed
the directors’ understanding of these
businesses and the markets they serve
Use Board visits to meet the UK and
Polish teams to promote understanding
of markets and the opportunities they
offer
During the year the Board reviewed the
different elements of the Group’s risk
management framework and how it
discharged its responsibilities
The Board will continue to review cyber
security protection, the management
of risk in major programmes and crisis
management
Governance reporting
Board diversity
Bodycote is a global business with operations in 26 countries and diversity is an integral part of how we do business. The Nomination
Committee considers diversity when making appointments to the Board, taking into account relevant skills, experience, knowledge,
personality, ethnicity and gender. Our prime responsibility, however, is the strength of the Board and our overriding aim in any new
appointment must always be to select the best candidate. We have made progress in addressing the issue of Board gender and diversity
by appointing Eva Lindqvist to the Board as a Non-Executive Director on 1 June 2012. We also appointed Ian Duncan as a Non-Executive
Director on 17 November 2014 as part of Board refreshment. We will further address this issue when we discuss Board succession
planning in the coming year. The Board is kept deliberately small and currently comprises two Executive Directors, four Non-Executive
Directors and a Non-Executive Chairman. We believe it is difficult to set targets or timescales for the percentage of women, or any other
group, on our Board and do not propose to do so.
Female representation on our Board is currently 14% (2013: 17%) and at manager level it is 27% (2013: 23%). Female representation on
the Board has decreased due to the appointment of Ian Duncan in November 2014, and will increase to 17% when John Biles steps down
at the 2015 AGM in April 2015. Females represent 17% (2013: 17%) of our total workforce. We will increase female representation on the
Board if appropriate candidates are available when Board vacancies arise.
The Corporate responsibility and sustainability report contains further details regarding the male and female representation within the
Group, including Board representation.
38
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Board evaluation
Following 2012’s external Board Evaluation, the Board agreed to undertake an internal evaluation in 2014.
To ensure that all aspects of good governance would be covered by the review, the Group Company Secretary distributed to each member
a tailored questionnaire. Questions were framed under the following seven headings:
Remit and objectives;
Composition, training and resources;
Corporate governance/risk management;
Stakeholder engagement;
Board meetings and visits;
Board procedures and administration; and
Evaluation and effectiveness.
At a meeting of the Nomination Committee in September 2014, the directors assessed the conclusions reached and a number of
recommendations are in the process of being implemented. Additional emphasis will be placed on risk management and certain operational
matters. The Board evaluation covered the activities of the main Board and each of its Committees.
As in previous years, the Chairman has assessed the performance of each Board member by conducting individual interviews and we can
confirm that all directors continue to perform effectively and demonstrate commitment to their roles.
The overall conclusion is that the Board is performing well and high governance standards have been adopted. It is apparent that the
Executive is being strongly challenged by the Board when appropriate.
Arising from the exercise, the Board has concluded that its focus should remain on divisional growth strategies, technology development,
risk and sustainability as well as continued training.
The Executive Directors Messrs S.C. Harris and D.F. Landless were also appraised in February 2015.
Led by the Senior Independent Non-Executive Director, the directors have carried out an evaluation of the Chairman’s performance in
October 2014. The Board is satisfied with the Chairman’s commitment and performance.
Training
All new directors are subject to a tailored induction programme covering a diverse range of topics including trading assessment methods,
investor relations, organisational and legal matters. The Board receives training via ad hoc presentations and papers from advisers and the
Group Company Secretary. External periodic training on important topics takes place through the Deloitte Academy and during the year the
directors received training on trends in financial reporting, corporate governance and an economic update.
Succession planning
Succession planning ensures that appropriate senior executive leadership resources are in place to achieve Bodycote’s strategic objectives.
The plans are reviewed annually by the Nomination Committee.
The Board further develops its knowledge and gains greater visibility of executive talent and management succession by visiting the
Group’s sites and meeting with key talent and senior executives.
The road map for non-executive refreshment was reviewed by the Nomination Committee at the December 2014 meeting.
Non-executive tenure
(in years)
7
7
6
2
E. Lindqvist
R. Rajagopal
A.M. Thomson
J.A. Biles
I.B. Duncan
0
As a number of our non-executive directors have a tenure of six years or more, Board refreshment will gradually continue over
the coming years.
23846.02 9 March 2015 12:35 PM Proof 2
39
Financial statementsAdditional informationwww.bodycote.comStock code: BOYGovernanceStrategic report
Corporate governance statement continued
Core values
The Board acknowledges its responsibility for determining and maintaining the Group’s values and ensures these are reflected in the
business practices. This is monitored by the Board at regular intervals. Further details are available on page 31.
Pre-emption rights
In line with best practice provisions in the Pre-Emption Group Statement of Principles, the Board confirms that it does not intend to issue
more than 7.5% of the issued share capital of the Group on a non-pre-emptive basis in any rolling three-year period.
Compliance reporting
In respect of the financial year 2014, Bodycote’s obligation under the Disclosure and Transparency Rules is to prepare a corporate
governance statement with reference to the UK Corporate Governance Code issued by the FRC in September 2012 (“the Code”).
In respect of the year ended 31 December 2014, Bodycote has complied with the provisions of the Code with the exception of provision
E1.1. As in previous years, the Board has taken the view that generally it is the responsibility of the Group Chief Executive and the Group
Finance Director to manage relationships with institutional investors. The Chairman also meets institutional investors to discuss overall
strategy, governance and any concerns that shareholders may have. Only where these more usual channels of communication have
failed would the Board expect the Senior Independent Non-Executive Director (SID) or other non-executive directors to become involved,
notwithstanding that the Code specifies attendance of the SID at meetings with major shareholders. The SID has contacted major
shareholders and offered to facilitate meetings with them should they have any concerns they wish to discuss. Regular feedback by the
Group’s advisers on investor meetings and results presentations is circulated to all directors. During the year the Chairman and the SID met
with shareholders to discuss governance matters.
Apart from this distinct area, Bodycote was in compliance with the provisions of the Code throughout 2014.
In September 2014 the FRC issued the updated UK Corporate Governance Code and areas of non-compliance will be reviewed by the Board
during 2015.
Operation of the Code
Taken together with the Report of the Audit Committee, the Report of the Nomination Committee and the Board report on remuneration
presented on pages 45 to 65, this statement explains how Bodycote has applied the principles of good corporate governance as set out in the
Code.
Leadership
The Board is responsible to shareholders for good corporate governance, setting the Group’s strategic objectives, values and standards, and
ensuring the necessary resources are in place to achieve the objectives.
The Board met on nine occasions during 2014, including a specific meeting to review and update the Group’s long-term strategy. The Board
of Directors comprises seven members, of whom five are non-executive directors and two are executive directors, led by the Group’s part-
time Non-Executive Chairman, Mr A.M. Thomson, who also chairs the Nomination Committee. The Group Chief Executive is Mr S.C. Harris
and the Senior Independent Non-Executive Director is Mr J.A. Biles, who also chairs the Audit Committee. Ms E. Lindqvist is Chairman of
the Remuneration Committee. Brief biographical details of all directors are given on pages 36 and 37. During the year the Board visited a
number of UK and overseas facilities, including sites in Sweden and Michigan, USA. Such events involved meetings with local management
and the unit workforce to better understand technical and operational performance in countries where Bodycote has a significant presence.
Board members also attended the Group Conference held in the USA.
Matters reserved for the Board were reviewed during the year and updated where required. Certain defined powers and issues reserved for
the Board to decide are, inter alia:
Strategy;
Approval of financial statements and circulars;
Capital projects, acquisitions and disposals;
Annual budgets;
Directors’ appointments, service agreements, remuneration and succession planning;
Policies for financial statements, treasury, safety, health and environment, donations;
Committees’ terms of reference;
Board and committee chairmen and membership;
Investments;
Equity and bank financing;
Internal control and risk management;
Corporate governance;
Key external and internal appointments; and
Employee share incentives and pension arrangements.
In advance of Board meetings, directors are supplied with up-to-date information regarding the trading performance of each operating
division and sub-division, in addition to the Group’s overall financial position and its achievement against prior year results, budgets and
forecasts. They are also supplied with the latest available information on safety, health and environmental and risk management issues and
details of the safety and health performance of the Group, and each division, in terms of severity and frequency rates for accidents at work.
40
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Senior management from across the Group and advisers attend some of the meetings to provide updates. The exposure to members of
senior management from across the Group helps enhance the Board’s understanding of the business, the implementation of strategy and
the changing dynamics of the markets in which the Group operates.
Where required, a director may seek independent professional advice, the cost of which is reimbursed by the Group. All directors have
access to the Group Company Secretary and they may also address specific issues with the SID. In accordance with the Articles of
Association, all newly appointed directors and any who have not stood for re-election at the two previous AGMs, if eligible, must submit
themselves for re-election. However, this has been superseded by the directors’ decision to stand for yearly re-election. Non-executive
directors, including the Chairman, are appointed for fixed terms not exceeding three years from the date of first election by shareholders,
after which the appointment may be extended by mutual agreement. A statement of the directors’ responsibilities is set out on page
66. The Board also operates three main committees. These are the Nomination Committee, the Remuneration Committee and the Audit
Committee.
In accordance with the recommendations of the Code, Board members serve for a period of six years, which will only be extended in
certain circumstances. If letters of appointment are extended beyond six years, the fixed term is reduced to one year.
In order that necessary actions can be taken promptly, a Finance Sub-Committee, comprising the Chairman (or failing him, any other non-
executive director), the Group Chief Executive and the Group Finance Director operates between the dates of scheduled Board meetings
and is authorised to make decisions, within limits defined by the Board, in respect of certain finance, treasury, tax or investment matters.
Shareholders
The Chairman – key responsibilities
Effective running of the Board
Guidance to Executive Directors
Monitors progress of strategy and objectives
Safeguards the interests of shareholders
The Board – key responsibilities
Oversight of the Group’s strategy and the long-term success of the Group’s business
Audit
Committee
Monitors the
integrity and
effectiveness of the
Group’s financial
reporting and
performance of
audits and risks
Nomination
Committee
Ensures an
effective Board
that consists of
individuals with
the correct balance
of skills, knowledge
and experience
Remuneration
Committee
Determines
remuneration
policy and senior
executives’
remuneration
packages
Finance
Committee
Implementation of
treasury and tax
policies and, within
limits defined by
the Board,
authorise capital
expenditure
and allot shares
Group
Chief Executive
Responsible for running
the Group’s business,
interfaces with shareholders
and analysts, and
oversees health and
safety as well as
environmental matters
Executive Committee
Focuses on the implementation of the Group’s strategy, financial structure, organisational development and policies,
and reviews the financial performance
Independence of non-executive directors
The Board considers that J.A. Biles, R. Rajagopal, E. Lindqvist and I.B. Duncan are all independent for the purposes of the Code. The
Chairman was considered independent upon appointment.
Commitment
Attendance of directors at regular scheduled meetings of the Board and its Committees is shown in the table below:
Director
A.M. Thomson
S.C. Harris
J.A. Biles
R. Rajagopal
E. Lindqvist
D.F. Landless
I.B. Duncan
Full Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Eligible
Attended
Eligible
Attended
Eligible
Attended
Eligible
Attended
9
9
9
9
9
9
2
9
9
9
9
9
9
2
–
–
4
4
4
–
1
–
–
4
4
4
–
1
5
–
5
5
5
–
2
5
–
5
5
5
–
2
5
5
5
5
5
–
1
5
5
5
5
5
–
1
All directors attended the maximum number of Audit, Remuneration and Nomination Committee meetings that they were scheduled to
attend. In addition, non-members Messrs A.M. Thomson, S.C. Harris and D.F. Landless attended by invitation some parts of the meetings of
the Audit, Nomination and Remuneration Committees.
23846.02 9 March 2015 12:35 PM Proof 2
41
Financial statementsAdditional informationwww.bodycote.comStock code: BOYGovernanceStrategic report Corporate governance statement continued
Proposals for re-election
The Board decided, in line with the Code, that all directors will retire annually and, other than in the case of any director who has decided
to stand down from the Board, will offer themselves for re-election at the AGM. Accordingly A.M. Thomson, S.C. Harris, D.F. Landless,
R. Rajagopal, E. Lindqvist and I.B. Duncan will stand for re-election at the 2015 AGM. Mr J.A. Biles will retire as a Non-Executive Director
at the April 2015 AGM. The Board recommends to shareholders that they re-elect (or elect) all the directors. In accordance with the
recommendations of the Code, Board members will serve for a period of six years which may be extended in certain circumstances.
The performance of each director was evaluated as indicated above and the Board confirms in respect of each that their performance
continues to be effective and that each continues to demonstrate commitment to his or her respective role.
Internal control and risk management
The Board is responsible for the Group’s system of internal controls and risk management policies and for reviewing its effectiveness. Such a
system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not
absolute assurance against material misstatement or loss. The Board has applied Principle C.2 of the Code by establishing a continuous process
for identifying, evaluating and managing the Group’s significant risks, including risks arising out of Bodycote’s corporate and social engagement.
The Board believes that the Group maintains an effective system of internal controls which is in accordance with the FRC’s guidance entitled
‘Internal Control: Revised Guidance for Directors’ (formerly referred to as the Turnbull Report guidance) and, in the view of the Board, no
significant deficiencies have been identified in the system. The system was in operation throughout 2014 and continues to operate up to the
date of the approval of this report. The Board’s monitoring covers all controls, including financial, operational and compliance controls and
risk management systems. It is based principally on reviewing reports from management and from internal audit to consider whether any
significant weaknesses are promptly remedied or indicate a need for more extensive monitoring. The Audit Committee assists the Board in
discharging these review responsibilities. In September 2014 the FRC issued guidance on ‘Risk Management, Internal Control and Related
Financial and Business Reporting’ which replaces the ‘Internal Control: Revised Guidance for Directors’ currently being applied by the Group.
The new guidance comes into effect, and will be applied, in the Group’s 2015 accounting period.
The Group prepares a comprehensive annual budget which is closely monitored and updated quarterly. The Group’s authority matrix clearly
sets out authority limits for those with delegated responsibility and specifies what can only be decided with central approval.
Internal Audit monitors the Group’s internal financial control system and its reviews are conducted on the basis of plans approved by the
Audit Committee, to which Internal Audit reports are submitted on a regular basis.
Every Bodycote site provides assurance on specified financial and non-financial controls through a control self-assessment process. The
results are validated by Internal Audit through spot checks and are reported to the Audit Committee. In addition, the President and the Vice
President of Finance of each division sign a letter of representation annually to confirm the adequacy of their systems of internal controls,
their compliance with Group policies, relevant laws and regulations, and that they have reported any control weaknesses through the
Group’s assurance processes.
During 2014, in compliance with provision C.2.1 of the Code, management performed a specific assessment for the purpose of this Annual
Report. Management’s assessment, which has been reviewed by the Audit Committee and the Board, included a review of the Group’s
key strategic and operational risks, which is summarised from work performed by the Group Head of Risk and the Group’s Risk Committee
to identify risks (by means of workshops, interviews, investigations and by reviewing departmental or divisional risk registers). Further
information about the ways in which the principal business risks and uncertainties affecting the Group are managed is shown on pages 24
to 27. No new significant risks were identified as part of this process, and the necessary actions have been or are being taken to remedy
any significant failings or weaknesses identified as part of the reviews.
Investor relations
The Group Chief Executive and Group Finance Director regularly talk with and meet institutional investors, both individually and collectively,
and this has enabled institutional investors to increase their understanding of the Group’s strategy. In addition, internet users are able to
view up-to-date news on the Group and its share price via the Bodycote website at www.bodycote.com. Users of the website can access
recent announcements and copies of results presentations and can enrol to hear live presentations. On a regular basis, Bodycote’s financial
advisers, corporate brokers and financial public relations consultants provide the directors with opinion surveys from analysts and investing
institutions following visits and meetings with the Group Chief Executive and Group Finance Director. The Chairman and SID are available
to discuss any issues not resolved by the Group Chief Executive and Group Finance Director. On specific issues, such as the introduction
of long-term incentive and share matching schemes in 2006 and changes thereto in 2009, 2010 and 2013, the Group has sought and will
continue to seek the views of leading investors.
By order of the Board:
U.S. Ball
Group Company Secretary
26 February 2015
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
42
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Directors’ report
The directors are pleased to submit their report and the audited financial statements for the year ended 31 December 2014.
The Chairman’s statement, the Chief Executive’s review, the Finance Director’s report and all the information contained on pages 36 to 65
together comprise the Directors’ report for the year ended 31 December 2014.
Strategic report
The Strategic report is provided on pages 6 to 34 of this Annual Report. This is a review of the development of the Group’s businesses,
the financial performance during the year ended 31 December 2014, key performance indicators, a description of the principal risks and
uncertainties facing the Group and information about the use of financial instruments. The Strategic report has been prepared solely to
assist the shareholders in assessing the Group’s strategies and the potential of those strategies. It should not be relied on by any other
party for any other purpose. Forward-looking statements have been made by the directors in good faith using information available up to
the date of this report and such statements should be regarded with caution because of the inherent uncertainties in economic trends and
business risks. Since the end of the financial year no important events affecting the business of the Group have occurred.
Dividends
The Board has recommended a final ordinary dividend of 9.8p (2013: 9.1p) bringing the total ordinary dividend to 14.4p per share (2013:
13.5p). The Board has also recommended a supplemental distribution, by way of a special dividend, amounting to 20.0p per share (2013:
10.0p). If approved by shareholders, the final ordinary dividend of 9.8p per share for 2014 and the supplemental distribution of 20.0p per
share for 2014 will be paid on 1 May 2015 to all shareholders on the register at the close of business on 27 March 2015.
Share capital
The Company’s issued ordinary share capital as at 31 December 2014 was £33.1m. No shares were issued during the year. At the AGM
on 29 April 2014 the shareholders authorised the Company to purchase up to 19,142,409 of its own shares. This authority expires at the
conclusion of the forthcoming AGM to be held on 23 April 2015, at which time a further authority will be sought from shareholders.
Capital structure
Details of the issued share capital are shown in note 23. The Company has one class of ordinary shares, which carries no right to fixed
income. Each share carries the right to one vote at general meetings of the Company. There are no specific restrictions on the size of a
holding nor on the transfer of shares, both of which are governed by the general provisions of the Articles of Association and prevailing
legislation. The directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on
the transfer of securities or on voting rights. Details of employee share schemes are set out in note 27 and shares held by the Bodycote
Employee Benefit Trust abstain from voting and waive dividend rights. No person has any special rights of control over the Company’s
share capital and all issued shares are fully paid. The appointment and replacement of directors is governed by the Company’s Articles of
Association, the UK Corporate Governance Code, the Companies Act and related legislation. The Articles of Association may be amended by
a special resolution of shareholders. The powers of the directors are described in the Corporate governance statement on page 38. Under
the Articles of Association the Company has authority to issue ordinary shares with a nominal value of £11,023,234.
There are also a number of other agreements that take effect, alter, crystallise or terminate upon a change of control of the Company
following a takeover bid such as commercial contracts, bank loan agreements, property lease agreements, employment contracts and
employee share plans. None of these are considered to be significant in terms of their likely impact on the business of the Group as
a whole, and the directors are not aware of any agreements between the Company and themselves or employees that provide for
compensation for loss of office or employment that occurs because of a takeover bid except where specifically mentioned in this report.
Directors
The current directors and their biographical details are listed on pages 36 and 37 and all served throughout the year. Under the Articles
of Association of the Company each director must retire from office and stand for re-election by shareholders as a minimum at every
third AGM in order to continue to serve as a director. However, in line with the UK Corporate Governance Code and to further increase
accountability, all directors retired at the AGM in 2014 and stood for re-election by the shareholders. Going forward all directors will retire
at the AGM and will stand for re-election by the shareholders, if they wish to continue to serve as directors of the Company. Accordingly,
those directors retiring and offering themselves for re-election at the 2015 AGM are A.M. Thomson, S.C. Harris, D.F. Landless, R. Rajagopal
and E. Lindqvist. Mr I.B. Duncan, having been appointed by the Board in November 2014, will stand for election at the 2015 AGM. Mr J.A.
Biles will step down as a director at the 2015 AGM and will not stand for re-election. The service agreements for Messrs S.C. Harris and
D.F. Landless are terminable by 12 months’ notice. The remaining directors do not have a service agreement with the Company and their
appointments are terminable by six months’ notice.
Directors’ interests in contracts and shares
Details of the executive directors’ service contracts and details of the directors’ interests in the Company’s shares and share incentive
plans are shown in the Board report on remuneration on pages 51 to 65. No director has had any dealings in any shares or options in the
Company since 31 December 2014. Qualifying third party indemnity provision (as defined by section 234 of the Companies Act 2006) has
remained in force for the directors for the year ended 31 December 2014 and, as at the date of this report, remains in force for the benefit
of the current directors in relation to certain losses and liabilities which they may incur (or have incurred) to third parties in the course of
their duties. Apart from these exceptions, none of the directors had a material interest in any contract of significance in relation to the
Company and its subsidiaries at any time during the financial year.
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Potential conflicts of interest
During 2008 the duties owed by directors to a company were codified and extended by the Companies Act 2006 so that directors not only
had to declare actual conflicts of interests in transactions as they arose, but also had a duty to avoid such conflicts whether real or potential.
Potential conflicts of interest could arise where a single director owes a fiduciary duty to more than one organisation (a “Situational
Conflict”) which typically will be the case where a director holds directorships in more than one company. In order to ensure that each
director was complying with the new duties, each director provided the Company with a formal declaration to disclose what Situational
Conflicts affected him or her. The Board reviewed the declarations and approved the existence of each declared Situational Conflict until
September 2015 and permitted each affected director to attend and vote at Bodycote directors’ meetings, on the basis that each such
director continued to keep Bodycote’s information confidential, and provided overall that such authorisation remained appropriate and in the
interests of shareholders. Where such authorisation becomes inappropriate or not in the interests of Bodycote shareholders, the Chairman
or the Nomination Committee can revoke an authorisation. No such revocations have been made.
Employment
The Group recognises the value that can be added to its future profitability and strength by the efforts of employees. The commitment of
employees to excel is key to the Group’s continued success. Through their attendance at, or participation in strategy, production, safety
and health meetings at site level, employees are kept up to date with the performance and progress of the Group, the contribution to
the Group made by their site and are advised of safety and health issues. The Group publishes in 11 languages, via the Group intranet, an
electronic magazine for all staff detailing the Group’s activities, performance and some of its personalities. Under the Group’s Open Door
Line employees’ concerns can be voiced over the phone on an anonymous basis in the local language. Approximately 3,600 Bodycote
employees are connected to the Bodycote intranet, which improves knowledge of Group activities, and assists greatly with technology
exchange and co-ordination. It is the Group’s policy to give full and fair consideration to applications for employment from disabled persons,
having regard to their particular aptitudes and abilities, and to encourage the training and career development of all personnel employed
by the Group, including disabled persons. Should an employee become disabled, the Group, where practicable, will seek to continue the
employment and arrange appropriate training. An equal opportunities policy is in operation in the Group.
Greenhouse gas emissions
Details of greenhouse gas emissions are included within the Corporate responsibility and sustainability section of this report.
Donations
There were no political contributions in 2013 or 2014.
Shareholders
An analysis of the Company’s shareholders and the shares in issue at 16 February 2015 together with details of the interests of major
shareholders in voting shares notified to the Company pursuant to chapter 5 of the Disclosure and Transparency Rules are given on page
123.
Auditor
In accordance with the provisions of section 489 of the Companies Act 2006, a resolution for the reappointment of Deloitte LLP as auditor
is to be proposed at the forthcoming Annual General Meeting. Each person who is a director at the date of approval of this Annual Report
confirms that:
so far as each director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and
each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and
to establish that the Company’s auditor is aware of that information.
This statement is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.
Annual General Meeting
The 2015 Annual General Meeting will be held on 23 April 2015 in accordance with the notice being sent to shareholders with this report.
By order of the Board:
U.S. Ball
Group Company Secretary
26 February 2015
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
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Bodycote plc annual report for the year ended 31 December 2014 Report of the Nomination Committee
I am pleased to introduce our Nomination Committee report for 2014. The Committee has continued to support the Board during the past
year to ensure that its members have the right balance of skills, experience, independence and knowledge which are necessary to meet
the expectations of the shareholders in the fast changing business environment in which the Group operates. In November 2014 we took
the first step in refreshing the Board with the appointment of Ian Duncan as a Non-Executive Director. John Biles, the current Chairman of
the Audit Committee and Senior Independent Director (SID), will stand down at the 2015 AGM and Ian Duncan will take over as Chairman
of the Audit Committee. Board succession and composition will remain a priority for the coming year as the Board continues to execute its
succession plan.
A.M. Thomson
Chairman of the Nomination Committee
Role of the Nomination Committee
The Nomination Committee is a sub-committee of the Board, whose principal purpose is to advise on the appointment and, if necessary,
dismissal of executive and non-executive directors. The Committee’s terms of reference, which are listed on the Group’s website, include
all matters required by the UK Corporate Governance Code (“the Code”). Further information on the Code can be found on the Financial
Reporting Council’s website www.frc.org.uk. The terms of reference are reviewed periodically by the Group Company Secretary and the
Chairman, and any changes are then referred to the Board for approval. No changes were made to the terms of reference during the year.
Composition of the Nomination Committee
As recommended by the Code, the Chairman of the Board acts as the Chairman of the Committee which also comprises J.A. Biles, S.C.
Harris, R. Rajagopal, E. Lindqvist and I.B. Duncan (appointed on 17 November 2014). The Chairman may not chair the Committee when
it is dealing with the matter of succession to the Chairmanship of the Group. Only members of the Committee have the right to attend
the Committee meetings. Other individuals and external advisers may be invited to attend for all or part of any meeting as and when it is
appropriate. The quorum necessary for the transaction of business is two, each of whom must be an independent non-executive director.
The Group Company Secretary is secretary to the Committee.
The Committee has the authority to seek any information that is required, from any officer or employee of the Company or its subsidiaries.
In connection with its duties, the Committee is authorised by the Board to take such independent advice (including legal or other
professional advice, at the Group’s expense) as it considers necessary, including requests for information from, or commissioning
investigations by, external advisers.
Nomination Committee -
allocation of agenda time
Board composition
and succession planning
80%
Performance of
Group Chief Executive
15%
Other including
corporate governance
5%
Policy on appointments to the Board
Board appointments are made on merit against objective criteria. The issue of diversity was
debated by the Board in 2012 and a formal policy adopted. Further details on diversity can be
found in the Corporate governance statement on page 38. The Board’s policy is to appoint the
best possible candidates whilst embracing diversity in all its forms, but the Board has chosen
not to set any measurable objectives.
The process of identifying candidates for Board appointments commences with drawing up
a job specification which includes, in the case of non-executive appointments, an estimate
of the time commitment required. The Committee will then engage executive search
consultants to assist in ensuring a comprehensive listing of potential candidates from a range
of backgrounds.
As a number of our non-executive directors have a tenure of over six years, we have started
the process of refreshing the Board. In anticipation of the retirement of John Biles at the 2015
AGM, the succession of the Audit Committee Chairman was addressed and Ian Duncan was
appointed as a Non-Executive Director in November 2014. The step-by-step refreshment of
the Board will continue over the next two to three years.
Main activities of the Nomination Committee
In 2014 the Committee formally met four times and reviewed the composition and skills of
the Board, with a view to considering the current and future skills and experience that the
Board might require.
The Committee discussed succession planning and board diversity, and reviewed the
performance of the Group Chief Executive and other senior executives. In particular, the need
to broaden the Board membership with respect to gender, ethnicity and age was discussed.
The Chairman led the ensuing recruitment project and The Zygos Partnership (”Zygos”),
an international executive search consultancy, was engaged to identify suitable candidates
with relevant experience. Zygos is an independent executive search consultancy and it has
no other connections with the Group. Zygos produced a list of candidates and a sub-group
of the Committee met with several shortlisted candidates. All members of the Committee
and the executive directors met with the preferred candidate prior to confirmation of the
appointment. Ian Duncan, a British national and chartered accountant, was appointed to the
Board in November 2014. His international and financial experience will be a valuable addition
to the Board.
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Report of the Nomination Committee continued
The Committee considered and authorised the potential conflicts of interest which might arise where a director has fiduciary responsibilities
in respect of other organisations. The Committee concluded that no inappropriate conflicts of interest exist. The Committee also assigned
the Chairman to review and agree with the Group Chief Executive his personal objectives for the forthcoming year.
In December 2014 the Nomination Committee reviewed the Board’s size and composition, the frequency of the process for Board and
committee meetings, and best practice for the handling of a number of Board issues including drawing up a training programme for the
directors. The terms of reference of the Committee were reviewed in conjunction with the Model Terms of Reference issued by the Institute
of Chartered Secretaries and Administrators. The biographical details of the current directors can be found on pages 36 and 37. Having
reviewed their independence and contribution to Board matters, the Committee confirms that the performance of each of the directors
standing for re-election at the 2015 AGM continues to be effective and demonstrates commitment to their roles, including independence
of judgement and time commitment for Board and Committee meetings. Accordingly the Committee has recommended to the Board that,
with the exception of John Biles, all current directors of the Company be proposed for re-election at the forthcoming AGM.
Following 2012’s external Board Evaluation, the Board agreed to undertake an internal evaluation during 2014. Further details of the review
can be found in the Corporate governance statement. Recommendations arising from the 2014 internal evaluation of the Board have been
addressed or are in the process of being addressed. An external Board Evaluation will be undertaken in 2015.
As Chairman of the Committee I will be available at the 2015 AGM to answer questions relating to the work of the Committee.
On behalf of the Nomination Committee:
A.M. Thomson
Chairman of the Nomination Committee
26 February 2015
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Bodycote plc annual report for the year ended 31 December 2014 Report of the Audit Committee
Introduction
The Committee has continued to focus on the integrity of Bodycote’s financial reporting, risk management and internal controls and on
the quality of the external and internal audit processes. The Committee will continue to keep our activities under review as the regulatory
environment changes. This year I have given more emphasis to the work actually done by the Committee in addition to the other matters
we report upon.
Membership
The members of the Audit Committee are J.A. Biles, R. Rajagopal, E. Lindqvist and I.B. Duncan (who joined on 17 November 2014), all of
whom are independent Non-Executive Directors. Their biographical details are shown on pages 36 and 37 and their remuneration on page
63. The Group Company Secretary is the secretary to the Audit Committee.
Mr Biles has been Chairman of the Audit Committee since 16 August 2007 when he was appointed as a Non-Executive Director of the
Company. The Board considers that Mr Biles has recent and relevant financial experience. He qualified as a Chartered Accountant with Price
Waterhouse & Co, served as a plc Finance Director (FKI PLC 1998–2004 and Chubb Security PLC 1991–1997) and has chaired the Audit
Committee of several other PLCs.
Objective
The Committee’s objective is to provide effective governance over the Group’s financial reporting, including the adequacy of related
disclosures, the management and oversight of the Group’s systems of internal control, financial risks and the performance of internal audit
and the appointment and performance of the external auditor.
Role and responsibilities
The Audit Committee is a sub-committee of the Board whose main role is to encourage and safeguard the highest standards of integrity,
financial reporting, financial risk management and internal controls.
The responsibilities of the Audit Committee are set out in its Terms of Reference, which include all matters required by the Disclosure and
Transparency Rules and the Code, and are available on the Group’s website. These responsibilities include:
reviewing the form and content of the interim and year-end accounts and results announcements;
reporting to the Board on the appropriateness of the Group’s accounting policies and practices and significant areas of judgement;
advising the Board on whether the Committee believes that the Annual Report, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Group’s strategy, business model and performance;
reviewing risk management and internal controls;
overseeing the relationship with the external auditor; and
assessing the performance and reviewing the scope, results and effectiveness of internal audit.
Committee meetings
The Audit Committee met four times during 2014 and in February 2015 and all members attended all meetings that they were eligible to
attend. The Committee Chairman also invited the Chairman, Group Chief Executive, Group Finance Director, Group Financial Controller
and Group Head of Risk (who is responsible for internal audit) to attend all meetings. Other executives from the Group were also invited,
as appropriate, to attend certain meetings to provide a deeper level of insight into key issues. The Committee Chairman also invited the
external auditor, Deloitte LLP (“Deloitte”), to every meeting.
Mr Biles also held preparatory meetings separately with Deloitte and the Group Head of Risk prior to most Committee meetings to review
their reports and discuss issues in detail. The external auditor met with the Audit Committee without the executives present.
Main activities of the Committee during the year
As part of the process of working with the Board to carry out its responsibilities and to maximise effectiveness, meetings of the Committee
generally take place just prior to Board Meetings.
At its meetings, the Committee focused on the following main areas.
Financial reporting
The primary role of the Committee in relation to financial reporting has been to review with management and the external auditor the
appropriateness of the interim and annual financial statements concentrating on, amongst other matters;
the quality and acceptability of accounting policies and practices;
the application and impact of significant judgements or matters where there was significant discussion with the external auditor;
the clarity of disclosures and compliance with International Financial Reporting Standards; and
whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group’s strategy, business model and performance.
Reports from management were considered on significant matters, including in respect of litigation, treasury and tax matters and also
reports from the external auditor on the outcome of their work. The Committee challenged both management and Deloitte to ensure that
the scope of the audit was appropriate and that Deloitte had applied the necessary level of professional scepticism in their work.
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Principal areas of judgement
The principal areas of judgement considered by us in relation to the 2014 accounts were as follows:
Impairment of goodwill, intangible and tangible fixed assets. The Committee challenged the assumptions, particularly the discount rate
and growth factors, used in the discounted cash flow calculations for each cash generating unit, the sensitivity analysis applied and
the projected future cash flows used to support the carrying values of the goodwill and intangibles and tangible assets. Details of the
sensitivity analysis applied to key assumptions used in the impairment review are set out in note 10 to the Financial Statements on page
91. The Committee has concluded that no impairment charge is required in 2014.
Restructuring, reorganisation and environmental provisions. The Committee received reports, including from professional advisers, and
challenged the basis and completeness of the assumptions used to calculate the provisions and the appropriateness of disclosures in
the Annual Report. The Committee discussed with management the key judgements behind all provisions, taking note of the range of
possible outcomes, and agreed with their recommendations.
Taxation. A number of judgements are involved in calculating tax provisions and the level of deferred tax assets to be recognised. The
Committee reviewed the associated risks and challenged management’s assessment concerning the Group’s key tax risks, noting the
work of the OECD in respect of Base Erosion and Profit Shifting (BEPS), and management’s forecast of the future taxable profits of the
relevant businesses.
Going Concern. The Committee challenged the validity of the going concern assumption used in the preparation of the Annual Report, in
particular considering the Group’s forecast for profits and cash generation, its liquidity position, available borrowing facilities and covenant
compliance. Sensitivity analysis was undertaken to understand the impact of changes to all key variables.
Pension liabilities. Management took external professional advice in determining pension liabilities. The Committee challenged the
assumptions used, particularly in respect of inflation, the discount rate and life expectancy, by considering current norms and the
sensitivity of the reported liability to changes in the assumptions.
Risk management
The Committee reviewed a report at each meeting from the Group Head of Risk who has primary responsibility for developing the Group’s
risk management framework. The Committee reviewed changes to the principal risks and mitigating actions identified by management. The
Committee also received quarterly reports to the Open Door Line (an external independent service where employees may report matters of
concern) and assessed both how such calls are dealt with and whether there was any indication of material risk.
Internal control
At each meeting the committee considered and challenged reports from the internal auditors on the effectiveness of internal controls and
requested certain changes to those controls. The Committee also performed an annual review of the Group’s internal control processes and
considers the system to be effective and in accordance with Internal Controls Guidance for Directors in the Combined Code (the Turnbull
Guidance).
Internal audit
The internal audit plan for 2015 was presented to the Committee in December 2014 and accepted following discussions and challenge as
to the scope and areas of focus. At each meeting the Group Head of Risk presented a report to the Committee on the status of internal
audit plans for the current year, points arising from audits completed and follow up action plans to address areas of weakness. The status of
these actions is monitored closely by the Committee until they are completed. The Committee also received reports on actual or suspected
frauds and thefts by third parties and employees. None had any material financial impact on the Group and, where necessary, systems and
procedures were altered to minimise the risk of recurrence.
External audit
At the April and December meetings the external auditor presented their audit plans for the interim review and year end audit respectively.
The Committee considered and challenged both the scope and materiality to be applied to the Group audit and its components. In 2014 the
Committee considered carefully the scope in respect of smaller and more remote locations and noted that all local audits are undertaken
by Deloitte.
Cyber risk
The members of the Committee completed the cyber risk questionnaire produced by the Department for Business Innovation and Skills and
the Committee was further briefed on this important area by specialists from Deloitte. A cyber security improvement plan was proposed by
and agreed with the Chief Information Officer. The points identified are being progressively implemented, with the most important matters
having been concluded during 2014.
Training
Updates were presented to the Committee on new accounting developments and any changes in corporate governance requirements that
may affect the Group. Committee members also attended training briefings by accounting firms and other advisers.
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Bodycote plc annual report for the year ended 31 December 2014 Overview
The Committee examined the 2014 Annual Report and was specifically tasked by the Board to advise it on whether the 2014 Annual Report
is fair, balanced and understandable. The Committee did this by satisfying itself that there was a robust process of review and challenge to
ensure balance and consistency. In doing so the Committee examined these processes, which included the allocation of responsibility for
the preparation of certain sections of the Annual Report to individuals in the head office team and a second person taking responsibility for
the review process of each section of the Annual Report. Additional reviews were carried out by internal and external personnel including an
independent legal review.
The Committee also reviewed the Annual Report. Taken as a whole, in the light of their knowledge of the Group and its performance, the
outcome of the activities described above and based on robust discussion with both management and the external auditor, the Committee
has concluded that it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s
strategy, business model, position and performance, and reported to the Board accordingly.
External audit
Appointment
The Committee considers the re-appointment of the external auditor each year and as part of this process considers the independence of
the auditor and the effectiveness of the external audit process. Having reviewed the performance of Deloitte in 2014, the Committee has
decided to recommend to the Board that Deloitte be reappointed for the 2015 audit and a resolution to this effect will be put to the 2015
AGM. The Committee reviewed and agreed the fee for 2014.
The external auditor is required to change the lead partner every five years and other partners periodically in order to protect independence
and objectivity and provide fresh challenge to the Group. The current lead partner, Mrs N. Mitchell, has been in place for five years and will
be replaced by another Deloitte lead partner in 2015.
Deloitte has been the Group’s auditor for 13 years and in 2013 the Committee had decided that the audit would be put out to tender in 2014
to coincide with the end of the lead audit partner’s five year tenure. However, as the Competition & Markets Authority has now issued its
final form order clarifying transitional provisions and modifying requirements, and in view of the changeover of the Chairman of the Audit
Committee, it has been decided to delay the tender process until after the new Chairman is appointed.
Independence
The independence of the external auditor has been confirmed by Deloitte every half year and was last confirmed in February 2015. The
Committee considered Deloitte’s presentation and confirmed that it considered the auditor to be independent.
Effectiveness of the external audit process
The Committee has adopted a formal framework for the review of the effectiveness of the external audit process and audit quality which
includes the following aspects:
assessment of the engagement partner, other partners and the audit team;
audit approach and scope, including identification of risk areas;
execution of the audit;
interaction with management;
communication with and support to the audit committee;
insights, management letter points, added value and reports; and
independence, objectivity and scepticism.
An assessment questionnaire has been completed by each member of the Committee, by the Group Finance Director and other senior
finance executives. The feedback from the process is considered by the Audit Committee and provided to the external auditor and
management. The full formal questionnaire is completed every three years with key areas being completed every year. As the full formal
questionnaire was completed in 2013, only key areas were completed for this year.
The Committee assessed the effectiveness of management in the external audit process by considering timely identification and resolution
of areas of accounting judgement, the quality and timeliness of papers analysing those judgements and other documents provided for
review by the external auditor and the Committee.
The Committee considered the FRC Audit Quality Review Team report on Deloitte LLP dated May 2014. If the audit is selected for quality
review, the Committee understands that any resulting reports will be sent to the Committee by the FRC.
After considering the above matters the Committee felt that the external audit had been effective.
Non-audit services
The external auditor may be invited to provide services where their position as auditor renders them best placed to undertake the work.
However, no contracts in excess of £20,000 can be awarded to the external auditor without prior approval from the Chairman of the
Committee or, in his absence, another member of the Committee. Non-audit fees paid to the auditor are shown in note 3 on page 88 and
amounted to 6% of the audit fee.
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Internal audit
The internal audit programme is managed by the Group Head of Risk and provides independent assurance over the key financial processes
and controls in operation across the Group. The Group has engaged Ernst & Young LLP (“Ernst & Young”) since 2012 to provide certain
internal audit services. The Committee reviewed and approved the annual internal audit plan before the start of the financial year and
considered it appropriate to retain Ernst & Young as an internal audit service provider. The plan takes account of the Group’s strategic
objectives and risks and provides the degree of coverage deemed appropriate by the Committee.
Since the beginning of 2013, additional assurance has been obtained through control self-assessment. Internal auditors have received self-
certification from every plant and shared service centre that internal controls have been complied with and noting any non-compliance. A
summary of results is presented to the Committee. The accuracy of returns is monitored by Internal Audit by verification visits to a random
sample of sites.
In 2014 Ernst & Young attended one Committee meeting to give the members of the Committee an opportunity to hear first-hand from
them about their work.
The effectiveness of internal audit is reviewed and discussed annually with the Group Head of Risk and the Ernst & Young engagement
partner. In 2014 internal audit was assessed as effective.
Committee evaluation
The Committee’s activities formed part of the review of Board effectiveness which was undertaken internally this year. Based on this and
as a result of the work done during the year, the Committee has concluded that it has acted in accordance with its terms of reference and
carried out its responsibilities effectively.
On behalf of the Audit Committee:
J.A. Biles
Audit Committee Chairman
26 February 2015
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Bodycote plc annual report for the year ended 31 December 2014 Board report on remuneration
Introduction
As Chairman of the Remuneration Committee (“the Committee”) and on behalf of the Board of Directors I am pleased to present our Board
report on remuneration, based on the policy and disclosure requirements on directors’ remuneration, as required by the Large and Medium-
sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (“the Regulations”).
Last year saw significant change to the public disclosure of remuneration for executive directors. At the 2014 AGM, Bodycote put forward
its Remuneration Policy for a binding shareholder vote and received overwhelming support, with 96% of shareholders voting in favour of
our policy.
Consistent with last year, this report consists of two sections. The first part (Section A) summarises the policy of the Board with regard to
the remuneration of the directors and is a re-statement of the Remuneration Policy that was approved at the 2014 AGM. The second part
(Section B) describes how the policy was implemented in 2014 and how it will be implemented in 2015. Section B will be subject to an
advisory vote.
It is intended that Section A will be put forward to shareholders again at the 2017 AGM and Section B will continue to be put to the AGM
each year on an advisory basis.
2014 performance and remuneration outcomes
2014 has been another successful financial year for Bodycote. While Group revenue decreased by 1.7%, there was an increase of 4.0% at
constant exchange rates. Headline operating profit grew by 3.4% and headline earnings per share increased by 6.3% in 2014, compared to
an indicative increase of 3.9% in the FTSE 250 as a whole.
2014 base salary increases for the Executive Directors in the year were 3.0% for the Group Chief Executive and 3.0% for the Group Finance
Director. These increases compare to average 2014 salary increases across the Group of 2.9%.
Annual bonuses for the Executive Directors, which are based on a mix of Group headline operating profit, Group headline operating cash
flow and personal strategic objectives, paid out at 94.3% and 71.1% of base salary for the Group Chief Executive and Group Finance
Director respectively (equivalent to 72.5% and 71.1% of maximum opportunity).
Awards under the Co-investment Plan (CIP) made in May 2011 vested in May 2014 at 100% of maximum based on absolute Total
Shareholder Return (TSR) growth in the three financial years ending April 2014.
Awards under the Bodycote Incentive Plan (BIP) made in February 2012 are due to vest in March 2015 at 44.3% of maximum based on
a combination of return on capital employed (ROCE) and headline earnings per share (EPS) growth for the three financial years ended
December 2014.
£
Changes to remuneration arrangements
Following a contractual review of pension provision during 2013, the Committee decided that the level of salary supplement in lieu of
pension for Stephen Harris should be adjusted to 25% of salary. For David Landless, the salary supplement in lieu of pension was adjusted
to 25% of basic salary, up to the defined benefit pension scheme cap. The amount paid above that cap remained at 16% of basic salary. The
changes came into effect on 1 April 2014.
Our Chairman, Alan Thomson, elected to forgo an inflationary increase in fees in 2013. Therefore, Mr Thomson’s fees have remained
unchanged at £150,000 for the past two years. It was decided that with effect from 1 January 2014, the Chairman’s fee would be increased
to £160,000. This decision was taken so that Mr Thomson’s fees reflect the full scope of his role and responsibilities.
During the year, the Committee considered the revisions made to the UK Corporate Governance Code produced by the Financial Reporting
Council in September 2014. At this time, the Committee is satisfied that Bodycote’s existing Remuneration Policy continues to comply
with the Code. The Committee will continue to review ongoing developments in UK corporate governance and how these might impact
Bodycote’s Remuneration Policy.
As the Remuneration Policy for Executive Directors was approved at the 2014 AGM, no changes have been made to the remuneration
framework and policy this year. The decisions that we have taken this year have been within the framework of our existing Remuneration
Policy, as approved by our shareholders.
E. Lindqvist
Chairman of the Remuneration Committee
26 February 2015
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Board report on remuneration continued
Section A: Directors’ Remuneration Policy
This section is a restatement of the Directors’ Remuneration Policy approved by our shareholders at the 2014 AGM. Where relevant, we
have updated how the policy will apply in 2015. We have also updated the scenario charts, taking into account 2014 base salaries.
Remuneration Policy
The objective of Bodycote’s Executive Remuneration Policy is to provide remuneration that will reward and thereby retain talented people in
the business and enable the recruitment of appropriately skilled and experienced newcomers. Therefore, the Executive Remuneration Policy
is to set levels that attract and retain the talent responsible for executing strategy while ensuring the Group pays no more than is necessary.
Executive Remuneration Policy
The table below presents the Executive Director Remuneration Policy that was approved by Shareholders on 29 April 2014. It is anticipated
that this Remuneration Policy will apply for the period until the 2017 AGM.
Pay table
Pay element and link
to strategy
Base salary
To award competitive
salaries to attract and
retain the talent required
to execute the strategy
while ensuring the Group
pays no more than is
necessary
Pension
Provides a market-
competitive benefit in
order to attract the talent
required to execute the
strategy and provide a
market-competitive level
of provision for post-
retirement income
Other benefits
Provides market-
competitive benefits at
an appropriate cost
Maximum value
Operation
Whilst the Committee has not set a
maximum level of salary, ordinarily,
salary increases will not exceed the
average increase awarded to other
Group employees.
Increases may be above this level in
certain exceptional circumstances,
which may, for example, include:
Increase in scope or responsibility
A new Executive Director is being
moved to market positioning over
time
Group contribution (or cash equivalent)
of 30% of salary.
Base salaries for Executive Directors are typically reviewed annually
(or more frequently if specific circumstances necessitate this) by the
Committee in December each year.
Salary levels are set and reviewed taking into account a number of
factors, including:
Role, experience and performance of the executive
The Group’s guidelines for salaries for all employees in the Group
for the forthcoming year
The competitiveness of total remuneration assessed against
FTSE 250 companies and other companies of similar size and
complexity, as appropriate
The Group operates a defined contribution scheme. The policy
for Executive Directors is to make a contribution to this scheme
or a cash allowance of equivalent value1. Base salary is the only
pensionable element of remuneration.
The same general approach applies to all employees, although
contribution levels vary by seniority.
The Committee has not set a maximum
level of benefit, given that the cost of
certain benefits will depend on the
individual’s particular circumstances.
However, benefits will be set at an
appropriate level against market
practice, and needs for specific roles
and individual circumstances.
The Group provides a range of cash benefits and benefits in kind to
Executive Directors in line with market practice. These include the
provision of company car (or allowance), private medical insurance,
short- and long-term sick pay and death in service cover. This will also
extend to the reimbursement of taxable work-related expenses, such
as travel and relocation.
The provision of other benefits payable to an Executive Director
is reviewed by the Committee on an annual basis to ensure
appropriateness in terms of the type and level of benefits provided.
The Group provides a long-term savings vehicle into which the
Executive Directors may elect to waive a proportion of pension
allowance.
In the case of non-UK executives, the Committee may consider
providing additional allowances in line with relevant market practice.
1 As of April 2014, cash in lieu of pension entitlements are, for Stephen Harris, 25% of salary and, for David Landless, 25% of salary up to the cap of the
Company’s defined benefit pension scheme (in which he ceased to participate in April 2012) and 16% of salary above this cap.
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23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Pay element and link
to strategy
Annual bonus
To incentivise delivery of
corporate strategy and
reward delivery of superior
performance
Maximum value
Operation
The maximum potential is 130%
of base salary for the Group Chief
Executive and 100% of base salary for
other Executive Directors.
The level of bonus paid each year is determined by the Committee,
after the year end, based on performance against targets. At least
70% of the bonus will be based on the achievement of Group
financial targets.
For 2015:
70% of bonus is determined by Group headline operating profit
against set targets
10% of bonus is determined by Group headline operating cash
flow against set targets
20% of bonus is determined by the achievement of personal
objectives, which may vary year-on-year to ensure that objectives
are aligned with the business plan but our policy is to set goals
which relate to the achievement of business strategy
The weighting of these measures and specific targets is reviewed
on an annual basis to ensure alignment to strategy and is set to be in
line with budget. Information on measures and weights that applied
for 2013 and 2014 are shown on pages 61 and 62 of the Annual
report on remuneration.
The Committee considers the performance conditions selected
for the annual bonus to appropriately support the Group’s strategic
objectives and provide a balance between generating profit and cash
to enable the Group to pay a dividend, reward its employees and
make future investments; and achieve other strategic goals to drive
long-term sustainable return.
At the threshold performance level there will normally be no more
than 30% vesting. Awards commence vesting progressively from
this point with maximum performance resulting in awards vesting in
full.
Bonus payments are subject to the Committee’s Malus Policy as
outlined on page 55.
Bodycote Incentive Plan
(BIP)
To incentivise delivery
of long-term shareholder
value
Aids retention of senior
management
The maximum face value of an award
which may be granted under the plan in
any year is up to 175% of base salary
for the Executive Directors.
The BIP is our primary long-term incentive plan. Conditional shares
are awarded annually with vesting dependent on performance
conditions measured over at least three years. Awards will be based
on financial (and/or share price based) performance conditions as
determined by the Committee.
The performance conditions for awards granted in 2015 are as
follows:
50% of the award is subject to a ROCE performance condition
and 50% of the award is subject to a headline EPS performance
condition.
At the threshold performance level there will be zero
vesting. Awards commence vesting progressively from zero
on achievement of threshold performance with maximum
performance resulting in awards vesting in full.
In addition, for any award to vest (regardless of targets achieved)
headline EPS must not be below a defined hurdle level.
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYGovernanceStrategic report Board report on remuneration continued
Pay element and link
to strategy
Bodycote Incentive Plan
(BIP)
continued
Maximum value
Operation
Executive Directors can receive a
maximum matching share award of up
to 40% of basic salary.
Co-investment
Plan (CIP)
To provide a link
between short- and
long-term incentive
arrangements and to
provide further alignment
with shareholders
The Committee reviews levels of awards and targets annually. In
determining the performance targets applicable to awards, the
Committee takes into account the current and forecast performance
for the business and its sector, along with broker consensus, to
ensure stretch targets are set. Targets for each award are set out
in the relevant Annual report on remuneration. Targets that apply to
awards made in 2014 are shown on page 62 of the Annual report on
remuneration.
The Committee considers the performance conditions selected for
the BIP to appropriately underpin the Group’s strategic objectives.
Due to the nature of the Group’s activities, the Committee consider
ROCE to provide shareholders with an appropriate measure of
how well the Group is performing and is being managed, while
headline EPS provides a measure of the level of value created for
shareholders. ROCE and headline EPS are our top two KPIs as
shown on page 62 of the Annual Report.
The Committee retains the discretion in exceptional circumstances
to adjust the vesting outcome or the targets for awards as long as
the adjusted targets are no less stretching. In such an event the
Committee will consult with major shareholders and will clearly
explain the rationale for the changes in the Annual report on
remuneration.
Dividend equivalents are payable in respect of the shares which vest.
BIP awards are subject to the Committee’s Malus Policy as outlined
on page 55.
Executive Directors are invited annually to purchase shares up to
40% of basic salary (net of tax).
The CIP provides for the grant of awards of performance-based
matching shares to participants on an annual basis in a maximum
ratio of 1:1 to the gross investment made in deferred shares. The
deferred shares must be held for at least three years. The matching
shares will be based on share price-related performance conditions
as determined by the Committee.
For 2015:
The matching shares are subject to an absolute Total Shareholder
Return (TSR) performance measure which is expressed as
percentage Compound Annual Growth Rate (CAGR) in excess
of CPI:
Threshold performance results in a 0.5:1 match
Maximum performance results in a1:1 match
The calibration of performance targets is reviewed by the Committee
on an annual basis and is chosen in order to align with business
strategy. Targets for the cycle vesting in respect of the year are
disclosed in the Annual report on remuneration.
Dividend equivalents are payable in respect of the matching shares
which vest.
The Committee considers it appropriate to use an absolute TSR
performance measure for awards made under the CIP so that
participants are incentivised towards and rewarded for providing
absolute returns for shareholders.
CIP awards are subject to the Committee’s Malus Policy as outlined
on page 55.
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23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Pay element and link
to strategy
Shareholding
requirement
To provide alignment
between Executive
Directors and shareholders
Malus
To provide the Committee
flexibility to adjust
remuneration levels in
exceptional circumstances
Maximum value
Operation
Executive Directors are required to hold
at least 100% of basic salary.
Not applicable.
The Board operates a shareholding retention policy under
which Executive Directors are expected, within five years from
appointment, to build up a shareholding in the Company. The
expectation is to hold at least 100% of basic salary. For the purposes
of this requirement, only beneficially-owned shares will be counted.
The Malus Policy provides the Committee with discretionary powers
to use malus performance-based remuneration, should exceptional
circumstances occur. This Malus Policy is in respect of annual
bonuses and long-term incentive awards. Exceptional circumstances
necessitating malus would include:
Fraud;
Misconduct;
Significant misstatement of financial results; or
Miscalculation of performance conditions.
Should the Committee, in its opinion, consider such circumstances
to have occurred during a performance period from 2013 onwards
then the Malus Policy will provide the Committee discretion to
determine that any amounts paid or awards vested by reference
to the relevant period shall be subject to malus. Malus applies to
awards made from 2013.
The Committee expects the mechanism to use malus for any such
amounts will be to reduce future annual bonus payments, reduce
the value of subsisting awards that have, at the relevant time, not yet
vested or by reducing the level of award to be made at the following
grant date.
The Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they are not
in line with the policy set out on page 57, where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time
when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in consideration
for the individual becoming a director of the Company. For these purposes “payments” include the Committee satisfying awards of variable
remuneration and, in relation to an award over shares, the terms of the payment being “agreed” at the time the award is granted.
Executive Directors’ remuneration is reviewed annually and takes into account a number of factors. The Group adopts a policy of positioning
fixed pay for all its employees at a level which is competitive to market but which does not require the Group to pay any more than is
necessary. Senior and high performing individuals at all levels and across all functions within the organisation are invited to participate in
both annual and long-term incentive arrangements, which are similar to those offered to the Executive Directors to ensure reward strategy
is calibrated to provide substantive reward only on achievement of superior performance.
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYGovernanceStrategic report Board report on remuneration continued
Illustrative remuneration outcomes at different performance levels
The charts below demonstrate the total amount of remuneration payable to the Executive Directors should they achieve below, at or above
target performance.
Fixed Elements
Annual Variable Element
Long-Term Variable Elements
£2,354,487
46%
28%
£1,340,599
24%
29%
£633,496
100%
47%
26%
£2,500,000
£2,000,000
£1,500,000
£1,000,000
£500,000
£0
£1,502,565
46%
28%
26%
£797,682
25%
24%
51%
£403,426
100%
Minimum
On-Target
Maximum
Minimum
On-Target
Maximum
Group Chief Executive
Group Finance Director
For the purposes of this analysis, the following assumptions have been made:
Fixed elements comprise base salary and other benefits:
—For the Group Chief Executive: base salary of £498,838 and maximum potential benefits of £134,658.
—For the Group Finance Director: base salary of £318,591 and maximum potential benefits of £84,835.
Base salary reflects the base salary as at 1 January 2015.
Benefits reflect benefits received in 2014.
For on-target performance, an assumption of 60% of annual bonus is applied and vesting of 25% of the maximum for the BIP and 0.5:1
match for the CIP.
The value of the BIP and the CIP is based on the percentage of salary prior to the year of grant. The actual value on vesting will depend
on the share price on the vesting date, which is likely to be different from the date of grant.
The CIP assumes maximum contribution from the Group Chief Executive and Group Finance Director.
No share price increase has been assumed.
56
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Recruitment policy
When recruiting new executive directors, the Group’s policy is to pay what is necessary to attract individuals with the skills and experience
appropriate to the role to be filled, taking into account remuneration across the Group, including other senior executives, and that offered
by other FTSE 250 companies and other companies of similar size and complexity. New executive directors will generally be appointed on
remuneration packages with the same structure and pay elements as described in the Remuneration Policy table on page 52. Each element
of remuneration to be included in the package offered to a new director would be considered separately and collectively in this context.
On appointment to the Board or for a non-executive director taking an executive role:
Base salary levels will be set in consideration of the new recruit’s existing salary, location, skills and experience and expected contribution
to the new role, the current salaries of other executive directors in the Group and current market levels for the role.
Pension will be considered in light of the retirement arrangements which are in place for the other executive director(s), with a
contribution level considered by the Committee to be appropriate in light of the new recruit’s package as a whole, market practice at the
time and on a broadly equivalent basis to existing provisions for the other executive director(s).
Other benefits will be considered in light of the provision in place for the other executive director(s). If it is in the best interests of the
Group and shareholders, the Committee may consider providing additional benefits, potentially including relocation costs, tax equalisation
or advisers’ fees.
The initial notice period may be longer than the Group’s one year policy (up to a maximum of two years). However, this will reduce by one
month for every month served, until the Group’s policy position is reached.
For annual bonus, the Group would consider whether it was appropriate for the new recruit to participate in the same annual incentive
plan applicable to the current executive directors. If this was considered appropriate, the same financial measures, weighting, payout
scale and target as well as maximum bonus opportunity (as a percentage of salary) which apply to the existing director(s) would generally
apply to the new recruit.
The Committee will determine when long-term incentive awards will be granted during the year.
The Group is required to set out the maximum amount of variable pay which could be paid to a new director in respect of his recruitment.
In order to provide the Group with sufficient flexibility in a recruitment scenario, the Committee has set this figure as 450% of base
salary. This covers the maximum annual bonus and the maximum face value of any long-term incentive awards. This level of variable pay
would only be available in exceptional circumstances, and in order to achieve such a level of variable pay, stretching targets would need to
be met. For the avoidance of doubt, this 450% variable pay limit excludes the value of any “buy-out” payments or awards associated with
forfeited awards.
For an external appointment, although there are no plans to offer additional cash and/or share-based payments on recruitment, the
Committee reserves the right to do so when it considers this to be in the best interests of the Group and shareholders. Such payments
may take into account remuneration relinquished when leaving the former employer and would reflect the nature, time horizons and
performance requirements attached to that remuneration. Shareholders will be informed of any such payments at the time of appointment.
The Committee may make awards on hiring an external candidate to “buy-out” awards which will be forfeited on leaving the previous
employer. Our approach to this is to carry out a detailed review of the awards which the individual will lose and calculate the estimated
value of them. In doing so, we will consider the vesting period, the option exercise period if applicable, whether the awards are cash or
share-based, performance-related or not, the Group’s recent performance and payout levels and any other factors we consider appropriate.
If a buy-out award is to be made, the structure and level will be carefully designed and will generally reflect and replicate the previous
awards as accurately as possible. We will make the award subject to appropriate malus provisions in the event that the individual resigns or
is summarily terminated within a certain timeframe. An explanation will be provided at the time of recruitment of why a buy-out award has
been granted.
Shareholders will be informed of any director appointment and the individual’s remuneration arrangements as soon as practicable following
the appointment via an announcement to the regulatory news services.
Fee levels for a new Chairman or new non-executive directors will be determined in accordance with the policy set on page 52.
Termination Remuneration Policy
It is the Group’s policy that executive directors have service contracts with a one-year notice period and terminable by one year’s notice
by the employer at any time, and by payment of one year’s basic salary and other fixed benefits in lieu of notice by the employer. All future
appointments to the Board will comply with this requirement.
Currently, under the terms of the executive directors’ contracts, the Group may at its choice, in lieu of giving notice, terminate an executive
director’s service contract by making a payment equivalent to:
One year’s annual base salary, 25% of base salary in respect of all other remuneration and benefits (other than annual bonus and
incentives), and annual bonus equal to the average bonus paid up to three years prior to the date of notice.
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYGovernanceStrategic report Board report on remuneration continued
Our policy is not to have a change of control clause in executive directors’ service contracts. S.C. Harris does not have a change of control
clause. D.F. Landless’ service contract was agreed in accordance with what was considered best practice at the time of its execution in
2001 and provides for one year’s remuneration if his employment is terminated on a change of control. This provision has been preserved.
To the extent that executive contracts are renewed, or new appointments made, the Committee will continue to adopt a policy of not
having change of control clauses in service contracts. In any case, legally appropriate factors would be taken into account to mitigate any
compensation payment, covering basic salary, annual incentives and benefits, which may arise on the termination of employment of any
executive director, other than payments made on a change of control or for payments in lieu of notice.
In the event that an executive director leaves the Group, the Committee’s policy for exit payments is to consider the reasons for cessation
and consequently whether any exit payments, other than those contractually required, are warranted.
On cessation of employment, awards under the BIP and CIP will lapse in full, unless the Committee in its absolute discretion determines
otherwise. In instances where the Committee determines that awards should not lapse in full, the Committee will consider the
performance conditions applying to any unvested awards and the performance period which has elapsed. Awards will usually be subject
to some form of time pro-rating reduction to reflect the unexpired portion of the performance or deferral period concerned. Awards that
are subject to performance conditions will usually only vest to the extent that these conditions are satisfied. Awards which do not lapse on
cessation of employment may either vest at that time or on their originally anticipated vesting date.
On termination, the accumulated funds invested in the Bodycote Investment Incentive Plan (further information on this long-term savings
vehicle is available on page 61) will normally be released to the participant, subject to Committee discretion.
On change of control the awards will generally vest subject to performance and time apportionment as determined by the Committee and
in accordance with the rules of the relevant plan.
Service contracts
All directors’ service contracts are available for inspection at the Company’s registered office.
A summary of the key terms of the executive directors’ service contracts is set out below:
Group Chief Executive
Group Finance Director
Date of service contract 6 October 2008
Notice period
12 months
Remuneration
Annual base salary
26 September 2001
12 months
Annual base salary
Potential for cash in lieu of pension
Potential for cash in lieu of pension
Reimbursement of expenses (if satisfactory
Reimbursement of expenses (if satisfactory
evidence is provided)
Private medical insurance
Company car allowance
evidence is provided)
Private medical insurance
Company car allowance
Entitlement to receive an annual performance
Entitlement to receive an annual performance
related bonus award
related bonus award
Entitlement to one year’s remuneration if
employment is terminated on a change of control
Termination
The Group has the right to terminate on payment of a
termination payment with agreement of executive
The Group has the right to terminate on payment of a
termination payment
Non-competition
During employment and for 12 months thereafter
During employment and for 12 months thereafter
Other than the contents of the contracts, there are no other obligations that may give rise to remuneration.
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Bodycote plc annual report for the year ended 31 December 2014 Chairman and Non-Executive Directors Policy
The Chairman and each Non-Executive Director hold letters of appointment, which have been agreed and set out the terms of their
appointment, including membership of the Board Committees, the fees to be paid and the time commitment expected from the director.
It is the Board’s policy that the Chairman and Non-Executive Directors’ fees are reviewed on an annual basis. The fees for the Chairman
are reviewed by the Board in the absence of the Chairman. The fees for the Non-Executive Directors are reviewed by the Chairman and
Executive Directors. When reviewing fees, the primary source for comparative market data is FTSE 250 companies and other companies of
similar size and complexity, as appropriate.
The Committee seeks to recruit Non-Executive Directors with the experience and balance of personal skills that will make a major
contribution to the Board and its committee structures, and, consequently, ensures that fees are set at a level that will attract such
individuals.
The Group’s policy is that the Chairman and Non-Executive Directors receive a fixed fee for their services as members of the Board and
its Committees. The fee structure may also include additional fees for chairing a Board Committee and/or for further responsibilities (for
example, Senior Independent Directorship). Fee levels take into account the level of time commitment, duties and responsibilities involved.
The Chairman and Non-Executive Directors are not entitled to any pension or other employment benefits or to participate in any incentive
scheme. In line with the Articles of Association, accumulative Non-Executive Director fees are capped at £500,000 per annum.
Director
A.M. Thomson
J.A. Biles
R. Rajagopal
E. Lindqvist
I.B. Duncan
Date of appointment
Notice period
1 December 2007
16 August 2007
24 September 2008
1 June 2012
17 November 2014
6 months
6 months
6 months
6 months
6 months
Fees retained for external non-executive directorships
To broaden the experience of executive directors, the position of non-executive director may be held in other companies, provided that
permission is sought in advance. Any external appointment must not conflict with the directors’ duties and commitments to Bodycote plc.
S.C. Harris has held such a position at Mondi plc since 1 March 2011 and in accordance with Group policy he retained fees for the year of
£85,175. D.F. Landless was appointed a Non-Executive Director of Luxfer Holdings plc with effect from 1 March 2013 and retained fees for
the year of £46,955. In addition D.F. Landless was given 3,772 of Luxfer American Depositary Receipts valued at $70,084 at the date of
grant on 30 May 2014.
Statement of consideration of employment conditions elsewhere in the Group
The Group adopts a policy of positioning fixed pay for all its employees at a level which is competitive to market but which does not
require the Group to pay any more than is necessary. Senior and high performing individuals at all levels and across all functions within the
organisation are invited to participate in both annual and long-term incentive arrangements, similar to the Executive Directors, to ensure
reward strategy is calibrated to provide substantive reward only on achievement of superior performance.
The Committee does not consult directly with employees when formulating Executive Director pay policy. However, it does take into
account information provided by the Human Resources function and feedback from employee satisfaction surveys.
In formulating Executive Director pay policy, the Committee receives information on all employee pay conditions throughout the Group.
Statement of consideration of shareholder views
The Committee always welcomes the views of shareholders in respect of pay policy, in addition to those views expressed on behalf of
shareholders by their respective proxy advisers. The Committee documents all remuneration related comments made at the Group’s
AGM and feedback received during consultation with shareholders throughout the year. Any feedback received is fully considered by the
Committee and, where appropriate, amendments are made to the Remuneration Policy.
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYGovernanceStrategic report Board report on remuneration continued
Section B: Annual report on remuneration
Committee membership
During 2014 the Committee was chaired by E. Lindqvist. The Committee also comprised J.A. Biles, A.M. Thomson, R. Rajagopal and
I.B. Duncan (appointed 17 November 2014).
The Committee’s full terms of reference are available on the Group’s website. No Committee members have any personal financial interest
(other than as a shareholder), conflict of interest, cross-directorships or day-to-day involvement in the running of the business.
Committee activities
During 2014 the Committee met five times and once in February 2015 to consider, amongst other matters:
Theme
Agenda items
Best practice
The Group’s Remuneration Policy, discussions and feedback from the Group’s AGM in 2014 and the revised
Corporate Governance Code and Investment Management Association (IMA) guidelines on executive
remuneration
Remuneration Policy
Review of the current UK corporate governance environment and the implications for the Group
Consideration and approval of the Remuneration Policy to be put to shareholders, as summarised in
Section A of the Board report on remuneration
Implementation Report
Consideration and approval of the Implementation Report to be put to shareholders and as summarised in
Executive Directors’
and senior executives’
remuneration
Section B of the Board report on remuneration
Basic salaries payable to each of the Executive Directors
The annual bonus and payments for the year ended 31 December 2014
The annual bonus structure and performance targets for the year ended 31 December 2015
The conditional awards and vestings made under the Bodycote Incentive Plan (BIP) and Co-investment
Plan (CIP) during the year
Pension arrangements for senior executives
Reporting
Consideration and approval of the Board report on remuneration
Advisers to the Committee
The Committee is advised by Towers Watson on remuneration matters including providing advice on matters under consideration by the
Committee, updates on good practice, legislative requirements and market practice. Towers Watson’s fees for this work amounted to
£17,875. Legal advice was provided by Eversheds and fees amounted to £9,545. The Remuneration Committee is satisfied that the advice
provided on executive remuneration is objective and independent, and that no conflict of interest arises as a result of these services.
The Committee also received assistance from the Group Chief Executive and Group Company Secretary, although they do not participate
in discussions relating to the setting of their own remuneration. The Committee in particular consulted with the Group Chief Executive and
received recommendations from him in respect of his direct reports.
Statement of shareholder voting
The table below displays the voting results on the remuneration resolutions at the 2014 AGM:
Votes cast
For
Against
Number of abstentions
2013 Board report on
remuneration
(% votes)
2013 Directors’
Remuneration Policy
(% votes)
79%
99%
1%
37,018
79%
96%
4%
40,318
Remuneration for 2014
This section of the report explains how Bodycote’s Remuneration Policy has been implemented during the financial year.
Base salary
The base salaries of the Executive Directors are reviewed on an annual basis. As described in Section A: Directors’ Remuneration Policy, a
number of factors are taken into account when salaries are reviewed, principally market level salaries payable in FTSE 250 companies and
other companies of similar size and complexity, and the individual’s role, experience and performance. The 2014 base salary increases and
comparative figures can be found in the Remuneration Committee Chairman’s letter.
Base salaries are reviewed in January every year.
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23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Name
S.C. Harris
D.F. Landless
Position
Salary from 1 January 2014
Salary from 1 January 2015
Group Chief Executive
Group Finance Director
£484,306
£309,312
£498,838
£318,591
Pension
Following a contractual review of pension provision during 2013, it was decided that the salary supplement in lieu of pension rate should be
increased for both Executive Directors. This was implemented on 1 April 2014.
S.C. Harris is entitled to a salary supplement in lieu of pension at a rate of 25% of basic salary. In addition, a death in service benefit of
eight times basic salary is payable.
D.F. Landless no longer participates in the Group’s UK contributory defined benefit and defined contribution pension schemes due to him
prospectively reaching the lifetime limit. Instead Mr Landless receives a salary supplement of 25% of basic salary up to the defined benefit
scheme cap and 16% of basic salary above the cap, of which £63,287 was waived during the year. In addition, a death in service benefit of
eight times basic salary is payable.
Taxable benefits
The Group provides other cash benefits and benefits in kind to directors as well as sick pay and life insurance. These include the provision of
company car (or allowance) and family level private medical insurance.
Name
S.C. Harris
D.F. Landless
Car/car allowance
£13,600
£18,830
Fuel
£2,400
£1,200
Healthcare
Salary supplement
£1,214
£1,518
£117,444
£63,287
Long-term savings vehicle
During the financial year the Group made discretionary contributions into the Bodycote Investment Incentive Plan. The plan is entirely cash-
based to provide an alternative long-term savings vehicle for senior executives. The Committee considers the plan an essential tool to aid
retention while recognising the need for executives to have flexibility in long-term financial planning. Group contributions are discretionary,
vary year-on-year and are made in lieu of other elements of pay and therefore are cost neutral to the Group. Any risk in relation to the value
of investments made in the plan is borne entirely by participants.
Annual performance-related bonus
£
Retrospective disclosure of 2013 annual bonus targets
In last year’s Annual report on remuneration, the Committee communicated its intention to retrospectively disclose information in respect of
the 2013 annual bonus targets. The table below provides details of the annual bonus awards received in respect of the Group and individual
performances in the 2013 financial year.
The financial performance of the Group was strong in 2013. Our reported revenues increased by 5.4% (3.0% at constant exchange rates)
and headline operating profit grew by 10.2%. The actual payout, as a percentage of the total award, in respect of Group headline operating
profit and Group headline operating cash flow, was 26.8% and 10.0% respectively. The targets for Group headline operating profit and
Group headline operating cash flow were £107.8m and £93.8m respectively. The Committee also assessed the Group Chief Executive and
Group Finance Director’s performance against their personal objectives, which included targets relating to safety, customer service and
implementation of major projects. The Committee concluded that personal strategic objectives were achieved on target at a level of 13.8%
and 12.0% for the Group Chief Executive and Group Finance Director respectively.
Performance range (threshold to stretch)
Weighting
Threshold
Target
Above target
70%
10%
20%
Measures
Financial (80% of award)
Group headline operating profit
Group headline operating cash flow
Personal (20% of award)
Personal strategic objectives
Total
Actual payout
(% of award)
Group
Chief
Executive
Group
Finance
Director
26.8%
26.8%
10.0%
10.0%
13.8%
50.6%
12.0%
48.8%
23846.02 9 March 2015 12:35 PM Proof 2
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYGovernanceStrategic report
Board report on remuneration continued
2014 Annual bonus
The annual bonus potential for the period to 31 December 2014 for Executive Directors was split 70% in respect of Group headline
operating profit, 10% Group headline operating cash flow and 20% on personal strategic objectives. These performance conditions and their
respective weightings reflected the Committee’s belief that any incentive compensation should be linked both to the overall performance of
the Group and to those areas of the business that the relevant individual can directly influence.
The performance of the Group during the year included headline operating profit of £111.1m (a 3.4% increase on the previous year, 9.2% at
constant exchange rates) and headline operating cash flow of £100.0m (an 8.2% decrease on last year).
In light of the above performance, the Committee concluded that 72.5% of maximum bonus is payable to the Group Chief Executive and
71.1% of maximum bonus is payable to the Group Finance Director. As described in Section A: Directors’ Remuneration Policy, 100% of
annual bonus is payable in cash.
Similar to the approach taken last year, it is the Committee’s intention to disclose information relating to the performance targets for
2014 annual bonus awards in next year’s Annual report on remuneration, unless disclosure of the targets would provide competitors with
commercially sensitive information.
£
Bodycote Incentive Plan (BIP)
Awards with performance periods ending in the year
BIP awards made in 2012 had a three-year performance period ending on 31 December 2014, with 50% of the award subject to satisfaction
of a ROCE target and 50% subject to a headline EPS target. The threshold and maximum targets along with the vesting schedule are set
out in the tables below.
ROCE
Headline EPS
Performance target
Vesting of element
(% of maximum)
Performance target
Vesting of element
(% of maximum)
Threshold performance
Maximum performance
Performance achieved
18.7%
23.0%
20.7%
0%
100%
67.2%
32.6p
62.2p
43.8p
0%
100%
21.4%
If headline EPS at the end of the performance period was below 31.1p, then no awards would vest. Over the period, ROCE was 20.7% and
the headline EPS figure for the year of 43.8p represented growth of 6.3%. This performance resulted in the ROCE and headline EPS targets
being achieved at a level of 67.2% and 21.4% respectively. This resulted in an overall vesting level of 44.3%. The number and value of shares
which vested to each of the Executive Directors is set out on page 65 of this report.
Awards made in the year
BIP awards with a face value of 175% of salary were granted to both Executive Directors in April 2014 and will vest in March 2017, subject
to the achievement of ROCE and headline EPS growth performance targets. The performance period will end on 31 December 2016. The
vesting of these awards will be based on ROCE and headline EPS targets summarised in the table below. The Committee has reviewed
the performance targets and these have been altered accordingly to ensure that they remain stretching targets which underpin the Group’s
objectives.
ROCE
Headline EPS
Performance target
Vesting of element
(% of maximum)
Performance target
Vesting of element
(% of maximum)
Threshold performance
Maximum performance
18.7%
23.0%
0%
100%
45.0p
61.3p
0%
100%
If headline EPS at the end of the performance period is below 41.8p, then no awards would vest. The Committee has decided that the
ROCE figure of 23% is a good aspiration for the Group and is cognisant of the fact that overdriving incentives on capital employed can lead
to unintended consequences in terms of short-term capital under investment for the business. Dividend equivalents are payable in respect
of those shares that vest.
The number and value of shares that were awarded to the Executive Directors during the year is set out on page 65.
Co-investment Plan (CIP)
Awards with performance periods ending in the year
As described in Section A: Directors’ Remuneration Policy, CIP awards are subject to an absolute TSR target. The CIP awards made in 2011
had a three-year performance period ending on 30 April 2014. The absolute TSR performance targets applicable to this award are set out
below.
Absolute TSR performance target
4% CAGR + CPI
10% CAGR + CPI
Vesting level
50% (0.5:1 match)
100% (1:1 match)
Over the three-year period, the Group achieved absolute TSR growth of 36.3%. This performance resulted in the TSR targets being achieved at
a level of 100%. The number and value of shares which vested to each of the Executive Directors is set out on page 65.
62
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Awards made in the year
CIP awards were made to both Executive Directors in May 2014 and will vest in May 2017, subject to the achievement of absolute TSR
targets summarised in the table below. The Committee reviewed the performance targets and felt that they remain appropriately stretching.
Therefore, no change has been made to the absolute TSR performance targets used in the previous year. Dividend equivalents will be
payable in respect of the shares which vest.
Performance target
Threshold
Target
Vest
Target
Vest
Maximum
Absolute TSR
4% CAGR + CPI
50% (0.5:1 match)
10% CAGR + CPI
100% (1:1 match)
The number and value of shares that were awarded to the Executive Directors during the year is set out on page 65.
Implementation of policy in 2015
Base salary is reviewed on an annual basis. The 2015 base salary increases from 1 January 2015 were 3.0% for the Group Chief Executive
and 3.0% for the Group Finance Director. As 2015 base salary increases for the Group are applied after the publication of this report, the
comparative figure for 2015 can only be provided in next year’s report. The comparative figure for 2014 is disclosed in the Remuneration
Committee Chairman’s letter on page 51.
The Committee does not intend to change the benefit arrangements for the Executive Directors in 2015. For 2015 the Committee has
determined that the annual bonus opportunity for Executive Directors and senior executives will again be contingent on meeting targets
relating to operating profit, cash management and personal objectives. The Committee has reviewed targets for the year to ensure they
remain appropriately stretching and relevant for the Group’s business strategy.
The Committee will review the performance measures for awards under the CIP and the BIP in 2015 to ensure they remain appropriately
stretching in light of the Group’s expectations in relation to performance.
Auditable section
Total single figure table
Incumbent
Executive Directors
S.C. Harris
D.F. Landless
Non-Executive Directors
A.M. Thomson
J.A. Biles
R. Rajagopal
E. Lindqvist
I.B. Duncan4
Total
salary/
fees
£000
Total
other
benefits1
£000
Total
fixed
pay
£000
Annual
bonus
£000
Financial
year
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
484
470
309
300
160
150
63
61
50
46
58
56
8
135
121
85
84
–
–
–
–
–
–
–
–
–
619
591
394
384
160
150
63
61
50
46
58
56
8
456
278
220
132
–
–
–
–
–
–
–
–
–
Total
BIP2
£000
652
1,760
417
1,178
–
–
–
–
–
–
–
–
–
Total
CIP3
£000
Total
LTI
£000
Total
variable
pay
£000
76
460
20
44
728
2,220
437
1,222
1,184
2,498
657
1,354
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000
1,803
3,089
1,051
1,738
160
150
63
61
50
46
58
56
8
Notes accompanying the total single figure table
1 Other benefits consist of company car (or allowance), family level private medical insurance and salary supplement. Life assurance cover and sick pay are
also provided.
2 The 2014 figures relate to BIP awards made in 2012 with performance periods ending on 31 December 2014. The shares vested on 2 March 2015 at a share
price of 760.5p.
3 The 2014 figures relate to CIP awards made in 2011 with performance periods ending 30 April 2014. The shares vested in May 2014 at a share price of 713p.
4
I.B. Duncan was appointed in November 2014.
23846.02 9 March 2015 12:35 PM Proof 2
63
Financial statementsAdditional informationwww.bodycote.comStock code: BOYGovernanceStrategic report Board report on remuneration continued
Directors’ shareholdings
The interests in ordinary shares of directors and their connected persons as at 31 December 2014, including any interests awarded under
the CIP or BIP, are presented below.
As at 26 February 2015, the interests of the Directors were unchanged from those at 31 December 2014.
Executive Directors
S.C. Harris
D.F. Landless
Non-Executive Directors
A.M. Thomson
J.A. Biles
R. Rajagopal
E. Lindqvist
I.B. Duncan
Beneficial
579,812
500,493
44,312
24,962
22,368
5,000
––
Shares subject
to performance
conditions BIP1
Shares subject
to performance
conditions CIP1
449,728
287,248
11,450
23,299
––
––
––
––
––
––
––
––
––
––
1 Figures relate to unvested awards under the BIP and the CIP.
As described in Section A: Directors’ Remuneration Policy, the Board operates a shareholding retention policy under which Executive
Directors and other senior executives are expected, within five years of appointment, to build up a shareholding in the Company. In respect
of Executive Directors, the expectation is to hold at least 100% of basic salary. For the purposes of this requirement, only beneficially-
owned shares will be counted. As at 31 December 2014, the Committee is satisfied that Executive Directors have fulfilled this requirement.
Comparison of overall performance and pay
The chart below shows the value over the last seven financial years of £100 invested in Bodycote plc compared with that of £100 invested
in the FTSE All Share Industrial index. The Committee has chosen this index as the most reasonable comparison in terms of performance.
The points plotted represent the values at each financial year end.
£700
£600
£500
£400
£300
£200
£100
£0
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Bodycote FTSE All Share Industrial Index
The table below shows how total remuneration for the Group Chief Executive has developed over the last five years.
Single figure of remuneration £000
Annual variable element award (as a % of maximum) opportunity
Long-term incentive vesting (as a % of maximum)
2010
906
98%
0%
2011
3,252
95%
100%
2012
3,840
73%
100%
2013
3,089
46%
99%
2014
1,803
73%
44%
The total value of salary, non-pension benefits and bonus increased by 25.1% for the Group Chief Executive in 2014 compared to the
previous financial year (2013: £765,657; 2014: £957,998). The equivalent average percentage change for the senior management population
as a whole was a 17.1% increase on 2013. The salary increase for the Group Chief Executive in 2014 compared to the previous financial year
was 3.0% (2013: £470,200; 2014: £484,306). Non-pension benefits decreased by 0.9% for the Group Chief Executive in 2014 compared
to 2013 (2013: £17,364; 2014: £17,214). Bonus payable increased by 36.1% for the Group Chief Executive in 2014 compared to 2013 (2013:
£278,093; 2014: £456,478).
64
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Relative importance of pay spend
The table below shows the total expenditure in relation to staff and employee costs, distributions to shareholders and the Group’s
corporation tax paid in 2013 and 2014.
Staff and employee costs
Distributions to shareholders
Corporation tax paid
2014
£m
234.9
45.2
19.0*
2013
£m
242.3
24.0
22.5
* The decrease in corporation taxes paid in 2014 compared 2013 to 2014 is a timing issue, as US quarterly estimates of tax due in 2013 were overestimated,
resulting in a £5.6m overpayment. The 2013 overpayment has been offset against 2014 US tax payments.
CIP and BIP awards granted and vested during the year
Awards or grants were made under the CIP and BIP Schemes as follows:
BIP: Awards consisting of shares were granted to both Executive Directors, equivalent in value to 175% of their base salaries on 4 April
2014, and will vest after three years. Details of the awards are set out below. Awards are subject to continued employment and the
achievement of the performance conditions specified on page 62.
CIP: Awards consisting of shares were granted to both Executive Directors, equivalent in value to 13% of S.C. Harris’ base salary and
23% of D.F. Landless’ base salary on 30 May 2014, and will vest after three years. Details of the awards are set out below. The maximum
take up is 40% of the base salary and awards are subject to continued employment and the achievement of the performance conditions
specified on page 62.
Directors’ interests under the Bodycote Incentive Plan
Interests as
at 1 January
2014
Awarded
in year1
Vested
in year2
S.C. Harris
575,196
–
231,144
Lapsed
in year
3,623
At 31
December
2014
–
–
109,299
–
–
449,728
D.F. Landless
374,619
–
154,750
2,426
–
–
69,805
–
–
287,248
Market price
at award date
Market value
at date of
vesting
Vesting date
£2.98
£7.53
£2.98
£7.53
£7.62 3 March 2014
– March 2017
£7.62 3 March 2014
– March 2017
1 Mid-market closing price of a share on the day before grant was £8.16. The face value of the award to S.C. Harris was £822,836. The face value of the award to
D.F. Landless was £525,513.
2 Subject to satisfaction of the relevant performance conditions (details of which are set on page 62). The awards that vested during the year did so at 98.5% of
the maximum.
Directors’ interests under the Bodycote Co-investment Plan
S.C. Harris
D.F. Landless
Interests as
at 1 January
2014
14,011
–
16,747
–
Awarded
in year1
–
8,047
–
9,335
Vested
in year2
10,608
–
2,783
–
Lapsed
in year
At 31
December
2014
Market price
at award date
Market value
at date of
vesting
Vesting date
–
–
–
–
–
11,450
–
23,299
£3.75
£7.46
£3.75
£7.46
£7.13 23 May 2014
May 2017
–
£7.13 23 May 2014
–
May 2017
1 Mid-market closing price of a share on the day before grant was £7.37. The face value of the award to S.C. Harris was £60,031. The face value of the award to
D.F. Landless was £69,639.
2 Subject to satisfaction of the relevant performance conditions (details of which are set on page 62). The awards that vested during the year did so in full.
E. Lindqvist
Chairman of the Remuneration Committee
26 February 2015
23846.02 9 March 2015 12:35 PM Proof 2
65
Financial statementsAdditional informationwww.bodycote.comStock code: BOYGovernanceStrategic report Directors’ responsibilities statement
Responsibility of directors for the preparation of the Annual Report and financial statements
The directors are responsible for preparing the Annual Report, the Board report on remuneration and the financial statements in accordance
with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to
prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union and Article 4 of the IAS Regulation and have elected to prepare the parent company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the
directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company
and of the profit or loss of the Company for that period.
In preparing the parent Company financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the
financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in
business.
In preparing the Group financial statements, International Accounting Standard 1 requires that directors:
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information;
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
make an assessment of the Company’s ability to continue as a going concern.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial
statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement of the directors in respect of the Annual Report and financial statements
We confirm that to the best of our knowledge:
the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
the Strategic report includes a fair review of the development and performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they
face; and,
the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s performance, business model and strategy.
By order of the Board:
S.C. Harris
Group Chief Executive
26 February 2015
D.F. Landless
Group Finance Director
26 February 2015
66
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Independent auditor’s report
To the Members of Bodycote plc
Opinion on financial statements of Bodycote plc
In our opinion:
the financial statements give a true and fair view of the state of the Group’s and of the Parent company’s affairs as at 31 December 2014
and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union;
the Parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
The financial statements comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the
Consolidated and Company Balance Sheets, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity,
the Statement of Group and Company Accounting Policies and the related notes 1 to 29 and 1 to 11 for the Group and Company financial
statements respectively. The financial reporting framework that has been applied in the preparation of the Group financial statements is
applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of
the Parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
Going concern
As required by the Listing Rules we have reviewed the directors’ statement on page 23 that the Group is a going concern. We confirm that:
we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is
appropriate; and
we have not identified any material uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to
continue as a going concern.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of
resources in the audit and directing the efforts of the engagement team:
Risk
How the scope of our audit responded to the risk
Impairment of non-current assets
Given the Group’s significant asset base and the continued
macro-economic uncertainties in certain global territories, this risk
concerns the carrying value of intangible (including goodwill) and
tangible fixed assets. The Group’s assessment of the carrying value
of intangible and tangible fixed assets of £172.1m and £434.6m
respectively requires significant judgement, as described in note 10
and the key sources of estimation uncertainty within the accounting
policies. Particular attention is given to cash flow, growth rates,
discount rates and sensitivity assumptions.
Environmental provisions
Given the nature of the Group’s operations, a risk arises in
connection with the appropriateness and completeness of the
£14.0m (2013: £13.8m) environmental provisions, in particular, their
judgemental nature relative to the likely period of utilisation as
described in the critical judgements within the accounting policies.
The risk arises predominantly within the US component.
We challenged the assumptions used in the impairment model for
intangible and tangible assets. As part of our procedures we:
considered the appropriateness of the growth rate assumptions
by comparing them to historical trading performance for both
revenue and operating profit across the Group’s geographical
and market segments;
assessed the appropriateness of the assumptions concerning
inputs to the discount rate against latest market expectations.
In performing our procedures, we used our internal
valuation specialists and third party evidence to assess the
appropriateness of the discount rate applied; and
considered management’s assertions of the future utilisation of
assets supporting their carrying value by reviewing the strategic
plan for the business by cash generating unit.
We evaluated the environmental provisions by comparing the
basis for the recognition of provisions against the regulatory
and legal requirements, assessing the value of the provision
recognised and challenging the status and utilisation of provisions.
As part of our audit procedures we reviewed third party evidence
and assumptions detailing the assessment of environmental
liabilities for the Group together with correspondence from the
Group’s internal environmental remediation team. As part of these
procedures we also challenged the qualifications of management’s
experts. Where applicable, we also verified environmental
provisions to regulatory and legal correspondence.
23846.02 9 March 2015 12:35 PM Proof 2
67
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Independent auditor’s report continued
To the Members of Bodycote plc
Risk
How the scope of our audit responded to the risk
Taxation
The tax risk concerns the judgements and estimates applied in
the determination of tax balances, in particular in relation to the
recognition of deferred tax assets for tax losses across the Group
as disclosed in note 19 and provisions for liabilities attributed to
specific uncertain tax positions linked to the Group’s complex
corporate structures.
In conjunction with our taxation audit specialists, we have
assessed and challenged the appropriateness of management’s
assumptions and estimates in relation to the likelihood of
generating future taxable, as opposed to accounting, profits to
support the recognition of deferred tax assets by comparing to
forecast information and historical trends in loss utilisation. We
have also assessed the assumptions and judgements concerning
the adequacy of tax provisions for uncertain tax positions by
viewing the latest correspondence from the various tax authorities
and drawing on the experience of our tax specialists in respect of
similar situations.
Pensions
This risk concerns the appropriateness of actuarial assumptions
in calculating the Group’s IAS 19 gross liability of £129.5m (2013:
£108.7m). The valuation of the Group’s IAS 19 deficit involves
significant judgement as described in note 29 and in the key
sources of estimation uncertainty in the accounting policies, in
particular in relation to the discount rate, inflation and mortality
assumptions.
We have assessed the appropriateness of the assumptions
underpinning the valuation of the scheme liabilities. Specifically we
challenged the discount rate, inflation and mortality assumptions
applied in the calculation by using our internal pension specialists
to benchmark the assumptions applied against comparable third
party data and assess the appropriateness of the assumptions in
the context of the Group’s own position.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed on
page 48.
Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to
express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the
risks described above, and we do not express an opinion on these individual matters.
Revenue
Full audit scope
86%
Review at group level
14%
Profit before tax
Full audit scope
93%
Review at group level
7%
68
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that
makes it probable that the economic decisions of a reasonably knowledgeable person would
be changed or influenced. We use materiality both in planning the scope of our audit work and
in evaluating the results of our work.
We determined materiality for the Group to be £4.9m (2013: £6.8m), which is below 5%
(2013: 7.5%) of pre-tax profit, and below 1% (2013: 1%) of equity. We have reduced the
percentage applied to pre-tax profit to align more closely with comparable companies.
We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of £145,000 (2013: £145,000), as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds. We also report to
the Audit Committee on disclosure matters that we identified when assessing the overall
presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment,
including group-wide controls, and assessing the risks of material misstatement at the Group
level.
In 2014 we have continued to have direct Group oversight, leadership and control over the
components in the Shared Service Centre (SSC) in Prague and the USA. We have further
redesigned our audit work and the shape of the audit teams as more components have
transitioned into the SSC. Consistent with the prior year and as agreed with the Audit
Committee, the smaller components in territories such as China, Singapore and Mexico have
remained in scope and we have maintained the scoping levels in territories such as Brazil, the
Netherlands, Luxembourg, Germany and Turkey which were increased in 2013.
As a consequence of the audit scope determined, we achieved coverage of approximately
86% of revenue, 97% of profit before tax and 88% of net assets. Our audit work at each
location was executed at levels of materiality applicable to each individual entity which was
lower than group materiality. Component materiality ranged from £0.5m to £2.9m.
The Group audit team continued to follow a programme of planned visits that has been
designed so that a senior member of the Group audit team visits each of the locations
included as full scope for the Group audit at least once every three years and the most
significant of them at least once a year. In years when we do not visit a significant component
we will include the component audit team in our team briefing, discuss their risk assessment,
attend close meetings by conference call and video conferencing and review documentation
of the findings from their work.
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the financial statements.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
we have not received all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the Parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
the Parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been
made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. We have
nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review the part of the Corporate Governance Statement relating to the company’s
compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual
Report is:
materially inconsistent with the information in the audited financial statements; or
apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of
performing our audit; or
otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit
and the directors’ statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report
appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. We
confirm that we have not identified any such inconsistencies or misleading statements.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for Auditors. We also comply with International Standard on Quality Control 1
(UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied.
Our quality controls and systems include our dedicated professional standards review team and independent partner reviews.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an
auditor’s 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 and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the Group’s and the Parent company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation
of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material
inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report.
Nicola Mitchell (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Manchester United Kingdom
26 February 2015
23846.02 9 March 2015 12:35 PM Proof 2
69
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Consolidated income statement
For the year ended 31 December 2014
Revenue
Cost of sales and overheads
Operating profit prior to exceptional items
Acquisition costs
Reorganisation costs
Operating profit
Investment revenue
Finance costs
Profit before taxation
Taxation
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share
Basic
Diluted
All activities have arisen from continuing operations.
Note
1
3
5
6
7
9
2014
£m
609.1
(501.9)
107.2
(0.2)
–
107.0
0.1
(3.4)
103.7
(24.4)
79.3
79.4
(0.1)
79.3
Pence
41.7
41.7
2013
£m
619.6
(516.7)
102.9
–
(0.8)
102.1
0.1
(3.8)
98.4
(25.3)
73.1
73.0
0.1
73.1
Pence
38.5
38.5
Consolidated statement of comprehensive income
For the year ended 31 December 2014
Profit for the year
Items that will not be reclassified to profit or loss:
Actuarial gains /(losses) on defined benefit pension schemes
Tax on items not reclassified
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss:
Exchange losses on translation of foreign operations
Movements on hedges of net investments
Total items that may be reclassified subsequently to profit or loss
Other comprehensive expense for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
2014
£m
79.3
0.5
1.0
1.5
(7.0)
–
(7.0)
(5.5)
73.8
73.9
(0.1)
73.8
2013
£m
73.1
(0.3)
(0.1)
(0.4)
(3.1)
(1.3)
(4.4)
(4.8)
68.3
68.3
–
68.3
70
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
Consolidated balance sheet
At 31 December 2014
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Other investments
Deferred tax assets
Trade and other receivables
Current assets
Inventories
Current tax assets
Trade and other receivables
Cash and bank balances
Assets held for sale
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Obligations under finance leases
Borrowings
Provisions
Net current assets / (liabilities)
Non-current liabilities
Retirement benefit obligations
Deferred tax liabilities
Obligations under finance leases
Provisions
Other payables
Total liabilities
Net assets
Equity
Share capital
Share premium account
Own shares
Other reserves
Hedging and translation reserves
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Note
10
11
12
13
19
15
14
15
15
16
21
20
17
22
29
19
20
22
21
23
2014
£m
138.4
33.7
434.6
–
27.2
1.6
635.5
20.9
20.3
109.0
38.5
0.9
189.6
825.1
119.3
33.4
0.1
2.5
6.9
162.2
27.4
17.0
60.7
0.2
10.4
3.7
92.0
254.2
570.9
33.1
177.1
(7.1)
136.6
(3.0)
233.7
570.4
0.5
570.9
2013
£m
135.7
32.2
444.6
1.7
29.4
1.7
645.3
18.7
16.5
108.9
16.9
2.3
163.3
808.6
132.1
27.1
0.1
1.6
6.9
167.8
(4.5)
18.5
61.6
0.2
9.5
3.6
93.4
261.2
547.4
33.1
177.1
(5.5)
140.1
4.7
197.3
546.8
0.6
547.4
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue on
26 February 2015.
They were signed on its behalf by:
S.C. Harris
Director
D.F. Landless
Director
23846.02 9 March 2015 12:35 PM Proof 2
71
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Consolidated cash flow statement
For the year ended 31 December 2014
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Proceeds on disposal of property, plant and equipment and intangible assets
Purchases of intangible fixed assets
Acquisition of businesses
Purchase of sundry investments
Disposal of investments
Net cash used in investing activities
Financing activities
Interest received
Interest paid
Dividends paid
Repayments of bank loans
Payments of obligations under finance leases
Own shares purchased/settlement of share options
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
Note
25
25
2014
£m
131.6
(55.3)
5.6
(4.1)
(2.7)
(0.1)
1.8
(54.8)
0.1
(2.8)
(45.2)
(0.5)
(0.1)
(7.0)
(55.5)
21.3
15.3
(0.6)
36.0
2013
£m
139.4
(56.2)
1.9
(3.0)
–
(0.9)
–
(58.2)
0.1
(3.4)
(24.0)
(36.6)
(0.1)
(3.5)
(67.5)
13.7
1.6
–
15.3
72
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Consolidated statement of changes in equity
For the year ended 31 December 2014
Share
capital
£m
Share
premium
account
£m
Own
shares
£m
Other
reserves
£m
Hedging
and
translation
reserves
£m
Retained
earnings
£m
Equity
attributable
to equity
holders of
the parent
£m
Non-
controlling
interests
£m
33.1
–
177.1
–
(11.3)
–
141.6
–
10.5
–
151.7
73.0
502.7
73.0
1 January 2013
Net profit for the year
Exchange differences on
translation of overseas
operations
Movements on hedges of net
investments
Actuarial losses on defined
benefit pension schemes net of
deferred tax
Total comprehensive income
for the year
Acquired in the year/settlement
of share options
Share-based payments
Deferred tax on share-based
payment transactions
Dividends paid
Disposed with subsidiary
Purchase of non-controlling
interests
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31 December 2013
33.1
177.1
(5.5)
140.1
Net profit for the year
Exchange differences on
translation of overseas
operations
Actuarial gains on defined
benefit pension schemes net of
deferred tax
Total comprehensive income
for the year
Acquired in the year/settlement
of share options
Share-based payments
Dividends paid
Disposal/dissolution of
subsidiary
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.6)
–
–
(5.4)
1.9
–
–
–
31 December 2014
33.1
177.1
(7.1)
136.6
–
–
–
–
–
–
–
–
(3.0)
(1.3)
–
–
(3.0)
(1.3)
–
(0.4)
(0.4)
(4.3)
72.6
68.3
5.8
–
(5.1)
3.6
–
–
–
–
–
–
–
–
–
–
–
–
(1.5)
–
4.7
–
(4.2)
–
(0.3)
(24.0)
1.5
–
197.3
79.4
(3.5)
3.6
(0.3)
(24.0)
–
–
546.8
79.4
(7.0)
–
(7.0)
–
1.5
1.5
Total
equity
£m
504.1
73.1
(3.1)
(1.3)
(0.4)
68.3
(3.5)
3.6
(0.3)
(24.0)
–
(0.8)
547.4
79.3
(7.0)
1.5
1.4
0.1
(0.1)
–
–
–
–
–
–
–
–
(0.8)
0.6
(0.1)
–
–
(7.0)
80.9
73.9
(0.1)
73.8
–
–
–
(0.7)
(3.0)
–
–
(45.2)
(7.0)
1.9
(45.2)
0.7
–
–
–
–
–
(7.0)
1.9
(45.2)
–
233.7
570.4
0.5
570.9
Included in other reserves is the capital redemption reserve of £129.8m (2013: £129.8m) and the share-based payments reserve of £5.9m
(2013: £9.2m).
The own shares reserve represents the cost of shares in Bodycote plc purchased in the market. At 31 December 2014 1,212,547 (2013:
2,035,618) ordinary shares of 17 3/11p each were held by the Bodycote International Employee Benefit Trust to satisfy share-based
payments under the Group’s incentive schemes (see note 27).
23846.02 9 March 2015 12:35 PM Proof 2
73
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Group accounting policies
Year ended 31 December 2014
Basis of accounting
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS). The
financial statements have also been prepared in accordance with IFRS adopted by the European Union and therefore the Group financial
statements comply with article 4 of EU IAS Regulation as adopted for use in the EU.
The Group has adopted Standards and Interpretations issued by the International Accounting Standards Board (IASB) and the International
Financial Reporting Interpretations Committee of the IASB (IFRIC). Individual standards and interpretations have to be adopted by the
European Commission (EC) and the process leads to a delay between the issue and adoption of new standards and in some cases
amendment by the EC.
International Financial Reporting Standards are subject to ongoing amendment by the IASB and subsequent endorsement by the EC and
are therefore subject to change.
The financial statements have been prepared on the historical cost basis, with the exception of accounting for certain financial instruments.
Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies
adopted are set out below.
Going concern
The directors have at the time of approving the financial statements a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of
accounting in preparing the financial statements. Further detail is contained in the Finance Director’s report on page 23.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed during the year are included in the consolidated income statement from the effective date
of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and
expenses are eliminated on consolidation.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling
shareholders, that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation, may initially
be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets.
The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially measured at fair
value.
Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the
non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even
if this results in the non-controlling interests having a deficit balance.
Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying
amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the
subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration
paid or received is recognised directly in equity and attributed to the owners of the Company.
When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate
of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the
assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other
comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained
earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment
retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent
accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an
investment in an associate or jointly controlled entity.
Critical judgements in applying the Group’s accounting policies
In the process of applying the Group’s accounting policies, which are described above, the directors have made the following judgements
that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which
are dealt with below) and have been identified as being particularly complex or involve subjective assessments.
Taxation
The Group is subject to taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for tax.
There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.
The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the
final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current tax
provision, deferred tax provisions and income statement in the period in which such determination is made.
74
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Provisions for environmental liabilities
The Group provides for the costs of environmental remediation that have been identified, either as part of acquisition due diligence, or in
other circumstances where remediation by the Group is required. The provision is reviewed annually. Due to the significant uncertainty
associated with the future level of such environmental liabilities, there can be no guarantee that the assumptions used to estimate the
provision will result in an accurate prediction of the actual costs that will be incurred. The directors take account of the advice of experts in
quantifying the expected costs of future remediation.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed
below.
Impairment of goodwill and fixed assets
Determining whether goodwill and fixed assets are impaired requires an estimation of the value in use of the cash-generating units to
which the assets have been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise
from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the
balance sheet date was £138.4m (2013: £135.7m). Details of the accounting policies applied in respect of impairment are set out on
pages 76 and 79.
Retirement benefit schemes
Accounting for retirement benefit schemes under IAS 19 (revised) requires an assessment of the future benefits payable in accordance with
actuarial assumptions, which are set out in note 29. Details of the accounting policies applied in respect of retirement benefit schemes are
set out on page 77.
Goodwill on acquisition
Accounting for goodwill arising in a business combination requires an assessment of the net fair value of the identifiable assets, liabilities
and contingent liabilities of the subsidiary or associate at the acquisition date. Details of the accounting policies applied in respect of
goodwill arising on acquisition are set out on page 76.
In establishing the fair value for intangible assets recognised on acquisition and their estimated useful lives, the Group has to make
various subjective assessments of projected data and takes account of the individual circumstances of the entity acquired. This includes
consideration of trading data such as historical sales and profitability levels, assessment of the discount rate used to calculate present
value, the likelihood of loss of customers, the ability of former owners to compete, together with the estimated impact of competition.
Provisions for restructuring costs
Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the restructuring and has raised a valid
expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to
those affected by it.
The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring which are those amounts
that are both necessarily required by the restructuring and not associated with the ongoing activities of the Group. Uncertainty arises in the
estimation of site clean up and dilapidation costs. The Group has to make a subjective assessment of the cost involved based on previous
experience, there can be no guarantee that the assumptions used to estimate the provision will result in a wholly accurate prediction of the
actual costs that may be incurred.
Investments in associates
An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through
participation in the financial and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting.
Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net
assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest
in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are
recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Group’s share of the fair values of the identifiable assets, liabilities and contingent liabilities
of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment.
Any deficiency of the cost of acquisition below the Group’s share of the fair values of the identifiable assets, liabilities and contingent
liabilities of the associate at the date of acquisition (i.e. discount on acquisition) is credited in profit and loss in the period of acquisition.
Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in
the relevant associate. Losses may provide evidence of an impairment of the asset transferred, in which case appropriate provision is made
for impairment.
23846.02 9 March 2015 12:35 PM Proof 2
75
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Group accounting policies continued
Year ended 31 December 2014
Non-current assets held for sale
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs
to sell.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction
rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group)
is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for
recognition as a completed sale within one year from the date of classification.
Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill
is measured as the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities of a subsidiary or associate at the date of acquisition. If after restatement, the Group’s interest in the net fair value of
the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised
immediately in profit or loss.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated
to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which
goodwill has been allocated are tested for impairment at least annually, or more frequently when there is an indication that the unit may be
impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to the unit and then to assets of the unit on a pro-rata basis. An impairment
loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary or associate, the attributable amount of goodwill is included in the determination of the profit or loss on
disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts, subject
to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is
not included in determining any subsequent profit or loss on disposal.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services
provided in the normal course of business, net of discounts, VAT and other sales-related taxes.
Revenue is recognised on the completion of services rendered.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is
the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying
amount.
Dividend income from investments is recognised when the shareholder’s rights to receive payment have been established.
Other operating income represents scrap sales, rents receivable and other operating income.
The Group as lessee
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum
lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a
finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
The Group as lessor
Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment in the leases.
Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment
outstanding in respect of the leases.
76
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Foreign currencies
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At
each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing
on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Gains and losses arising on retranslation are included in net profit or loss for the period.
Exchange differences are recognised in profit or loss in the period in which they arise except for:
exchange differences on transactions entered into to hedge certain foreign currency risks (see pages 80 and 81); and
exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor
likely to occur (therefore forming part of the net investment in the foreign operation) which are recognised initially in the consolidated
statement of comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.
On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance
sheet date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate
significantly. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation
differences are recognised as income or as expenses in the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate. The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of
transition to IFRS as sterling-denominated assets and liabilities.
Borrowing costs
Borrowing costs are recognised in profit or loss in the period in which they are incurred. Borrowing costs directly attributable to the
acquisition, construction or production of qualifying assets, which are assets that take a substantial period of time to get ready for their
intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.
Government grants
Government grants relating to property, plant and equipment are treated as deferred income and released to profit and loss over the
expected useful lives of the assets concerned.
Operating profit
Operating profit is stated after charging restructuring costs, goodwill impairment, amortisation of acquired intangible assets and after the
post-tax share of results of associates but before investment income and finance costs.
Exceptional items
The Group considers exceptional items to be those which derive from events or transactions which are considered significant for separate
disclosure by virtue of their size or incidence in order for the user to obtain a proper understanding of the Group’s financial performance.
These items include, but are not limited to, impairment charges and other one off items which meet this definition.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are recognized as an expense when employees have rendered service
entitling them to the contributions. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined
contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement
benefit scheme.
For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with
actuarial valuations being carried out at the end of each reporting period. Remeasurement comprising actuarial gains and losses, the effect
of the asset ceiling (if applicable) and the return on scheme assets (excluding interest) are recognised immediately in the balance sheet with
a charge or credit to the statement of comprehensive income in the period in which they occur. Remeasurement recorded in the statement
of comprehensive income is not recycled. Past service cost is recognized in profit or loss in the period of scheme amendment. Net interest
is calculated by applying a discount rate to the defined benefit liability or asset. Defined benefit costs are split into three categories:
current service cost, past-service cost and gains and losses on curtailments and settlements;
net interest expense or income; and
remeasurement.
The Group presents the first two components of defined benefit costs within cost of sales and administrative expenses (see note 3) in its
consolidated income statement. Curtailment gains and losses are accounted for as past-service cost.
Net interest expense or income is recognised within finance costs (see note 6).
The retirement benefit obligation recognised in the consolidated balance sheet represents the deficit or surplus in the Group’s defined
benefit schemes. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of
refunds from the schemes or reductions in future contributions to the schemes.
A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the termination benefit
and when the entity recognises any related restructuring costs.
23846.02 9 March 2015 12:35 PM Proof 2
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GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Group accounting policies continued
Year ended 31 December 2014
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by
the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance
sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other
than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests
in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such
investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based
on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the
income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is
also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets
and liabilities on a net basis.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost of assets, other than land and properties under construction, less their residual values,
over their estimated useful lives, using the straight-line method, on the following bases:
Freehold buildings
Leasehold property
Fixtures and fittings
Plant and machinery
Motor vehicles
2%
over the period of the lease
10%–20%
5%–20%
20%–33%
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter,
over the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference
between the sales proceeds and the carrying amount of the asset and is recognised in income.
Assets in the course of construction are carried at cost, plus appropriate borrowing costs, less any recognised impairment loss.
Depreciation commences when the assets are ready for their intended use
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition
is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as
incurred.
Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments.
All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance
with relevant IFRSs.
78
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) are
recognised at their fair value at the acquisition date, except that:
deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in
accordance with IAS 12 Income Taxes and IAS 19 (revised) Employee Benefits respectively; and
liabilities or equity instruments related to the replacement by the Group of an acquiree’s share-based payment awards are measured in
accordance with IFRS 2 Share-based Payment.
Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations are measured in accordance with that standard.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there
is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the
asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is
recognised as income immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour
costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value
represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are
classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any
impairment. Interest income is recognised by applying the effective interest rate, except for trade receivables, which do not carry any
interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of transaction costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the income statement
using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the
period in which they arise.
Other financial liabilities
Other financial liabilities are not interest-bearing and are stated at their nominal value.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
23846.02 9 March 2015 12:35 PM Proof 2
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GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Group accounting policies continued
Year ended 31 December 2014
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is
objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated
future cash flows of the investment have been impacted.
Objective evidence of impairment could include:
significant financial difficulty of the customer or counterparty; or
default or delinquency in payments.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently
assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past
experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as
observable changes in national or local economic conditions that correlate with default on receivables.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade
receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered
uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against
the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
Derivative financial instruments
The Group uses derivative financial instruments, in particular interest rate swaps, foreign currency swaps and forward exchange contracts,
to manage the financial risks arising from the business activities and the financing of those activities. The Group does not use derivative
financial instruments for speculative purposes.
The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles on
the use of financial derivatives.
Derivative financial instruments are recognised as assets and liabilities measured at their fair value on the balance sheet date. Changes
in the fair value of any derivative instruments that do not fulfil the criteria for hedge accounting contained in IAS 39 Financial Instruments:
Recognition and Measurement are recognised immediately in the income statement. A derivative is presented as a non-current asset or a
non-current liability if the remaining maturity of the instrument is more than12 months and it is not expected to be realised or settled within
12 months.
Hedge accounting
The Group uses foreign currency debt and cross currency swaps to hedge its exposure to changes in the underlying net assets of overseas
operations arising from foreign exchange rate movements.
The Group maintains documentation of the relationship between the hedged item and the hedging instrument at the inception of a hedging
transaction together with the risk management objective and the strategy underlying the designated hedge. The Group also documents its
assessment, both at the inception of the hedging relationship and subsequently on an ongoing basis, of the effectiveness of the hedge in
offsetting movements in the fair values or cash flows of the hedged items.
When hedge accounting is used, the relevant hedging relationships are classified as fair value hedges, cash flow hedges or net investment
hedges.
Note 18 sets out the details of the fair values of the derivative instruments used for hedging purposes.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the
hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the income statement
relating to the hedged item.
Cash flow hedge
Cash flow hedging matches the cash flows of hedged items against the corresponding cash flow of the derivative. The effective part of any
gain or loss on the derivative is recognised directly in other comprehensive income and the hedged item is accounted for in accordance
with the policy for that financial instrument. Any ineffective part of any gain or loss is recognised immediately in the income statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecast
transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred
to net profit or loss for the period.
80
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. To the extent the hedge is effective,
changes in the fair value of the hedging instrument arising from the hedged risk are recognised in the consolidated statement of
comprehensive income and accumulated in the hedging and translation reserve. The gain or loss relating to the ineffective portion is
recognised immediately in the income statement and is included in other operating expenses.
Gains and losses accumulated in equity are included in the income statement in the event that the foreign operation is disposed of.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, when it is probable
that the Group will be required to settle that obligation and when a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance
sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows
estimated to settle the present obligation and the effect of the adjustment is material in relation to the financial statements, its carrying
amount is the present value of those cash flows.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payment.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair
value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-
line basis over the vesting period. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected
to vest as a result of the effect of non-market based vesting conditions. The impact of the revision of the original estimates, if any, is
recognised in profit or loss such that the cumulative expense reflects the revised estimates with a corresponding adjustment to the equity-
settled employee benefits reserve.
General information
Bodycote plc is a company incorporated in the United Kingdom under the Companies Acts 1948 to 1980. The address of the registered
office is given on page 37.
The nature of the Group’s operations and its principal activities are included within the Group’s Strategic report.
Information on the Group’s objectives, policies and processes are included within the Group’s Strategic report.
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which
the Group operates. Foreign operations are included in accordance with the policies set out in the foreign currencies accounting policy on
page 77.
23846.02 9 March 2015 12:35 PM Proof 2
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GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Group accounting policies continued
Year ended 31 December 2014
Adoption of new and revised standards
Standards affecting the reported results or the financial position
No standards have been adopted that have affected the reported results or the financial position.
Standards not affecting the reported results nor the financial position
In May 2011, a package of five standards on consolidation, joint arrangements, associates and disclosures was issued comprising IFRS 10
(as revised in 2012) Consolidated financial statements, IFRS 11 Joint Arrangements’ IFRS 12 (as revised in 2012) Disclosure of Interests in
Other Entities, IAS 27 (as revised in 2012) Separate Financial Statements and IAS 28 (as revised in 2011) Investments in Associates and
Joint Ventures. Subsequent to the issue of these standards, amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to clarify certain
transitional guidance on the first time application of the standards and further amendments were issued on IFRS 10, IFRS 12 and IAS 27 to
set out financial reporting requirements for investment entities.
In the current year, the Group has applied for the first time IFRS 10 (as revised in 2012), IFRS 11, IFRS 12 (as revised in 2012), and IAS 28
(as revised in 2011) together with the amendments to IFRS 10, IFRS 11, and IFRS 12, regarding the transitional guidance and investment
entities. IAS 27 (as revised in 2012) has also been applied and it deals only with separate financial statements.
In addition to the above, the following amendments have been adopted in the year:
IAS 32 Offsetting Financial Assets and Financial Liabilities
IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
IAS 39 Novation of Derivatives and Continuation of Hedge Accounting
The above new and revised standards have not had any significant impact on the amounts reported in these financial statements or the
disclosures required.
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these
financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
IFRS 9
IFRS 15
Financial instruments
Revenue from contracts with customers
Amendments to IAS 27
Equity method in separate financial statements
Amendments to IFRS 1
First time adoption of international financial reporting standards
Amendments to IAS 16 and IAS 38 Clarification of acceptable methods of depreciation and amortisation
Amendments to IAS 19
Defined benefit plans: employee contributions
Annual improvements to IFRSs
2011-2013 cycle (July 2014)
Annual improvements to IFRSs
2012-2014 cycle (Sep 2014)
The directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the
Group in future periods, except as follows:
IFRS 9 will impact both the measurement and disclosures of financial instruments; and
IFRS 15 may have an impact on revenue disclosures.
Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review
has been completed.
82
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Notes to the consolidated financial statements
Year ended 31 December 2014
1. Revenue
Heat treatment and metal joining, hot isostatic pressing and surface technology services
Other operating income (see note 3)
Investment revenue (see note 5)
2014
£m
609.1
5.4
0.1
2013
£m
619.6
3.5
0.1
Total Revenue (as defined in IAS 18 Revenue)
614.6
623.2
2. Business and geographical segments
The Group has 188 locations across the world serving a range of market sectors with various thermal processing services. The range
and type of services offered is common to all market sectors.
In accordance with IFRS 8 ‘Operating Segments’, the segmentation of Group activity reflects the way the Group is managed by the
chief operating decision maker, being the Group Chief Executive, who on a monthly basis reviews the operating performance of six
operating segments, split between the Aerospace, Defence & Energy (ADE) and Automotive & General Industrial (AGI) business areas,
as follows:
ADE – Western Europe;
ADE – North America;
ADE – Emerging markets;
AGI – Western Europe;
AGI – North America; and
AGI – Emerging markets.
The split of operating segments by geography reflects the divisional reporting structure of the Group.
In accordance with the aggregation criteria of IFRS 8, the operating segments are aggregated into the Group’s two key business areas,
ADE and AGI, the split being driven by customer behaviour and requirements. Customers in the ADE segment tend to operate and
purchase more globally and have long supply chains, whilst customers in the AGI segment tend to purchase more locally and have
shorter supply chains.
Bodycote plants do not exclusively supply services to customers of a given market sector. Allocations of plants between ADE and AGI
is therefore derived by reference to the preponderance of markets served.
Group
Revenue
Total revenue
Result
Headline operating profit prior to share-based payments and
unallocated central costs
Share-based payments (including social charges)
Unallocated central costs
Headline operating profit / (loss)
Amortisation of acquired intangible fixed assets
Operating profit / (loss) prior to exceptional items
Acquisition costs
Segment result
Investment revenue
Finance costs
Profit before taxation
Taxation
Profit for the year
Inter-segment sales are not material in either year.
The Group does not rely on any individual major customers.
Central
costs and
eliminations
2014
£m
AGI
2014
£m
Consolidated
2014
£m
ADE
2014
£m
263.0
346.1
–
609.1
70.7
(0.1)
–
70.6
(1.3)
69.3
–
69.3
55.1
(1.0)
–
54.1
(2.6)
51.5
(0.2)
51.3
–
(1.1)
(12.5)
(13.6)
–
(13.6)
–
(13.6)
125.8
(2.2)
(12.5)
111.1
(3.9)
107.2
(0.2)
107.0
0.1
(3.4)
103.7
(24.4)
79.3
83
23846.02 9 March 2015 12:35 PM Proof 2
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
2. Business and geographical segments (continued)
Aerospace, Defence & Energy
Revenue
Total revenue
Result
Headline operating profit prior to share-based payments
Share-based payments (including social charges)
Headline operating profit
Amortisation of acquired intangible fixed assets
Segment result
Automotive & General Industrial
Revenue
Total revenue
Result
Headline operating profit prior to share-based payments
Share-based payments (including social charges)
Headline operating profit
Amortisation of acquired intangible fixed assets
Operating profit prior to exceptional items
Acquisition costs
Segment result
Group
Revenue
Total revenue
Result
Headline operating profit prior to share-based payments and
unallocated central costs
Share-based payments (including social charges)
Unallocated central costs
Headline operating profit / (loss)
Amortisation of acquired intangible fixed assets
Operating profit / (loss) prior to exceptional items
Reorganisation costs
Segment result
Investment revenue
Finance costs
Profit before taxation
Taxation
Profit for the year
84
Western
Europe
2014
£m
North
America
2014
£m
Emerging
markets
2014
£m
129.7
130.8
30.4
(0.1)
30.3
(0.3)
30.0
39.8
–
39.8
(1.0)
38.8
2.5
0.5
–
0.5
–
0.5
Western
Europe
2014
£m
North
America
2014
£m
Emerging
markets
2014
£m
Total
ADE
2014
£m
263.0
70.7
(0.1)
70.6
(1.3)
69.3
Total
AGI
2014
£m
220.1
84.6
41.4
346.1
37.6
(1.0)
36.6
(0.2)
36.4
(0.2)
36.2
ADE
2013
£m
15.5
–
15.5
(2.2)
13.3
–
13.3
AGI
2013
£m
2.0
–
2.0
(0.2)
1.8
–
1.8
55.1
(1.0)
54.1
(2.6)
51.5
(0.2)
51.3
Central
costs and
eliminations
2013
£m
Consolidated
2013
£m
261.8
357.8
–
619.6
71.9
(1.2)
–
70.7
(1.3)
69.4
–
69.4
54.2
(1.5)
–
52.7
(3.2)
49.5
–
49.5
–
(1.7)
(14.3)
(16.0)
–
(16.0)
(0.8)
(16.8)
126.1
(4.4)
(14.3)
107.4
(4.5)
102.9
(0.8)
102.1
0.1
(3.8)
98.4
(25.3)
73.1
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 2. Business and geographical segments (continued)
Aerospace, Defence & Energy
Revenue
Total revenue
Result
Headline operating profit prior to share-based payments
Share-based payments (including social charges)
Headline operating profit
Amortisation of acquired intangible fixed assets
Segment result
Automotive & General Industrial
Revenue
Total revenue
Result
Headline operating profit prior to share-based payments
Share-based payments (including social charges)
Headline operating profit
Amortisation of acquired intangible fixed assets
Segment result
Other information
Group
Gross capital additions
Depreciation and amortisation
Balance sheet
Assets:
Segment assets
Liabilities:
Segment liabilities
Allocation of head office net assets
Adjusted segment net assets
Western
Europe
2013
£m
North
America
2013
£m
Emerging
markets
2013
£m
121.0
137.9
32.1
(0.3)
31.8
(0.3)
31.5
39.6
(0.9)
38.7
(1.0)
37.7
2.9
0.2
–
0.2
–
0.2
Western
Europe
2013
£m
North
America
2013
£m
Emerging
markets
2013
£m
Total
ADE
2013
£m
261.8
71.9
(1.2)
70.7
(1.3)
69.4
Total
AGI
2013
£m
226.9
85.9
45.0
357.8
36.1
(1.0)
35.1
(0.2)
34.9
ADE
2014
£m
18.9
20.1
15.6
(0.5)
15.1
(2.8)
12.3
AGI
2014
£m
36.2
34.0
2.5
–
2.5
(0.2)
2.3
54.2
(1.5)
52.7
(3.2)
49.5
Central
costs and
eliminations
2014
£m
Consolidated
2014
£m
4.3
1.0
59.4
55.1
308.1
434.7
82.3
825.1
(68.2)
239.9
8.3
248.2
(122.8)
311.9
10.8
322.7
(63.2)
19.1
(19.1)
–
(254.2)
570.9
–
570.9
23846.02 9 March 2015 12:35 PM Proof 2
85
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
2. Business and geographical segments (continued)
Aerospace, Defence & Energy
Gross capital additions
Depreciation and amortisation
Balance sheet
Assets:
Segment assets
Liabilities:
Segment liabilities
Segment net assets
Automotive & General Industrial
Gross capital additions
Depreciation and amortisation
Balance sheet
Assets:
Segment assets
Liabilities:
Segment liabilities
Segment net assets
Other information
Group
Gross capital additions
Depreciation and amortisation
Balance sheet
Assets:
Segment assets
Other investments
Consolidated total assets
Liabilities:
Segment liabilities
Allocation of head office net liabilities
Adjusted segment net assets
Western
Europe
2014
£m
9.2
9.5
North
America
2014
£m
9.5
10.3
140.3
164.7
(35.5)
104.8
Western
Europe
2014
£m
18.8
21.6
(31.0)
133.7
North
America
2014
£m
6.9
7.9
Emerging
markets
2014
£m
0.2
0.3
3.1
(1.7)
1.4
Emerging
markets
2014
£m
10.5
4.5
Total
ADE
2014
£m
18.9
20.1
308.1
(68.2)
239.9
Total
AGI
2014
£m
36.2
34.0
248.2
118.9
67.6
434.7
(93.1)
155.1
(15.6)
103.3
(14.1)
53.5
(122.8)
311.9
Central
costs and
eliminations
2013
£m
Consolidated
2013
£m
2.7
0.7
54.2
1.7
55.9
(67.4)
(11.5)
11.5
–
59.2
57.4
806.9
1.7
808.6
(261.2)
547.4
–
547.4
AGI
2013
£m
35.4
36.1
440.2
–
440.2
(130.2)
310.0
(6.4)
303.6
ADE
2013
£m
21.1
20.6
312.5
–
312.5
(63.6)
248.9
(5.1)
243.8
86
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 2. Business and geographical segments (continued)
Aerospace, Defence & Energy
Gross capital additions
Depreciation and amortisation
Balance sheet
Assets:
Segment assets
Liabilities:
Segment liabilities
Segment net assets
Automotive & General Industrial
Gross capital additions
Depreciation and amortisation
Balance sheet
Assets:
Segment assets
Liabilities:
Segment liabilities
Segment net assets
Western
Europe
2013
£m
7.4
10.0
North
America
2013
£m
13.4
10.3
148.5
161.2
(34.7)
113.8
Western
Europe
2013
£m
17.3
22.8
(27.2)
134.0
North
America
2013
£m
9.9
8.1
Emerging
markets
2013
£m
0.3
0.3
2.8
(1.7)
1.1
Emerging
markets
2013
£m
8.2
5.2
Total
ADE
2013
£m
21.1
20.6
312.5
(63.6)
248.9
Total
AGI
2013
£m
35.4
36.1
263.2
114.1
62.9
440.2
(99.1)
164.1
(18.6)
95.5
(12.5)
50.4
(130.2)
310.0
Geographical information
The Group’s revenue from external customers and information about its segment assets (non-current assets excluding financial
instruments, deferred tax assets and other financial assets) by country are detailed below:
USA
France
UK
Germany
Sweden
Netherlands
Others
Revenue from
external customers
Non-current assets
2014
£m
206.7
91.4
59.5
65.5
51.4
26.1
108.5
609.1
2013
£m
216.1
93.8
64.2
63.9
42.0
26.7
112.9
619.6
2014
£m
244.9
63.1
71.2
59.9
37.6
22.9
107.1
606.7
2013
£m
237.4
68.5
71.5
65.1
43.8
20.2
107.7
614.2
23846.02 9 March 2015 12:35 PM Proof 2
87
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
3. Operating profit
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administration expenses*
Other operating expenses
Headline operating profit
Amortisation of acquired intangible fixed assets*
Operating profit prior to exceptional items
Exceptional items*
Operating profit
*Administration expenses total £106.2m (2013: £114.9m).
Exceptional items comprise:
Acquisition costs
Reorganisation costs
Further details of these items are included in the Finance Director’s report on page 20.
Profit for the year has been arrived at after charging/(crediting):
Net foreign exchange losses/(gains)
Inventory expensed
Depreciation of property, plant and equipment
Amortisation of intangible fixed assets
Gain on disposal of property, plant and equipment
Staff costs (see note 4)
Impairment loss on trade receivables
Impairment of fixed assets
The analysis of auditor’s remuneration on a worldwide basis is as follows:
Fees payable to the Company's auditor for the audit of the Company's annual accounts
Fees payable to the Company's auditor and its associates for other services:
The audit of the Company's subsidiaries
Total audit fees
Taxation compliance services
Total non-audit fees
2014
£m
609.1
(382.0)
227.1
5.4
(17.9)
(102.1)
(1.4)
111.1
(3.9)
107.2
(0.2)
107.0
2014
£m
0.2
–
0.2
2014
£m
0.1
51.9
50.3
4.8
(1.4)
234.9
0.1
2.7
2014
£m
0.1
0.7
0.8
0.1
0.1
0.9
2013
£m
619.6
(386.2)
233.4
3.5
(18.0)
(109.6)
(1.9)
107.4
(4.5)
102.9
(0.8)
102.1
2013
£m
–
0.8
0.8
2013
£m
(0.1)
55.4
51.9
5.5
(0.1)
242.3
0.5
5.1
2013
£m
0.1
0.7
0.8
0.1
0.1
0.9
In addition to the amounts shown above, the auditor received fees of £5,750 (2013: £5,580) for the audit of the Group’s pension
schemes.
Fees paid to Deloitte LLP and its associates for non-audit services to the Company are not required to be disclosed because the
consolidated financial statements are required to disclose such fees on a consolidated basis.
A description of the work of the Audit Committee is set out in the Audit Committee report and includes an explanation of how auditor
objectivity and independence is safeguarded when non-audit services are provided by the auditor.
88
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 4. Staff costs
The average monthly number of employees (including Executive Directors) was:
ADE:
Western Europe
North America
Emerging markets
AGI:
Western Europe
North America
Emerging markets
Shared services
Head office
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
2014
Number
2013
Number
976
943
24
1,963
927
781
193
29
5,836
2014
£m
198.5
29.6
6.8
234.9
1,003
993
21
1,933
895
775
157
31
5,808
2013
£m
205.0
30.2
7.1
242.3
Included in wages and salaries are share-based payments of £1.9m (2013: £3.6m).
Disclosure of individual directors’ remuneration, share interests, share options, long term incentive schemes, pension contributions
and pension entitlements required by the Companies Act 2006 and those specified for audit by the Listing Rules of the Financial
Conduct Authority are shown in the tables in the Board report on remuneration on pages 51 to 65 and form part of these financial
statements.
5.
Investment revenue
Interest on bank deposits
Other interest receivable
Total interest and investment revenue
All investment revenue relates to bank balances and other receivables.
6. Finance costs
Interest on bank overdrafts and loans*
Total interest expense
Net interest on the defined benefit pension liability
Other finance charges*
Total finance costs
* Amounts arising on financial liabilities measured at amortised cost.
2014
£m
0.1
–
0.1
2014
£m
0.3
0.3
0.6
2.5
3.4
2013
£m
–
0.1
0.1
2013
£m
0.6
0.6
0.6
2.6
3.8
23846.02 9 March 2015 12:35 PM Proof 2
89
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
7. Taxation
Current taxation – charge for the year
Current taxation – adjustments in respect of previous years
Deferred tax (see note 19)
2014
£m
30.4
(7.1)
1.1
24.4
UK corporation tax is calculated at 21.50% (2013: 23.25%) of the estimated assessable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit before taxation
Tax at the UK corporation tax rate of 21.50% (2013: 23.25%)
Tax effect of income/expenses that are not deductible in determining taxable profit
Deferred tax assets recognised
Tax effect of other adjustments in respect of previous years:
Current tax
Deferred tax
Effect of different tax rates of subsidiaries operating in other jurisdictions
Tax expense for the year
Tax on items taken directly to equity is a credit of £1.0m (2013: charge of £0.4m).
Tax on exceptional items and amortisation of acquired intangible fixed assets is £0.1m (2013: £0.2m).
8. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2013 of 9.1p (2012: 8.3p) per share
Special dividend for the year ended 31 December 2013 of 10.0p (2012: nil) per share
Interim dividend for the year ended 31 December 2014 of 4.6p (2013: 4.4p) per share
Proposed final dividend for the year ended 31 December 2014 of 9.8p (2013: 9.1p) per share
Proposed special dividend for the year ended 31 December 2014 of 20.0p (2013: 10.0p) per share
2014
£m
103.7
22.3
(2.1)
0.9
(7.1)
–
10.4
24.4
2014
£m
17.4
19.1
8.7
45.2
18.7
38.1
2013
£m
19.7
(0.2)
5.8
25.3
2013
£m
98.4
22.9
(6.1)
0.9
(0.1)
(0.2)
7.9
25.3
2013
£m
15.7
–
8.3
24.0
17.4
19.1
The proposed final dividend and special dividend are subject to approval by shareholders at the Annual General Meeting and have not
been included as liabilities in these financial statements.
The dividend is waived on shares held by the Bodycote International Employee Benefit Trust.
90
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 9. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings
Earnings for the purpose of basic earnings per share being net profit attributable to
equity holders of the parent
Number of shares
Weighted average number of ordinary shares for the purpose of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options
2014
£m
2013
£m
79.4
73.0
Number
Number
190,243,625
189,406,006
–
–
Weighted average number of ordinary shares for the purpose of diluted earnings per share
190,243,625
189,406,006
Earnings per share:
Basic
Diluted
Headline earnings
Net profit attributable to equity holders of the parent
Add back:
Amortisation of acquired intangible fixed assets (net of tax)
Acquisition costs (net of tax)
Reorganisation costs (net of tax)
Headline earnings
Earnings per share from headline earnings:
Basic
Diluted
10. Goodwill
Cost
At 1 January
Exchange differences
Recognised on acquisition of businesses (see note 24)
At 31 December
Accumulated impairment
At 1 January
Exchange differences
At 31 December
Carrying amount
Pence
Pence
41.7
41.7
£m
79.4
3.8
0.2
–
83.4
38.5
38.5
£m
73.0
4.4
–
0.6
78.0
Pence
Pence
43.8
43.8
2014
£m
205.1
0.9
1.4
207.4
69.4
(0.4)
69.0
138.4
41.2
41.2
2013
£m
202.9
(2.3)
4.5
205.1
71.1
(1.7)
69.4
135.7
23846.02 9 March 2015 12:35 PM Proof 2
91
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report
Notes to the consolidated financial statements continued
Year ended 31 December 2014
10. Goodwill (continued)
Goodwill acquired in a business combination is allocated, at acquisition, to the business units that are expected to benefit from that
business combination. After recognition of impairment losses, the carrying amount of goodwill has been allocated to the Group’s
operating segments as follows:
ADE:
Western Europe
North America
AGI:
Western Europe
North America
Emerging markets
2014
£m
26.5
45.4
18.6
42.1
5.8
138.4
2013
£m
26.7
44.7
17.6
40.5
6.2
135.7
The Group tests goodwill at least annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the cash generating units are determined from value in use calculations. The key assumptions for those
calculations are the discount rates, growth rates and expected changes to selling prices and direct costs in respect of future cash
flows. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money
and the risks specific to the cash generating units. This rate is risk adjusted, for specific countries, where the Group perceives a risk
premium is appropriate. The rates used to discount the forecast cash flows for cash generating units are between 12.3% (2013: 12.3%)
and 14.3% (2013: 14.3%). The recoverable amount is the sum of the discounted cash flows as forecasted for the coming five years,
together with a further estimate of cash flows in perpetuity.
The forecast sales reflect management’s expectation of how sales will develop at this point in the economic cycle. The expected profit
margin reflects management’s experience of each cash generating unit’s profitability at the forecast level of sales. As outlined in the
Business review, these forecasts take into account the current and expected economic environment both in respect of geography and
market sectors. Cash flows after five years are based on an estimated growth rate of 3.0% (2013: 3.1%), being the historical weighted
average growth in GDP in the markets that the Group operates in. Growth rates by cash generating unit range from 2.75% to 6.0%.
This rate does not exceed the average long-term growth rate for the relevant markets.
If the goodwill allocated to a cash generating unit represents more than 15% of the Group’s total goodwill carrying value, the cash
generating unit is considered to be individually significant. The Group considers the North America ADE Heat Treatment and North
America AGI Heat Treatment cash generating units to be significant cash generating units. The long term growth rates applied to cash
flows after five years and the rates used to discount the forecast cash flows for these significant cash generating units are shown
below:
Cash generating unit
North America ADE Heat Treatment
North America AGI Heat Treatment
Goodwill
carrying
value
£m
42.8
42.1
Long term
growth rate
%
3.2
3.2
Discount
rate
%
12.3
12.3
The Group has conducted sensitivity analyses on the key assumptions applied to the value in use calculations for each cash generating
unit. A decline in sales of 15.3% per annum in perpetuity would result in the recoverable amount of goodwill for the Group being
reduced to its carrying value. The directors do not believe such a decline to be likely.
Declines in long-term growth rates of 46.3 percentage points and 4.5 percentage points for North America ADE Heat Treatment and
North America AGI Heat Treatment cash generating units, respectively, would result in the recoverable amount of goodwill for these
cash generating units being reduced to their carrying values. The directors do not believe such declines to be likely.
The Board has concluded that no impairment charge is required in 2014.
92
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 11. Other intangible assets
Cost
At 1 January 2013
Exchange differences
Additions
Disposals
At 1 January 2014
Exchange differences
Additions
Acquired on acquisition of businesses (see note 24)
Disposals
At 31 December 2104
Amortisation
At 1 January 2013
Exchange differences
Charge for the year
Disposals
At 1 January 2014
Exchange differences
Charge for the year
Disposals
At 31 December 2014
Carrying amount
At 31 December 2014
At 31 December 2013
The amortisation periods for intangible assets are:
Software
Non-compete agreements
Customer relationships
Non-
compete
agreements
£m
Customer
relationships
£m
Software
£m
17.7
–
3.0
(0.5)
20.2
(0.3)
4.1
–
(0.2)
23.8
11.9
–
1.0
(0.5)
12.4
(0.2)
0.9
(0.2)
12.9
10.9
7.8
2.9
–
–
–
2.9
–
–
–
–
2.9
0.1
–
0.7
–
0.8
–
0.7
–
1.5
1.4
2.1
33.7
(1.1)
–
–
32.6
1.4
–
1.2
–
35.2
7.3
(0.8)
3.8
–
10.3
0.3
3.2
–
13.8
21.4
22.3
Total
£m
54.3
(1.1)
3.0
(0.5)
55.7
1.1
4.1
1.2
(0.2)
61.9
19.3
(0.8)
5.5
(0.5)
23.5
0.1
4.8
(0.2)
28.2
33.7
32.2
Years
3 to 5
4 to 5
10 to 15
Intangible assets are amortised on a straight-line basis and the amortisation is recognised within administration expenses.
23846.02 9 March 2015 12:35 PM Proof 2
93
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
12. Property, plant and equipment
Land and buildings
Freehold
£m
Long
leasehold
£m
Short
leasehold
£m
Plant and
machinery
£m
Fixtures
and fittings
£m
Assets under
construction
£m
Cost or valuation
At 1 January 2013
Additions
Acquisition of businesses
Exchange differences
Transfer to assets held for sale
Recategorisation
Disposals
At 1 January 2014
Additions
Acquisition of businesses
Exchange differences
Recategorisation
Disposals
At 31 December 2014
Accumulated depreciation and
impairment
At 1 January 2013
Charge for the year
Impairment losses incurred
Exchange differences
Transfer to assets held for sale
Recategorisation
Eliminated on disposals
At 1 January 2014
Charge for the year
Impairment losses incurred
Exchange differences
Recategorisation
Eliminated on disposals
At 31 December 2014
Carrying amount
At 31 December 2014
At 31 December 2013
210.0
0.8
–
1.8
(0.7)
11.1
(2.4)
220.6
1.0
–
(8.4)
2.1
(1.2)
214.1
75.7
5.8
0.7
0.8
(0.5)
5.4
(2.1)
85.8
5.8
0.2
(3.7)
–
(1.1)
87.0
127.1
134.8
1.8
0.8
–
(0.1)
–
0.2
–
2.7
0.3
–
–
4.5
–
7.5
1.1
0.4
–
–
–
–
–
1.5
0.4
–
–
2.3
–
4.2
3.3
1.2
16.0
0.2
–
(0.5)
–
(1.4)
(0.2)
14.1
0.2
–
(0.3)
(4.1)
(0.2)
9.7
9.6
0.7
–
(0.4)
–
(1.9)
(0.1)
7.9
0.6
0.1
(0.2)
(2.3)
–
6.1
3.6
6.2
725.2
21.0
(0.5)
(1.1)
–
25.2
(18.8)
751.0
16.6
0.9
(21.2)
24.2
(16.6)
754.9
461.4
43.0
3.0
(0.4)
–
(3.5)
(17.4)
486.1
41.8
2.2
(15.8)
1.3
(14.5)
501.1
253.8
264.9
32.1
1.2
(0.1)
0.2
(0.4)
0.5
(3.9)
29.6
1.0
–
(1.2)
0.5
(0.8)
29.1
26.1
2.0
0.1
0.3
(0.4)
–
(3.9)
24.2
1.7
0.2
(1.0)
–
(0.8)
24.3
4.8
5.4
Total
£m
1,022.6
56.2
(0.9)
(0.1)
(1.1)
–
(25.3)
1,051.4
55.3
1.1
(31.4)
–
(19.1)
37.5
32.2
(0.3)
(0.4)
–
(35.6)
–
33.4
36.2
0.2
(0.3)
(27.2)
(0.3)
42.0
1,057.3
–
–
1.3
–
–
–
–
1.3
–
–
–
(1.3)
–
–
573.9
51.9
5.1
0.3
(0.9)
–
(23.5)
606.8
50.3
2.7
(20.7)
–
(16.4)
622.7
42.0
32.1
434.6
444.6
The carrying amount of leased assets is £nil (2013: £nil).
At 31 December 2014 the Group had entered into contractual commitments for the acquisition of property, plant and equipment
amounting to £5.6m (2013: £0.8m).
In addition to the above, property, plant and equipment amounting to £0.9m (2013: £2.3m) has been classified as held for sale and is
disclosed within current assets.
It is the directors’ view that there are no material differences between the value of the land owned and their carrying value in the
balance sheet.
94
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 13. Subsidiaries and other investments
A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is
given on pages 120 to 121. A full list of subsidiaries as at 12 June 2015 will be annexed to the Company's next annual return filed with
the Registrar of Companies. No subsidiaries are excluded from the Group consolidation.
Sundry investments
2014
£m
–
2013
£m
1.7
The sundry investments related to the Bodycote Investment Incentive Plan, as explained in the Board report on remuneration.
All sundry investments have been sold in the year.
14. Inventories
Raw materials
Work-in-progress
Finished goods and goods for resale
15. Other financial assets
Trade and other receivables
Amounts falling due within one year:
Amounts receivable for the supply of services
Other debtors and prepayments*
Amounts falling due after more than one year:
Other debtors and prepayments*
2014
£m
12.3
8.3
0.3
20.9
2014
£m
92.1
16.9
109.0
2013
£m
12.6
5.7
0.4
18.7
2013
£m
93.4
15.5
108.9
1.6
1.7
* Other financial assets include prepayments of £6.4m (2013: £7.3m), which are not included as financial assets under IFRS 7.
The average credit period given to customers for the supply of services as at 31 December 2014 is 60 days (2013: 59 days). An
allowance has been made for estimated irrecoverable amounts from the supply of services of £5.5m (2013: £6.1m). This allowance has
been determined by reference to past default experience.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
23846.02 9 March 2015 12:35 PM Proof 2
95
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report
Notes to the consolidated financial statements continued
Year ended 31 December 2014
15. Other financial assets (continued)
Credit risk
The Group’s principal financial assets are bank balances, cash and trade and other receivables.
The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of
allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based on
previous experience, is evidence of a reduction in the recoverability of cash flows.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-
ratings assigned by international credit-rating agencies.
The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.
Further disclosure of the Group’s financial instrument risk management activities is set out in note 18.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £17.2m (2013: £16.3m) which are past due at
the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts
are still considered recoverable. The Group does not hold any collateral over these balances.
The average credit terms offered to customers is 38 days, with a range from 14 days to 70 days.
Ageing of past due but not impaired receivables:
31–60 days
61–90 days
91–120 days
Greater than 120 days
Movement in the allowance for doubtful debts:
At 1 January
Impairment losses recognised
Amounts written off as uncollectable
Impairment losses reversed
Exchange differences
At 31 December
2014
£m
10.4
4.5
1.1
1.2
17.2
2014
£m
6.1
1.3
(0.5)
(1.2)
(0.2)
5.5
2013
£m
10.1
4.1
1.5
0.6
16.3
2013
£m
6.2
2.1
(0.6)
(1.6)
–
6.1
In determining the recoverability of a trade receivable the Group considers any change in the quality of the trade receivable from the
date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being
large and unrelated. Accordingly the directors believe that there is no further credit provision required in excess of the allowance for
doubtful debts.
Included in the allowance for doubtful debts are individually impaired trade receivables with a gross balance of £8.3m (2013: £8.9m).
The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of
the expected proceeds. The Group does not hold any collateral over these balances.
Ageing of impaired trade receivables:
Less than 3 months
3–12 months
Over 12 months
2014
£m
1.8
2.0
4.5
8.3
2013
£m
3.2
1.6
4.1
8.9
96
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 15. Other financial assets (continued)
Cash and bank balances
Cash and bank balances comprise cash held by the Group and short-term bank deposits with an original maturity of three months
or less. The carrying amount of these assets approximates to their fair value. A breakdown of significant cash and bank balances by
currency is as follows:
Sterling
US Dollar
Euro
Swedish Krona
Indian Rupee
Mexican Peso
Polish Zloty
Romanian Leu
Chinese Yuan
Czech Republic Koruna
Canadian Dollar
Brazilian Real
Swiss Franc
Danish Krone
Turkish Lira
Other
Total cash and bank balances
16. Assets held for sale
Assets held for sale comprise the following:
Property, plant and equipment
2014
£m
25.6
7.6
2.4
0.6
0.4
0.3
0.2
0.2
0.1
0.1
0.1
0.1
0.1
0.1
–
0.6
38.5
2014
£m
0.9
2013
£m
6.8
3.0
2.7
0.9
0.5
–
0.7
0.1
0.8
0.4
0.1
0.1
0.1
–
0.1
0.6
16.9
2013
£m
2.3
Assets held for sale consist exclusively of land and buildings currently not in use by the Group. It is expected that the disposal of these
assets will be completed during 2015. The assets held for sale are analysed between operating segments as follows:
ADE:
North America
AGI:
Western Europe
17. Borrowings
Borrowings at amortised cost:
Bank overdrafts
The borrowings are repayable as follows:
On demand or within one year
Less: Amount due for settlement within 12 months (shown under current liabilities)
Amount due for settlement after 12 months
2014
£m
0.7
0.2
0.9
2014
£m
2.5
2.5
(2.5)
–
2013
£m
0.6
1.7
2.3
2013
£m
1.6
1.6
(1.6)
–
23846.02 9 March 2015 12:35 PM Proof 2
97
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
17. Borrowings (continued)
Analysis of borrowings by currency:
At 31 December 2014
Bank overdrafts
At 31 December 2013
Bank overdrafts
The weighted average interest rates paid were as follows:
Bank overdrafts and loans
Euro
£m
US Dollar
£m
Other
currencies
£m
Total
£m
0.2
0.5
1.8
2.5
–
1.1
0.5
1.6
2014
%
3.8
2013
%
2.4
Loans and finance leases of £0.2m (2013: £0.3m) were arranged at fixed interest rates and expose the Group to fair value interest rate
risk. The remaining borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk.
The directors estimate the fair value of the Group’s borrowings as follows:
Bank overdrafts
The other principal features of the Group’s borrowings are as follows:
(i) Bank overdrafts are repayable on demand. No overdrafts are secured.
2014
£m
2.5
2013
£m
1.6
(ii)
At 31 December 2014 the Group’s principal borrowing facility had drawings of £nil (2013: £nil) under a Revolving Credit Facility of
£230m. This unsecured facility commenced on 3 July 2014 and matures on 3 July 2019. The multi currency drawings under this
facility carry an interest rate of between 1.05% and 1.90% above LIBOR (the applicable margin at 31 December 2014 was 1.05%).
At 31 December 2014 the Group had available £230.0m (2013: £229.0m) of undrawn committed borrowing facilities.
All borrowings are classified as financial liabilities measured at amortised cost.
18. Derivative financial instruments
Currency derivatives that are designated and effective as hedging instruments carried at fair value
Asset
Current
Forward foreign exchange contracts
Total
Forward foreign exchange contracts
Notional
amount
2014
£m
Fair
value
2014
£m
Notional
amount
2013
£m
5.6
5.6
–
–
1.0
1.0
Fair
value
2013
£m
–
–
The Group utilises currency derivatives to hedge material future transactions and cash flows. The Group uses foreign currency forward
contracts in the management of its exchange rate exposures. The contracts are primarily denominated in the currencies of the Group’s
principal markets. The unrecognised gains and losses were not significant in either 2014 or 2013.
In accordance with IFRS 7 ‘Improving Disclosures about Financial Instruments’, the Group’s financial instruments are considered to be
classified as level 2 instruments. Fair value measurements are those derived from inputs other than quoted prices included within
level 1 that are observable for the asset or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
98
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 18. Derivative financial instruments (continued)
Fair value is determined using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities
of the contracts.
The Group’s interest rate risk is primarily in relation to its fixed rate borrowings (fair value risk) and floating rate borrowings (cash flow
risk). From time to time the Group will use interest rate derivative contracts to manage its exposure to interest rate movements within
Group policy. However, at the balance sheet date, the Group had no interest rate derivative contracts.
Asset / (liability)
Forward foreign exchange contracts
On demand or within one year
Asset / (liability)
Forward foreign exchange contracts
On demand or within one year
Euro
2014
£m
(0.4)
(0.4)
Euro
2013
£m
0.6
0.6
US Dollar
2014
£m
Other
currencies
2014
£m
Total
fair value
2014
£m
1.1
1.1
(0.7)
(0.7)
–
–
US Dollar
2013
£m
Other
currencies
2013
£m
Total
fair value
2013
£m
–
–
(0.6)
(0.6)
–
–
Financial risk management
The Group’s treasury function provides a centralised service to the Group for funding, foreign exchange, interest rate management and
counterparty risk. Treasury activities have the objective of minimising risk and treasury operations are conducted within a framework of
policies and guidelines reviewed and authorised by the Board.
The Group uses a number of derivative instruments that are transacted, for risk management purposes only, by specialist treasury
personnel. The use of financial instruments, including derivatives, is permitted when approved by the Board, where the effect is to
minimise risk for the Group. Speculative trading of derivatives or other financial instruments is not permitted. There has been no
significant change during the financial year, or since the end of the year, to the types or scope of financial risks faced by the Group.
Liquidity risk
Liquidity risk is defined as the risk that the Group might not be able to settle or meet its obligations on time or at a reasonable price.
Liquidity risk arises as a result of mismatches between cash inflows and outflows from the business. This risk is monitored on a
centralised basis through regular cash flow forecasting, a three-year rolling strategic plan, an annual budget agreed by the Board each
December and a quarterly re-forecast undertaken during the financial year. To mitigate the risk, the resulting forecast net debt/cash
is measured against the liquidity headroom policy which, at the current net debt/cash levels, requires committed facilities (plus term
loans in excess of one year) to exceed net debt by 50% (minimum facilities of £75m).
As at 31 December 2014, the Group had a revolving credit committed borrowing facility of £230.0m (2013: £229.0m) which, together
with net cash of £35.7m (2013: net cash of £15.0m), resulted in available funds of £265.7m (2013: £244.0m). The Group also uses
uncommitted short-term bank facilities to manage short-term liquidity but these facilities are excluded from the liquidity headroom
policy. The Group manages longer-term liquidity through its committed bank facilities and will, if appropriate, raise funds on capital
markets. As at 31 December 2014 the Group’s principal committed bank facilities have the following maturity dates:
£230m Revolving Credit Facility 3 July 2019 (4.5 years)
$10m Letter of Credit Facility 31 August 2016 (1.7 years)
The facilities were undrawn at the end of the current and previous year.
Cash management pooling, netting and concentration techniques are used to minimise borrowings. As at 31 December 2014, the
Group had gross cash of £38.5m (2013: £16.9m).
23846.02 9 March 2015 12:35 PM Proof 2
99
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
18. Derivative financial instruments (continued)
Interest rate risk
Interest rate risk arises on borrowings and cash balances (and derivative liabilities and assets) which are at floating interest rates.
Changes in interest rates could have the effect of either increasing or decreasing the Group’s net profit. Under the Group’s interest
rate management policy, the interest rates on each of the Group’s major currency monetary assets and liabilities are managed to
achieve the desired mix of fixed and variable rates for each major net currency exposure. The major interest rate risk is to UK rates but
exposures also exist to rates in the USA, Europe and Sweden. Measurement of this interest rate risk and its potential volatility to the
Group’s reported financial performance is undertaken on a monthly basis and the Board uses this information to determine, from time
to time, an appropriate mix of fixed and floating rates.
As at 31 December 2014, 9% of gross debt and 0% of gross cash were at fixed rates (2013: 18% of gross debt, 0% of gross cash).
The average tenure of the fixed rate debt was 2.2 years (2013: 3.1 years).
Currency risk
Bodycote has operations in 26 countries and is therefore exposed to foreign exchange translation risk when the profits and net assets
of these entities are consolidated into the Group accounts.
90% of the Group’s sales are in currencies other than sterling (EUR 36%, USD 34% and SEK 8%). Cumulatively over the year, sterling
rates moved such that the sales for the year were £35.5m lower than if sales had been translated at the rates prevailing in 2013.
It is Group policy not to hedge exposure for the translation of reported profits.
The Group’s balance sheet translation policy is not to actively hedge currency net assets. However, where appropriate, the Group
will still match centrally held currency borrowings to the net assets. The Group principally borrows in sterling but also maintains debt
in US Dollar, Euro and Swedish Krona, consistent with the location of the Group’s assets. The Group recognises foreign exchange
movements in equity for the translation of net investment hedging instruments and balances.
Transaction foreign exchange exposures arise when entities within the Group enter into contracts to pay or receive funds in a currency
different from the functional currency of the entity concerned. It is Group policy to hedge exposure to cash transactions in foreign
currencies when a commitment arises, usually through the use of foreign exchange forward contracts. Even though approximately
90% of the Group’s sales are generated outside the UK, the nature of the business is such that cross border sales and purchases are
limited and, other than interest, such exposures are immaterial for the Group.
Market risk sensitivity analysis
The Group has measured the estimated charge to the income statement and equity of either an instantaneous increase or decrease
of 1% (100 basis points) in market interest rates or a 10% strengthening or weakening in sterling against all other currencies from the
applicable rates as at 31 December 2014, for all financial instruments with all other variables remaining constant. This analysis is for
illustrative purposes only. The sensitivity analysis excludes the impact of market risks on net post employment benefit obligations.
Interest rate sensitivity
The interest rate sensitivity analysis is based on the following assumptions:
changes in market interest rates affect the interest income or expense of variable interest financial instruments;
changes in market interest rates only affect the income statement in relation to financial instruments with fixed interest if these are
recognised at their fair value; and
changes in market interest rates affect the fair value of derivative financial instruments designated as hedging instruments.
Under these assumptions, a one percentage point fall or rise in market interest rates for all currencies in which the Group has variable
net cash or net borrowings at 31 December 2014 would reduce or increase profit before tax by approximately £0.4m (2013: £0.2m).
There is no significant impact on equity.
Currency sensitivity
Taking the 2014 sales by currency, a 10% weakening / strengthening in the 2014 cumulative average rates for all currencies versus
sterling would have given rise to a +£61.1m / -£50.0m movement in sales respectively. The impact on headline operating profit is
affected by the mix of losses and profits in the various currencies. However, taking the 2014 operating profit mix, a 10% weakening /
strengthening in 2014 cumulative average rates for all currencies would have given rise to a +£11.7m / -£9.6m movement in headline
operating profit.
Counterparty risk
Counterparty risk encompasses settlement risk on derivative financial instruments and money market contracts and credit risk on cash,
time deposits and money market funds. The Group monitors its credit exposure to its counterparties via their credit ratings (where
applicable) and through its policy, thereby limiting its exposure to any one party to ensure there is no significant concentration of credit
risk. Group policy is to enter into such transactions only with counterparties with a long-term credit rating of A- / A3 or better. However,
acquired businesses occasionally have dealings with banks with lower credit ratings. Business with such banks is moved as soon as
practicable.
100
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 19. Deferred tax
The following are the major deferred tax liabilities and (assets) recognised by the Group and movements thereon during the current
and prior reporting periods:
Accelerated
tax
depreciation
£m
Tax
losses
£m
Retirement
benefit
obligations
£m
Other
£m
Total
£m
At 1 January 2013
Charge/(credit) to income
Charge to equity
Acquisition of subsidiaries
Transfers
Exchange differences
Effect of change in tax rate:
Income statement
At 1 January 2014
Charge/(credit) to income
Credit to equity
Acquisition of subsidiaries
Transfers*
Exchange differences
Effect of change in tax rate:
Income statement
At 31 December 2014
39.9
1.6
–
1.0
(0.6)
(0.1)
–
41.8
(0.2)
–
0.1
10.0
(0.7)
–
51.0
(5.7)
2.1
–
–
–
(0.1)
–
(3.7)
1.2
–
–
(0.2)
0.1
0.1
(2.5)
(5.3)
(0.1)
0.1
–
0.2
(0.1)
–
(5.2)
(0.4)
(1.0)
–
1.1
0.3
–
(5.2)
The following is the analysis of the deferred tax balances for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
(6.0)
2.6
0.3
2.3
0.4
0.1
(0.4)
(0.7)
0.5
–
0.3
(9.4)
(0.4)
(0.1)
(9.8)
2014
£m
60.7
(27.2)
33.5
22.9
6.2
0.4
3.3
–
(0.2)
(0.4)
32.2
1.1
(1.0)
0.4
1.5
(0.7)
–
33.5
2013
£m
61.6
(29.4)
32.2
Other deferred tax assets relate to provisions recognised in the financial statements that are not yet deductible for tax purposes, in
particular in relation to restructuring charges, share-based payments and local profit differences that are expected to reverse over time.
At the balance sheet date, the Group has unused tax losses of £71.7m (2013: £146.5m) available for offset against future profits. A
deferred tax asset has been recognised in respect of £10.4m (2013: £12.9m) of such losses, based on management forecasts of future
taxable profits against which the assets can be recovered in the relevant jurisdictions. No deferred tax asset has been recognised in
respect of the remaining £61.3m (2013: £133.6m) of such losses where there remains uncertainty over the timing of utilisation relating
to future profitability. The majority of losses may be carried forward indefinitely.
A deferred tax liability of £0.2m (2013: £0.4m) relating to the temporary differences on unremitted earnings of overseas subsidiaries
has not been recognised as the Group is able to control the timing of the reversal of these temporary differences and it is probable
that they will not reverse in the foreseeable future. Temporary differences arising in connection with interests in associates and joint
ventures are insignificant.
* Includes movements between current tax and deferred tax.
23846.02 9 March 2015 12:35 PM Proof 2
101
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report
Notes to the consolidated financial statements continued
Year ended 31 December 2014
20. Obligations under finance leases
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
Less: future finance charges
Present value of lease obligations
Minimum
lease payments
Present value of
minimum lease payments
2014
£m
0.1
0.2
0.3
–
0.3
2013
£m
0.1
0.2
0.3
–
0.3
2014
£m
0.1
0.2
0.3
0.2
0.1
0.3
0.3
0.3
2013
£m
0.1
0.2
0.3
0.2
0.1
0.3
0.3
0.3
Analysed as:
Amount due for settlement after 12 months
Amount due for settlement within 12 months (shown under current liabilities)
The present value of minimum lease payments is denominated in the following currencies:
Sterling
The Group’s average lease term is 2.2 years. For the year ended 31 December 2014, the average effective borrowing rate was 8.0%
(2013: 8.4%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been
entered into for contingent rental payments. The fair value of the Group’s lease obligations approximates to their carrying amount.
The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets.
21. Other financial liabilities
Trade and other payables
Amounts falling due within one year:
Trade creditors
Other taxes and social security*
Other creditors
Accruals and deferred income
Amounts falling due after more than one year:
Other creditors
2014
£m
38.8
15.1
10.4
55.0
2013
£m
40.9
18.6
13.8
58.8
119.3
132.1
3.7
3.6
* Other financial liabilities include other taxes and social security, which are not included as financial liabilities in IFRS 7.
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period
taken for trade purchases as at 31 December 2014 is 40 days (2013: 40 days).
The directors consider that the carrying amount of trade payables approximates to their fair value.
The following table details the Group’s remaining contractual maturity for its financial liabilities. The table has been drawn up based
on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table
includes both interest and principal cash flows.
102
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 21. Other financial liabilities (continued)
Non-interest bearing*
Finance lease liability
Bank loans and overdrafts
Derivative financial instruments
Non-interest bearing*
Finance lease liability
Bank loans and overdrafts
Derivative financial instruments
Less than
1 year
2014
£m
126.2
0.1
2.5
5.6
134.4
Less than
1 year
2013
£m
139.0
0.1
1.6
0.9
141.6
1–2 years
2014
£m
2–5 years
2014
£m
5+ years
2014
£m
3.3
0.1
–
–
3.4
5.6
0.1
–
–
5.7
5.2
–
–
–
5.2
1–2 years
2013
£m
2–5 years
2013
£m
5+ years
2013
£m
2.0
0.1
–
–
2.1
5.1
0.2
–
–
5.3
6.0
–
–
–
6.0
Total
2014
£m
140.3
0.3
2.5
5.6
148.7
Total
2013
£m
152.1
0.4
1.6
0.9
155.0
* Non-interest bearing financial liabilities include other taxes and social security, which are not included as financial liabilities in IFRS 7. These are payable in
less than one year.
Of the £2.5m (2013: £1.6m) bank loans and overdrafts outflows disclosed above, £nil (2013: £nil) of bank loans are drawn under the
committed facility maturing on 3 July 2019. The overdrafts are on-demand and some are part of pooling arrangements, which include
offsetting cash balances. Of the £5.6m (2013: £0.9m) derivative financial instruments outflows disclosed above, £5.6m (2013: £0.9m)
are matched by derivative cash inflows, therefore the net impact on the balance sheet is £nil (2013: £nil).
22. Provisions
At 1 January 2014
Increase in provision
Release of provision
Utilisation of provision
Exchange difference
At 31 December 2014
Included in current liabilities
Included in non-current liabilities
Restructuring
£m
Restructuring
Environmental
£m
Environmental
£m
2.6
3.1
(0.1)
(2.2)
(0.1)
3.3
6.0
0.6
–
(0.8)
0.3
6.1
7.8
1.4
(0.8)
(0.7)
0.2
7.9
Total
£m
16.4
5.1
(0.9)
(3.7)
0.4
17.3
6.9
10.4
17.3
The restructuring provision relates to the remaining costs associated with the closure of a number of Heat Treatment sites and with the
establishment of an accounting Shared Service Centre in Prague.
The Group provides for the costs of environmental remediation that have been identified, either as part of acquisition due diligence,
or in other circumstances where remediation by the Group is required. This provision is reviewed annually and is separated into
Restructuring Environmental and Environmental to separately identify environmental provisions relating to the restructuring programme
from those arising in the ordinary course of business.
The increase in restructuring provisions is due to the ongoing implementation of the global restructuring initiatives.
The majority of cash outflows in respect of these liabilities are expected to occur within five years.
Whilst the Group’s use of chlorinated solvents and other hazardous chemicals continues to reduce, the Group remains exposed to
contingent liabilities in respect of environmental remediation liabilities. In particular, the Group could be subjected to regulatory or
legislative requirements to remediate sites in the future. However, it is not possible at this time to determine whether and to what
extent any liabilities exist, other than for those recognised above. Therefore no provision is recognised in relation to these items.
23846.02 9 March 2015 12:35 PM Proof 2
103
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
23. Share capital
Issued and fully paid:
2014
£m
2013
£m
191,456,172 (2013: 191,456,172) ordinary shares of 17 ³/11p each
33.1
33.1
24. Acquisition of subsidiaries
On 29 August 2014 the Group acquired 100% of the share capital of Holding Menzing Heattreatment BV for a cash consideration of
£2.7m. The acquisition was made to strengthen the Group’s network and to enhance the process offering in the Netherlands and
Northern Germany. The acquisition fits well with the Group’s automotive and general industrial strategy.
The transaction has been accounted for by the purchase method of accounting and is summarised below.
Fair value of net assets acquired:
Intangible fixed assets
Property, plant and equipment
Trade and other receivables
Trade and other payables
Bank borrowings
Deferred tax liability
Goodwill
Total consideration
Satisfied by:
Cash consideration
Net cash outflow arising on acquisition:
Cash consideration
Heat Treatment business
of Holding Menzing
Heattreatment BV
£m
1.2
1.1
0.3
(0.4)
(0.5)
(0.4)
1.3
1.4
2.7
2.7
2.7
The carrying value of inventories, trade and other receivables and trade and other payables approximates their fair value. Fair values of
the acquired identifiable tangible and intangible assets are provisional, pending completion of the final valuations.
The gross contractual value of trade and other receivables was £0.3m. The best estimate at the acquisition date of the contractual cash
flows not expected to be collected was £nil.
The goodwill arising on the acquisition is attributable to the anticipated profitability of the Group’s services in new markets and the
anticipated future operating synergies from the acquisition. No tax relief in relation to goodwill has arisen as part of this acquisition.
Acquisition-related costs (reported in exceptional items) amounted to £0.2m.
The acquired business contributed £0.7m revenue and £0.2m to the Group’s operating profit for the period between the date of
acquisition and balance sheet date.
If the acquisition has been completed on the first day of the financial year, Group revenue would have been £610.2m and Group
operating profit attributable to equity holders of the parent would have been £111.4m.
104
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 25. Notes to the cash flow statement
Profit for the year
Adjustments for:
Investment revenue
Finance costs
Taxation
Depreciation of property, plant and equipment
Amortisation of intangible assets
Profit on disposal of property, plant and equipment
Share-based payments
Impairment of fixed assets
EBITDA*
Increase in inventories
(Increase)/decrease in receivables
Decrease in payables
Increase/(decrease) in provisions
Cash generated by operations
Income taxes paid
Net cash from operating activities
2014
£m
79.3
(0.1)
3.4
24.4
50.3
4.8
(1.4)
1.9
2.7
165.3
(3.4)
(2.2)
(9.6)
0.5
150.6
(19.0)
131.6
2013
£m
73.1
(0.1)
3.8
25.3
51.9
5.5
(0.1)
3.6
5.1
168.1
(0.3)
0.2
(4.3)
(1.8)
161.9
(22.5)
139.4
* Earnings before interest, tax, depreciation, amortisation, impairment of fixed assets, profit or loss on disposal of property, plant and equipment and
share-based payments.
Cash and cash equivalents comprise:
Cash and bank balances
Bank overdrafts (included in borrowings)
26. Operating lease arrangements – the Group as lessee
Minimum lease payments under operating leases recognised as an expense
2014
£m
38.5
(2.5)
36.0
2014
£m
15.9
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
2014
£m
11.6
24.7
12.2
48.5
2013
£m
16.9
(1.6)
15.3
2013
£m
16.0
2013
£m
11.1
24.1
13.2
48.4
Operating lease payments represent rentals payable by the Group for certain of its land and buildings, fixtures and fittings and motor
vehicles.
23846.02 9 March 2015 12:35 PM Proof 2
105
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report
Notes to the consolidated financial statements continued
Year ended 31 December 2014
27. Share-based payments
Bodycote Incentive Plan (BIP)
The Company operates the BIP under which Executive Directors and senior executives received a conditional award of Bodycote
shares up to a maximum of 175% of base salary. Vestings of awards are based upon two performance measures, over a three year
period.
Fifty percent of the award is subject to a return on capital employed (ROCE) performance condition and fifty percent of the award is
subject to an earnings per share (EPS) performance condition.
In the event that threshold performance for both EPS and ROCE is not achieved none of the conditional awards will vest.
Bodycote Co-investment Plan (CIP)
The CIP permits executives to invest in shares up to a value equivalent to 40% of net basic salary. The CIP provides for the grant of
awards of matching shares to participants on an annual basis in a maximum ratio of 1:1 to the gross investment made in deferred
shares. Deferred shares must be held for three years and matching shares are subject to an absolute Total Shareholder Return (TSR)
target. The threshold target for CIP matching awards is TSR growth of not less than 4% per annum compound in excess of growth in
the Consumer Prices Index (CPI) for a threshold matching ratio of 1:2. Ten percent per annum compound growth in excess of growth in
the CPI will be required for a vesting matching ratio of 1:1.
The number of outstanding share awards is as follows:
At 1 January
Granted during the year
Exercised during the year
Expired during the year
At 31 December
BIP
2014
2,949,936
609,981
(1,027,355)
(210,302)
CIP
2014
176,934
52,312
(42,455)
–
BIP
2013
4,186,265
840,131
(1,879,726)
(196,734)
CIP
2013
313,318
42,849
(171,806)
(7,427)
2,322,260
186,791
2,949,936
176,934
Average fair value of share awards granted during the year at date of
grant (pence)
713.3
337.0
510.5
338.0
Fair value of awards granted during the year (£)
4,350,994
176,291
4,289,205
144,834
Exercise Price = £nil.
The inputs to the Black-Scholes Simulation model, used to determine the charge to the income statement for BIP, are as follows:
Weighted average share price
Weighted average exercise price
Expected life
Expected dividend yields
pence
pence
years
%
2014
752.8
nil
3.0
1.8
The inputs to the Monte Carlo Simulation model, used to determine the charge to the income statement for CIP, are as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend yields
pence
pence
%
years
%
%
2014
746.0
nil
35.3
3.0
1.2
1.8
The Group recognised total expenses of £1.9m (2013: £3.6m) related to equity-settled share-based payment transactions.
2013
545.8
nil
3.0
2.2
2013
550.5
nil
39.4
3.0
0.5
2.2
106
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 28. 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.
The remuneration of the Board of Directors, who are considered key management personnel of the Group, was as follows:
Short-term employee benefits
Share-based payments
2014
£m
2.0
0.6
2.6
2013
£m
1.7
1.4
3.1
Further information about the remuneration of the individual directors is provided in the Board report on remuneration on pages
51 to 65.
29. Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for employees in the United Kingdom, France, Belgium, Canada
and the United States of America. The assets of the schemes are held separately from those of the Group in funds under the control
of trustees. Where there are employees who leave the schemes prior to vesting fully in the contributions, the contributions payable by
the Group are reduced by the amount of forfeited contributions.
The Group’s employees in Denmark, Finland, Sweden, Italy and the Netherlands are members of state-managed retirement benefit
schemes operated by the governments of each country. The relevant subsidiaries are required to contribute a specified percentage of
payroll costs to the retirement benefit schemes to fund the benefits. The only obligation of the Group with respect to these retirement
benefit schemes is to make the specified contributions.
The total cost charged to income of £5.6m (2013: £5.8m) represents contributions payable to these schemes by the Group at rates
specified in the rules of the plans. As at 31 December 2014 contributions of £0.2m (2013: £0.2m) due in respect of the current
reporting period had not been paid over to the schemes.
Defined benefit schemes
The Group operated a number of pension schemes and provided leaving service benefits to certain employees during the year. The
defined benefit obligation less fair value of assets at the end of the year and total expense recognised in the income statement are
summarised below as follows:
UK scheme
Non-UK schemes
Total expense recognised in income statement
UK scheme
Non-UK schemes
2014
£m
1.0
16.0
17.0
2014
£m
1.2
1.0
2.2
2013
£m
4.8
13.7
18.5
2013
£m
1.2
1.0
2.2
Further details of the Group’s defined benefit arrangements are given in the Finance Director’s report on pages 22 and 23.
23846.02 9 March 2015 12:35 PM Proof 2
107
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
29. Retirement benefit schemes (continued)
UK scheme
The Group sponsors the Bodycote UK Pension Scheme (“the Scheme”) which is a funded defined benefit arrangement for certain UK
employees, and pays out pensions at retirement based on service, final pensionable pay and price inflation. The Scheme is funded by
the Group and current employee members. The Scheme exposes the Company to actuarial risks such as longevity risk, interest rate
risk and market (investment) risk.
The Scheme operates under UK trust law and the trust is a separate legal entity from the Group. The Scheme is governed by a board
of trustees, composed of two member representatives, one employer representative and one independent trustee. The trustees
are required by law to act in the best interests of scheme members and are responsible for setting certain policies (e.g. investment,
funding) together with the Company.
Funding of the Scheme is based on a separate actuarial valuation for funding purposes for which the assumptions may differ from the
assumptions above. Funding requirements are formally set out in the Statement of Funding Principles, Schedule of Contributions and
Recovery Plan agreed between the Trustees and the Group. The actuarial valuation of the Scheme as at 6 April 2014 is being carried
out by a qualified independent actuary and the preliminary results of this have been updated on an approximate basis to 31 December
2014.
The contributions made by the employer over the financial year have been £1.5m, comprising £0.4m in respect of benefit accrual and
£1.1m in respect of deficit recovery and ongoing expenses.
It is the policy of the Group to recognise all actuarial gains and losses in the year in which they occur outside of the profit and loss
account and in Other Comprehensive Income.
Reconciliation of opening and closing balances of the present value of the defined benefit obligation
Defined benefit obligation at start of year
Current service cost
Interest expense
Contributions by plan participants
Actuarial gains arising from changes in demographic assumptions
Actuarial losses arising from changes in financial assumptions
Experience gains on liabilities
Benefits paid, death in service insurance premiums and expenses
Defined benefit obligation at end of year
Reconciliation of opening and closing balances of the fair value of the assets
Fair value of assets at start of year
Interest income
Return on scheme assets excluding interest income
Scheme administration expenses
Contributions by employer
Contributions by plan participants
Benefits paid, death in service insurance premiums and expenses (incl. age related rebate)
Fair value of assets at end of year
Total expense recognised in the income statement
Current service cost
Net interest on the defined benefit liability
Scheme administration expenses
Total expenses
2014
£m
85.7
0.6
3.8
0.2
(1.2)
19.6
(2.0)
(3.4)
103.3
2014
£m
80.9
3.6
19.9
(0.4)
1.5
0.2
(3.4)
102.3
2014
£m
0.6
0.2
0.4
1.2
2013
£m
85.6
0.6
3.8
0.2
–
0.2
–
(4.7)
85.7
2013
£m
81.4
3.6
(0.7)
(0.4)
1.5
0.2
(4.7)
80.9
2013
£m
0.6
0.2
0.4
1.2
108
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 29. Retirement benefit schemes (continued)
Assets
Equities
Bonds
Cash
Diversified growth funds
2014
Quoted
£m
2014
Unquoted
£m
2013
Quoted
£m
2013
Unquoted
£m
17.6
60.4
0.3
20.0
98.3
–
4.0
–
–
4.0
12.1
–
0.7
24.5
37.3
–
43.4
–
0.2
43.6
None of the fair value of the assets shown above include any of the Group’s own financial instruments or any property occupied by, or
other assets used by the Group.
The scheme’s present strategic target is to allocate 65% of the investment portfolio to ‘contractual’ asset classes including equities,
diversified growth funds, absolute return bonds and direct lending, and 35% to ‘non-contractual’ asset classes, namely Liability Driven
Investment (LDI). The LDI portion of assets has been put in place to reduce interest rate and inflation risk.
Assumptions
RPI inflation
CPI inflation
Salary increases
Rate of discount
Allowance for pension in payment increases of RPI or 3% p.a. if less
Allowance for revaluation of deferred pensions
Mortality – current pensioners:
Actuarial tables used
Life expectancy for members currently aged 65
Mortality – future pensioners:
Actuarial tables used
Life expectancy at age 65 for members currently aged 40
Cash commutation
2014
% per
annum
3.10
2.30
3.00
3.30
2.36
2.30
2013
% per
annum
3.40
2.60
3.00
4.50
2.50
2.60
2014
S2PxA YoB
CMI 2013
1.5% long
term trend
2013
S1PxA YoB
CMI 2010
1.5% long
term trend
22.6
22.7
2014
S2PxA YoB
CMI 2013
1.5% long
term trend
2013
S1PxA YoB
CMI 2010
1.5% long
term trend
24.8
25.5
2014
Members
commute
75% of
maximum
permitted
2013
Members
commute
75% of
maximum
permitted
The weighted average duration of the defined benefit obligation at 31 December 2014 is approximately 18 years (19 years as at 31
December 2013).
23846.02 9 March 2015 12:35 PM Proof 2
109
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
29. Retirement benefit schemes (continued)
Present value of defined benefit obligations, fair value of assets and deficit
Present value of defined benefit obligation
Fair value of plan assets
Deficit in the scheme
2014
£m
103.3
(102.3)
1.0
2013
£m
85.7
(80.9)
4.8
As all actuarial gains and losses are recognised, the deficit shown above at 31 December 2014 is that recognised in the balance sheet.
The best estimate of contributions to be paid into the plan for the year ending 31 December 2015 is £1.6m.
Amounts recognised in Other Comprehensive Income
Gain from experience on plan liabilities
Return on scheme assets excluding interest income
Effects of changes in financial assumptions underlying the present value of the liabilities
Effects of changes in demographic assumptions underlying the present value of the liabilities
Total gain/(loss) recognised in Other Comprehensive Income
Impact of changes to assumptions
2014
£m
2.0
19.9
(19.6)
1.2
3.5
2013
£m
–
(0.7)
(0.2)
–
(0.9)
0.25% change in discount rate
0.25% change in price inflation (and associated assumptions)
1 year change in life expectancy at age 65
Combined non-UK disclosures
The Group operates schemes in the USA and continental Europe.
2014
2013
Increase
£m
Decrease
£m
Increase
£m
Decrease
£m
(4.8)
2.1
3.7
4.8
(2.1)
(3.7)
(4.0)
1.2
2.0
4.0
(1.1)
(2.0)
In Europe, the Group operates defined benefit pension, post retirement and long-service arrangements for certain employees in
Belgium, France, Germany, Italy, Turkey, Switzerland and Liechtenstein.
Reconciliation of opening and closing balances of the present value of the defined benefit obligation
Defined benefit obligation at start of year
Current service cost
Interest expense
Actuarial losses arising from changes in demographic assumptions
Actuarial losses/(gains) arising from changes in financial assumptions
Experience losses on liabilities
Benefits paid, death in service insurance premiums and expenses
Employee contributions
Settlements
Exchange rate (gain)/loss
Defined benefit obligation at end of year
2014
£m
23.0
0.6
0.7
0.1
3.2
–
(0.4)
0.1
–
(1.1)
26.2
2013
£m
23.8
0.7
0.6
–
(0.7)
0.3
(2.1)
0.1
(0.1)
0.4
23.0
110
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 29. Retirement benefit schemes (continued)
Reconciliation of opening and closing balances of the fair value of plan assets
Fair value of assets at start of year
Interest income
Return on scheme assets excluding interest income
Contributions by employer
Contributions by employees
Benefits paid, death in service insurance premiums and expenses
Exchange rate loss
Fair value of assets at end of year
Total expense recognised in the income statement
Current service cost
Net interest on the defined benefit liability
Settlements
Total expenses
Assets
Equities
Bonds
Cash
Insurance contracts
2014
£m
9.3
0.3
0.3
0.3
0.1
0.1
(0.2)
10.2
2014
£m
0.6
0.4
–
1.0
2013
£m
9.0
0.2
0.2
0.2
0.1
(0.4)
–
9.3
2013
£m
0.7
0.4
(0.1)
1.0
2014
Quoted
£m
2014
Unquoted
£m
2013
Quoted
£m
2013
Unquoted
£m
1.8
0.1
1.5
–
3.4
–
–
0.1
6.7
6.8
1.7
0.2
1.3
–
3.2
–
–
–
6.1
6.1
None of the fair values of the assets shown above include any of the Group’s own financial instruments or any property occupied by, or
other assets used by the Group.
Assumptions for 2014
USA - metallurgical
USA - non-metallurgical
France
Germany
Italy
Turkey
Liechtenstein
Switzerland
Salary
increases
% per annum
Rate of
discount
% per annum
Inflation
% per annum
Pension
increases
% per annum
n/a
n/a
2.8
2.5
3.0
n/a
2.5
3.0
4.1
4.3
2.0
1.9
1.2
9.3
1.5
1.5
n/a
n/a
1.8
n/a
1.0
5.0
n/a
n/a
n/a
n/a
1.5
1.8
n/a
n/a
n/a
n/a
23846.02 9 March 2015 12:35 PM Proof 2
111
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the consolidated financial statements continued
Year ended 31 December 2014
29. Retirement benefit schemes (continued)
Duration
The weighted average durations of the defined benefit obligations of the overseas schemes at 31 December 2014 range from 11 years
to 16 years. The durations ranged from 9 years to 16 years as at 31 December 2013.
Present value of defined benefit obligations, fair value of assets and deficit
Present value of defined benefit obligation
Fair value of plan assets
Deficit in the schemes
2014
£m
26.2
(10.2)
16.0
2013
£m
23.0
(9.3)
13.7
As all actuarial gains and losses are recognised, the deficit shown above at 31 December 2014 is that recognised in the balance sheet.
Amounts recognised in Other Comprehensive Income
Loss on experience on plan liabilities
Return on scheme assets excluding interest income
Effects of changes in financial assumptions underlying the present value of the liabilities
Effects of changes in demographic assumptions underlying the present value of the liabilities
Total (loss)/gain recognised in Other Comprehensive Income
2014
£m
–
0.3
(3.2)
(0.1)
(3.0)
2013
£m
(0.3)
0.2
0.7
–
0.6
The only funded plans are those operated in the USA, Switzerland and Liechtenstein. The best estimate of contributions to be paid into
the plans for the year ending 31 December 2015 is £0.2m.
Sensitivities (changes to total defined benefit obligations)
2014
2013
Increase
£m
Decrease
£m
Increase
£m
Decrease
£m
0.25% change in discount rate
0.25% change in price inflation (and associated assumptions)
(1.0)
0.5
1.0
(0.5)
(0.8)
0.4
0.9
(0.4)
The scheme sensitivities are designed to give a broad indication of the effect of changes to the assumptions, and are applied to adjust
the defined benefit obligation at the end of the reporting period.
112
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Five year summary
Revenue
Profit:
Headline operating profit
Amortisation of acquired intangible fixed assets
Operating profit prior to exceptional items
Impairment charge
Profit on disposal of investments
Acquisition costs
Reorganisation costs
Operating profit
Net finance costs
Profit before taxation
Taxation
Profit after taxation
Non-controlling interests
Profit attributable to the equity holders of the parent
Headline earnings per share (pence)
Dividend per share (pence)
Special dividend per share (pence)
Assets employed
Intangible fixed assets
Tangible fixed assets
Other assets and liabilities
Financed by
Share capital
Reserves
Shareholders’ funds
Non-controlling interests
Net (cash)/borrowings
Capital employed
Net assets per share (pence)
Return on capital employed (%):
Headline operating profit divided by the average of opening
and closing capital employed as adjusted for certain items
of goodwill written off
2014
£m
2013
£m
609.1
619.6
111.1
(3.9)
107.2
–
–
(0.2)
–
107.0
(3.3)
103.7
(24.4)
79.3
0.1
79.4
43.8
14.4
20.0
172.1
434.6
(71.5)
535.2
33.1
537.3
570.4
0.5
(35.7)
535.2
297.9
107.4
(4.5)
102.9
–
–
–
(0.8)
102.1
(3.7)
98.4
(25.3)
73.1
(0.1)
73.0
41.2
13.5
10.0
167.9
444.6
(80.1)
532.4
33.1
513.7
546.8
0.6
(15.0)
532.4
285.6
2012
£m
587.8
97.5
(2.0)
95.5
–
2.4
(2.5)
(2.4)
93.0
(3.0)
90.0
(22.8)
67.2
(0.1)
67.1
37.5
12.3
–
166.8
448.7
(77.2)
538.3
33.1
469.6
502.7
1.4
34.2
538.3
262.6
2011
£m
2010
£m
570.7
499.8
84.9
(0.9)
84.0
(4.2)
–
–
–
79.8
(4.2)
75.6
(19.8)
55.8
(0.2)
55.6
32.6
10.9
–
111.5
443.9
(73.2)
482.2
33.0
448.0
481.0
1.3
(0.1)
482.2
251.5
51.3
(0.9)
50.4
–
–
–
–
50.4
(5.9)
44.5
(17.3)
27.2
(0.1)
27.1
18.1
8.7
–
118.1
458.0
(74.3)
501.8
32.8
416.0
448.8
1.7
51.3
501.8
236.4
20.7
19.9
17.9
16.3
10.2
23846.02 9 March 2015 12:35 PM Proof 2
113
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Company balance sheet
At 31 December 2014
Fixed assets
Tangible fixed assets
Investments
Current assets
Debtors:
- due within one year
- due after one year
Current liabilities
Creditors: Amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: Amounts falling due after more than one year
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other reserves
Profit and loss account
Shareholders’ funds
Note
2
3
4
4
5
5
7
7
7
7
2014
£m
9.9
392.6
402.5
8.9
3.8
12.7
(9.1)
3.6
406.1
(7.1)
399.0
33.1
177.1
128.9
59.9
399.0
2013
£m
6.7
393.2
399.9
14.9
5.6
20.5
(14.0)
6.5
406.4
(1.1)
405.3
33.1
177.1
133.9
61.2
405.3
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue on
26 February 2015.
They were signed on its behalf by:
S.C. Harris
Director
D.F. Landless
Director
114
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Company accounting policies
Accounting convention
The financial statements have been prepared under the historical cost convention and in accordance with applicable law and United
Kingdom accounting standards. The principal accounting policies are summarised below. They have all been applied consistently throughout
the year and the preceding year in dealing with items that are considered material in relation to the Company’s financial statements. In
accordance with Section 408 of the Companies Act 2006 a separate profit and loss account dealing with the results of the Company has
not been presented.
Adoption of Financial Reporting Standard (FRS) 101 – Reduced Disclosure Framework
Following the publication of FRS 100 Application of Financial Reporting Requirements by the Financial Reporting Council, Bodycote
plc is required to change its accounting framework for its entity financial statements, which is currently UK GAAP, for its financial year
commencing 1 January 2015. The Board considers that it is in the best interest of Bodycote plc to adopt FRS101 Reduced Disclosure
Framework. A shareholder or shareholders may serve objections to the use of the disclosure exemptions on Bodycote plc, in writing, to its
registered office (Springwood Court, Springwood Close, Tytherington Business Park, Macclesfield SK10 2XF) not later than 22 April 2015.
Going concern
The directors have at the time of approving the financial statements a reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing
the financial statements. Further detail is contained in the Finance Director’s report on page 23.
Investments
Investments are held at cost less provision for impairment.
Foreign currencies
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At
each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing
on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Gains and losses arising on retranslation are included in net profit or loss for the period.
Pension costs
For defined benefit and defined contribution schemes, the amount charged to the profit and loss account in respect of pension costs is the
contributions payable in the year. For further details see note 29 to the consolidated financial statements.
Leases
Assets held under finance leases and other similar contracts, which confer rights and obligations similar to those attached to owned assets,
are capitalised as tangible fixed assets and are depreciated over the shorter of the lease terms and their useful lives. The capital elements
of future lease obligations are recorded as liabilities, while the interest elements are charged to the profit and loss account over the period
of the lease to produce a constant rate of charge on the balance of capital repayments outstanding. Hire purchase transactions are dealt
with similarly, except that assets are depreciated over their useful lives.
Rental costs under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease.
The Company as lessor
Amounts due from lessees under finance leases are recorded as receivables at the amount of the Company’s net investment in the leases.
Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Company’s net investment
outstanding in respect of the leases.
Tangible fixed assets
Tangible fixed assets are stated at cost net of depreciation and any provision for impairment. Depreciation is provided on a straight-line
basis, to reduce the carrying value to the estimated residual value at the point of sale, at the following annual rates:
Fixtures and fittings
Software
10% to 20%
20% to 33%
Residual value is calculated on prices prevailing at the date of acquisition.
Taxation
Current UK corporation tax and foreign tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have
been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the
balance sheet date. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial
statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are
recognised in the financial statements.
A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can
be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing
differences can be deducted.
23846.02 9 March 2015 12:35 PM Proof 2
115
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Company accounting policies continued
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to
reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured
on a discounted basis to reflect the time value of money over the period between the balance sheet date and the dates on which it is
estimated that the underlying timing differences will reverse. The discount rates used reflect the post-tax yields to maturity that can be
obtained on government bonds with similar maturity dates and currencies to those of the deferred tax assets or liabilities.
Related party transactions
The Company has taken advantage of the exemption contained in FRS 8 Related Party Transactions not to disclose transactions or balances
with wholly-owned entities of the Group.
Share-based payments
The Company has applied the requirements of FRS 20 Share-based Payment.
The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair
value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-
line basis over the vesting period. At each balance sheet date, the Company revises its estimate of the number of equity instruments
expected to vest as a result of the effect of non-market based vesting conditions. The impact of the revision of the original estimates, if
any, is recognised in profit or loss such that the cumulative expense reflects the revised estimates with a corresponding adjustment to the
equity-settled employee benefits reserve.
116
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Notes to the company financial statements
Year ended 31 December 2014
1. Profit for the year
Bodycote plc reported a profit for the financial year ended 31 December 2014 of £42.5m (2013: £21.0m).
The auditor’s remuneration for audit and other services is disclosed in note 3 to the consolidated financial statements.
Disclosure of individual directors’ remuneration, share interests, share options, long-term incentive schemes, pension contributions
and pension entitlements required by the Companies Act 2006 and those specified for audit by the Listing Rules of the Financial
Conduct Authority are shown in the tables in the Board report on remuneration on pages 51 to 65 and form part of these financial
statements.
2. Tangible fixed assets
Cost
At 1 January 2014
Additions
At 31 December 2014
Depreciation
At 1 January 2014
Charge for the year
Impairment losses
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
3.
Investments
Cost
At 1 January 2014
Disposals
At 31 December 2014
Provision for impairment
At 1 January 2014
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
Fixtures and
fittings
£m
Software
£m
0.8
0.5
1.3
0.4
0.2
0.3
0.9
0.4
0.4
10.9
3.7
14.6
4.6
0.5
–
5.1
9.5
6.3
Shares
£m
Sundry
investments
£m
400.0
–
400.0
7.4
7.4
392.6
392.6
0.6
(0.6)
–
–
–
–
0.6
Total
£m
11.7
4.2
15.9
5.0
0.7
0.3
6.0
9.9
6.7
Total
£m
400.6
(0.6)
400.0
7.4
7.4
392.6
393.2
The sundry investments relate to the Bodycote Investment Incentive Plan, as explained in the Board report on remuneration.
Details of principal subsidiary undertakings of the Company are shown on pages 120 to 121.
23846.02 9 March 2015 12:35 PM Proof 2
117
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report Notes to the company financial statements continued
Year ended 31 December 2014
4. Debtors
Amounts falling due within one year:
Amounts owed by subsidiary undertakings
Corporation tax recoverable
Deferred taxation (note 6)
Other debtors and prepayments
Amounts falling due after more than one year:
Amounts owed by subsidiary undertakings
Other debtors
5. Creditors
Amounts falling due within one year:
Trade creditors
Amounts owed to subsidiary undertakings
Other taxes and social security
Other creditors
Accruals and deferred income
Amounts falling due after more than one year:
Amounts owed to subsidiary undertakings
6. Deferred tax asset
At 1 January 2014
Profit and loss charge
At 31 December 2014
Deferred tax is recognised as follows:
Other timing differences
Deferred tax asset
2014
£m
0.4
2.1
1.0
5.4
8.9
3.1
0.7
3.8
12.7
2014
£m
0.5
0.8
1.1
2.8
3.9
9.1
7.1
2014
£m
1.0
1.0
2013
£m
1.1
4.0
0.9
8.9
14.9
4.9
0.7
5.6
20.5
2013
£m
0.6
0.2
0.9
1.4
10.9
14.0
1.1
£m
0.9
0.1
1.0
2013
£m
0.9
0.9
118
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014
7. Capital and reserves
Share capital:
Ordinary shares (allotted, called-up and fully paid)
At 1 January 2014
At 31 December 2014
Number of
shares
191,456,172
191,456,172
£m
33.1
33.1
Details of share options in issue on the Company’s share capital and share-based payments are set out in note 27 to the consolidated
financial statements.
Reserves:
At 1 January 2014
Dividends paid
Profit for the year
Share-based payments
Acquisition of own shares
Settlement of share options
At 31 December 2014
Share
premium
account
£m
177.1
–
–
–
–
–
177.1
Other
reserves
£m
133.9
–
–
1.8
(7.0)
0.2
128.9
Profit
and loss
account
£m
61.2
(45.2)
42.5
–
–
1.4
59.9
Total
£m
372.2
(45.2)
42.5
1.8
(7.0)
1.6
365.9
The other reserves are stated after deducting £7.1m (2013: £5.5m) relating to shares held in the Bodycote International Employee
Benefit Trust. The Bodycote International Employee Benefit Trust holds Bodycote plc shares and satisfies awards made under various
employee incentive schemes when issuance of new shares is not appropriate.
At 31 December 2014 1,212,547 (2013: 2,035,618) ordinary shares of 17 3/11p each were held by the Bodycote International Employee
Benefit Trust and, following recommendations by the employer, are provisionally allocated to satisfy awards under employee incentive
schemes. The trust waives payment of dividend. The market value of these shares was £7.9m (2013: £13.6m).
Included in other reserves is the capital redemption reserve of £129.8m (2013: £129.8m).
8. Contingent liabilities
The Company has guaranteed bank overdrafts, loans and letters of credit of certain subsidiary undertakings amounting to £5.4m
(2013: £6.7m).
9. Financial commitments
Annual commitments under non-cancellable operating leases are as follows:
Within one year
In the second to fifth years inclusive
2014
£m
0.3
0.7
1.0
2013
£m
0.3
0.7
1.0
Operating lease payments represent rentals payable by the Company for its land and buildings and motor vehicles.
10. Pension commitments
The Company participates in a Group defined benefit scheme, the details of which are disclosed in note 29 to the consolidated
financial statements. However, the Company is unable to identify its share of the underlying assets and liabilities and has therefore
accounted for the scheme as if it were a defined contribution scheme. Full disclosures concerning the scheme as required by IAS 19
(revised) are set out in note 29 to the consolidated financial statements. These also satisfy the requirements of FRS17 ‘Retirement
Benefits’.
The contributions made by the Company over the financial year to both the defined contribution and the defined benefit schemes
amounted to £0.3m (2013: £0.3m) and £0.4m (2013: £0.4m) respectively. As at 31 December 2014, contributions of £0.1m (2013: £nil)
due in respect of the current reporting period had not been paid over to the schemes.
11. Related party transactions
During the current and prior year, the Company has not entered into any transactions with related parties who are not wholly-owned
members of the Group.
23846.02 9 March 2015 12:35 PM Proof 2
119
GovernanceAdditional informationwww.bodycote.comStock code: BOYFinancial statementsStrategic report
Principal subsidiary undertakings
Thermal Processing – Heat Treatment and Metal Joining
Company name
Plants
Bodycote Heat Treatments Limited*
Cambridge, Chard, Coventry, Derby, Gillingham,
Great Barr, Hazel Grove, Macclesfield, Rotherham,
Skelmersdale, Stillington and Woodford
Bodycote Hardiff GmbH
Landsberg
Bodycote Wärmebehandlung GmbH
Bodycote Hardingscentrum BV
Bodycote Värmebehandling AB
Bodycote SAS
Techniques Metallurgiques Avancées SAS
Nitruvid SAS
Bodycote Belgium SA
Bodycote Lämpökäsittely Oy
Bodycote Varmebehandling A/S
Bodycote Trattamenti Termici SpA
Bodycote Austria GmbH
Ebersbach, Eching, Essen, Esslingen, Karben,
Korntal, Langenfeld, Langenselbold, Lüdenscheid,
Menden, Nürnberg, Otterfing, Remscheid, Sömmerda,
Sprockhövel and Wehingen
Apeldoorn, Diemen, Gandrange, Haaksbergen,
Hengelo, Tilburg and Venlo
Göteborg, Hudiksvall, Malmö, Mora, Stockholm,
Värnamo, Västerås and Vellinge
Amiens, Beaugency, Billy-Berclau, Cernay, Chanteloup-
les-Vignes, Chassieu, Condé-sur-Noireau, Duttlenheim,
Gemenos, Gorgonzola, Lagny-sur-Marne, La Monnerie-
le-Montel, La Talaudière, Le Subdray, Neuilly-en-Thelle,
Nogent, Pusignan, Serres Castet, St-Aubin-les-Elbeuf,
St-Nicolas-d’Aliermont, St-Rémy-en-Mauges, Villaz and
Voreppe
Metz-Tessy
Argenteuil
Brussels
Pieksämäki, Tampere, Vaasa and Vantaa
Ejby and Herlev
Madone and Rodengo
Kapfenberg, Marchtrenk and Vienna
Bodycote Rheintal Wärmebehandlung AG
Bodycote Schweiz Wärmebehandlung AG
Schaan
Urdorf
Bodycote HT s.r.o
Bodycote Polska Sp z.o.o
Brno, Krnov, Liberec and Prague
Chelmno, Czestochowa, Swiebodzin, Warsaw and
Zabrze
Bodycote Tratamente Termice SRL
Bodycote Hungary Hökezelö KFT
Brasov and Cugir
Budapest
Bodycote Istas Isil Islem Sanayi ve Ticaret AS (79.3% owned) Bursa, Istanbul and Izmir
Bodycote Thermal Processing, Inc.
Athens AL, Fremont, Huntington Park, Rancho
Dominguez, Santa Fe Springs, Vernon, Westminster
CA, Berlin, South Windsor, Waterbury CT, Conyers GA,
Melrose Park IL, Elkhart, Fort Wayne, Greensburg,
Indianapolis IN, Wichita KS, Lafayette LA, Ipswich,
Worcester MA, Canton, Grand Rapids, Holland,
Livonia MI, Eden Prairie MN, Reidsville NC, Laconia
NH, Roselle NJ, Rochester NY, Cincinnati, Cleveland,
Columbus, London OH, Oklahoma City, Tulsa OK, York
PA, Fountain Inn SC, Morristown TN, Arlington, Fort
Worth, Houston TX, New Berlin, Sturtevant WI
Country of
incorporation
England
Germany
Germany
Netherlands
Sweden
France
France
France
Belgium
Finland
Denmark
Italy
Austria
Liechtenstein
Switzerland
Czech Republic
Poland
Romania
Hungary
Turkey
USA
120
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Thermal Processing – Heat Treatment and Metal Joining (continued)
Company name
Plants
Bodycote Thermal Processing Canada, Inc.
Kitchener and Newmarket ON
Bodycote Thermal Processing Mexico Limited
Guaymas, Mexico
Bodycote Brasimet Processamento Termico Ltda
Campinas, Joinville, Jundiaí and Sao Leopoldo
Bodycote Thermal Processing de Mexico S de RL de CV
Bodycote (Wuxi) Technology Co. Limited
Bodycote (Ningbo) Heat Treatment Co. Limited
Silao
Wuxi
Ningbo
Bodycote (Jinan) Heat Treatments Technology Co. Limited
Jinan
Bodycote (Kunshan) Heat Treatments Technology Co. Limited
Kunshan
Bodycote Metallurgical Services India Pvt Ltd
Ranjangaon
Thermal Processing — Hot Isostatic Pressing
Company name
Bodycote H.I.P. Limited*
Bodycote IMT, Inc.
Bodycote Heiß-Isostatisches Pressen GmbH
Bodycote Hot Isostatic Processing NV
Bodycote SAS
Bodycote Hot Isostatic Pressing AB
Thermal Processing — Surface Engineering
Plants
Chesterfield and Hereford
Princeton KY, Andover MA, London OH and Camas WA
Haag
Sint-Niklaas
Magny-Cours
Surahammar
Company name
Plants
Bodycote Surface Technology Limited*
Bodycote K-Tech, Inc.
Bodycote Ytbehandling AB
Bodycote SAS
Bodycote Singapore Pte Ltd
Knowsley, Newport, Skelmersdale, Stonehouse,
Wolverhampton and Dubai
Hot Springs AR and Houston TX
Katrineholm, Karlstad and Västra Frölunda
Ambazac and Serres Castet
Singapore
Country of
incorporation
Canada
England
Brazil
Mexico
China
China
China
China
India
Country of
incorporation
England
USA
Germany
Belgium
France
Sweden
Country of
incorporation
England
USA
Sweden
France
Singapore
Except where stated, these companies are wholly-owned subsidiaries and have only one class of issued shares. Subsidiaries marked * are
held directly by Bodycote plc.
It is agreed that the two German subsidiaries Bodycote Wärmebehandlung GmbH and Bodycote Hardiff GmbH make use of the exemption
option under Sec. 264 para. 3 German Commercial Code for the fiscal year 2014, and will not publish their annual financial statements
according to Sec. 325 et seq. German Commercial Code.
23846.02 9 March 2015 12:35 PM Proof 2
121
GovernanceFinancial statementswww.bodycote.comStock code: BOYAdditional informationStrategic report Shareholder enquiries
Enquiries on the following administrative matters can be addressed to the Company’s registrars at The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU. Telephone 0871 664 0300 (calls to 0871 numbers cost 10p per minute plus network extras – lines are open
8.30am until 5.30pm, Monday to Friday) or +44 (0)208 639 3399; Fax: +44 (0)1484 600911; and email shareholderenquiries@capita.co.uk.
Change of address
Lost share certificates or dividend cheques
Dividend mandates
Amalgamation of holdings
Forms for some of these matters can be downloaded from the registrars’ website at www.capitaassetservices.com. Shareholders can
easily access and maintain their shareholding online by registering at www.capitashareportal.com. To register shareholders will require their
investor code, which can be located on a share certificate or tax voucher.
Share dealing service
For information on the share dealing service offered by Capita Asset Services, telephone 0871 664 0364 (calls cost 10p per minute plus
network extras; lines are open 8.00am to 4.30pm, Monday to Friday) or +44 (0)203 367 2691 from overseas. For the online service, Capita’s
commission rates are 1.25%* of the value of the deal (minimum charge £30.50) and for the telephone service, Capita’s commission rates
are 1.50%* of the value of the deal (minimum charge £40.50). Maximum deal size for online trades is £25,000. Rates for deals above
£25,000 will be advised at the time of dealing.
All other charges apply, including stamp duty at 0.5% on all purchases and a £1 Panel on Takeovers and Mergers levy on transactions over
£10,000.
* The commission charges are correct at the time of printing and may be subject to change. For information on the current charges and to
find out more visit www.capitadeal.com.
Dividend reinvestment plan (DRIP)
Capita’s Dividend Re-investment Plan offers a convenient way for shareholders to build up their shareholding by using dividend payments
to purchase additional shares. The plan is provided by Capita Asset Services, a trading name of Capita IRG Trustees Limited, which is
authorised and regulated by the Financial Conduct Authority.
For more information and an application pack please call 0871 664 0381 (calls to this number cost 10p per minute plus network extras) or
+44 (0)208 639 3402 from overseas. Lines are open from 9.00am to 5.30pm, Monday to Friday, excluding public holidays. Alternatively,
email shares@capita.co.uk or log on to www.capitashareportal.com.
It is important to remember that the value of shares and dividend payments can fall as well as rise and you may not recover the amount of
money that you invest. Past performance should not be seen as indicative of future performance.
Overseas shareholders
Capita has partnered with Deutsche Bank to provide overseas shareholders with a service that will convert sterling dividends into local
currency at a competitive rate. Overseas shareholders can choose to receive payments directly into local bank accounts, or alternatively,
can be sent a currency draft. Overseas shareholders can sign up for this service on the Share Portal (by clicking on ‘Your Dividend Options’
and following the on screen instructions) or by contacting the Customer Support Centre. For further information contact Capita on 0871 664
0385 (UK calls cost 10p per minute plus network extras) or +44 (0)208 639 3405 from overseas. Lines are open 9.00am to 5.30pm, Monday
to Friday, excluding public holidays. E-mail: ips@capita.co.uk.
Duplicate share register accounts
If you are receiving more than one copy of our report, it may be that your shares are registered in two or more accounts on our register of
members. If that was not your intention you might consider merging them into one single entry. Please contact Capita, who will be pleased
to carry out your instructions.
122
23846.02 9 March 2015 12:35 PM Proof 2
Bodycote plc annual report for the year ended 31 December 2014 Shareholder analysis
Analysis of share register as at 16 February 2015:
Holding range
1 to 1,000
1,001 to 10,000
10,001 to 100,000
100,001 to 500,000
500,001 and over
Type of shareholders
Directors’ interests
Major institutional and corporate holdings
Other shareholdings
Number of
shareholders
965
905
248
92
71
Number of
shares
409,005
2,902,927
7,899,954
21,003,601
159,240,685
%
42.3
39.7
10.9
4.0
3.1
%
0.2
1.5
4.1
11.0
83.2
2,281
100.0
191,456,172
100.0
% of
shareholders
% of total
shares
0.3
31.7
68.0
100.0
0.6
97.8
1.6
100.0
As at 16 February 2015 the following voting rights in the Company had been notified in accordance with the Disclosure and Transparency
Rules.
Type of shareholders
Standard Life Investments Ltd
Mondrian Investments Partners Ltd
Old Mutual Global Investors (UK) Limited
Dimensional Fund Advisors, LP
Baillie Gifford & Co
Schroder Investment Management Ltd
Franklin Templeton Fund Management Limited
BlackRock Investment Management (UK) Ltd
Company information
Advisers
Auditor
Deloitte LLP
Number of
shares
27,965,822
12,935,934
11,420,853
9,908,173
8,130,521
7,788,878
7,725,000
6,193,567
%
14.6
6.8
6.0
5.2
4.2
4.1
4.0
3.2
Principal bankers
HSBC Bank plc, Barclays Bank PLC, The Royal Bank of Scotland plc, Svenska Handelsbanken AB, Lloyds TSB Bank plc, UniCredit Bank AG,
ING Bank NV, Wells Fargo Bank, NA and KBC Bank NV
Solicitors
Eversheds LLP and Herbert Smith Freehills LLP
Financial calendar
Annual General Meeting
Final dividend for 2014
Interim results for 2015
Interim dividend for 2015
Results for 2015
23 April 2015
1 May 2015
July 2015
November 2015
February 2016
To view the Bodycote Annual Report online visit
http://bodycote.annualreport2014.com
23846.02 9 March 2015 12:35 PM Proof 2
www.bodycote.com
For the online version of this report go to
bodycote.annualreport2014.com
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Bodycote plc
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
Tel: +44 (0)1625 505300
Fax: +44 (0)1625 505313
Email: info@bodycote.com
23846.02 9 March 2015 12:35 PM Proof 2
© Bodycote plc 2014
Produced by Jones and Palmer
www.jonesandpalmer.co.uk