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annual report 2015
www.bodycote.com | Stock code: BOY
24472.04 4 March 2016 10:52 AM PROOF 5
At a glance
Operating an international network of facilities, Bodycote is the
world’s leading provider of thermal processing services.
Experienced in supporting large multinational customers and their supply
chains, as well as local niche specialists, Bodycote provides a vital link
in the manufacturing process for virtually every market sector including
aerospace and defence, automotive, power generation, oil & gas,
construction, medical and transportation.
Our structure
The Group operates in two major areas:
Aerospace, Defence & Energy (ADE)
Read more
on page 16
Automotive & General Industrial (AGI)
Read more
on page 18
Throughout this report you will see illustrations which link our business and strategy:
Strategy & Core Values
Key Performance Indicators
Aerospace, Defence
& Energy markets
Automotive & General
Industrial markets
£
Return on capital employed
Headline earnings per share
Rapid growth countries
Technology
Return on sales
Headline operating cash flow
Customer service
Core values
Accident frequency
Carbon footprint
Strategic report
01 Financial highlights
02 Chairman’s statement
04 Chief Executive’s review
06 Strategic report
07 Strategy and objectives
08 Business model
09 Measuring progress
10 Our technologies
11 Adding value - a component journey
12 Global network
14 Markets
15 Business performance
16 Business review – Aerospace,
Defence & Energy
18 Business review – Automotive &
General Industrial
20 Finance Director’s report
24 Principal risks and uncertainties
28 Corporate responsibility and
sustainability
35 Injecting life into alloy steel - a
component journey
Cover image
Additional information
135 Subsidiary undertakings
138 Shareholder enquiries
139 Company information
Governance
36 Board of Directors
38 Corporate governance statement
46 Directors’ report
48 Report of the Nomination
Committee
50 Report of the Audit Committee
54 Board report on remuneration
74 Directors’ responsibilities
statement
Financial statements
75 Independent auditor’s report
81 Consolidated income statement
81 Consolidated statement of
comprehensive income
82 Consolidated balance sheet
83 Consolidated cash flow
statement
84 Consolidated statement
of changes in equity
85 Group accounting policies
94 Notes to the consolidated
financial statements
124 Five year summary
125 Company statement of financial
126
position
Company statement of changes
in equity
Company accounting policies
127
129 Notes to the company financial
statements
For the online version of this report go to
bodycote.annualreport2015.com
This photo-micrograph shows a low alloy high tensile steel microstructure having been treated by Bodycote’s proprietary Corr-I-Dur® process. The Corr-I-Dur® process provides a surface
hardening solution which produces both improved corrosion and wear properties without adversely affecting the mechanical properties of the base material.
24472.04 4 March 2016 10:52 AM PROOF 5
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
2015
£567.2m
£102.1m
18.0%
£77.9m
£99.2m
£75.0m
£81.6m
£73.2m
£12.3m
39.5p
29.6p
15.1p
10.0p
19.0%
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%
1
Headline operating profit and headline profit before taxation exclude amortisation of acquired intangibles of £4.2m (2014: £3.9m), reorganisation costs of
£20.0m (2014: £nil) and acquisition costs of £nil (2014: £0.2m).
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 £8.4m (2014: £3.0m) and acquisition costs
of £nil (2014: £0.2m).
4 Operating cash flow is defined as cash generated by operations of £134.5m (2014: £150.6m) less net capital expenditure of £61.3m (2014: £53.8m).
5 A detailed reconciliation is provided in note 10 on page 102.
6 See note 9 on page 101.
7
Return on capital employed is defined as headline operating profit of £102.1m (2014: £111.1m) divided by the average of opening and closing capital employed
of £538.4m (2014: £538.0m) 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
567.2
Headline operating profit
£m
107.4
111.1
102.1
97.5
84.9
£567.2m
(6.9)%
(2014: £609.1m)
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
Dividend per share
pence
13.5
12.3
10.9
14.4
15.1
15.1p
+4.9%
(2014: 14.4p)
Headline earnings per share
pence
41.2
43.8
39.5
37.5
32.6
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
£102.1m
(8.1)%
(2014: £111.1m)
39.5p
(9.8)%
(2014: 43.8p)
01
24472.04 4 March 2016 10:52 AM PROOF 5
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Chairman’s statement
“The Group is well positioned
and has exciting prospects going
forward. We have developed
a strong, high performance
culture serving a wide range of
international customers, with
a committed workforce and
absolute integrity in our operating
procedures.”
A.M. Thomson l Chairman
Overview
2015 was a year of considerable challenge for the Group. Mixed
macro-economic conditions persisted throughout the year in
many of the countries in which we operate. The automotive and
aerospace markets remained in growth mode, but this was not
enough to offset the revenue dip, particularly in the energy and
general industrial sectors.
I am, however, very pleased to report that the Group, under the
stewardship of Stephen Harris and his executive team, successfully
navigated the business through these tough conditions and we
remain in a strong financial position.
Dividend
The Board considers the dividend to be an important component
of shareholder returns and is proposing a final ordinary dividend
of 10.3p, an increase of 5.1%, which will be paid on 3 June
2016, subject to shareholder approval at the 2016 Annual General
Meeting. This brings the total ordinary dividend for 2015 to 15.1p
(2014: 14.4p) costing £28.7m which represents a year-on-year
increase of 4.9%. Recognising the net cash position of the Group
the Board is, for the third successive year, recommending a
supplemental distribution by way of a special dividend, also payable
on 3 June 2016, amounting to 10.0p per share (2014: 20.0p) costing
£19.0m (2014: £38.1m).
Governance and reporting
One of my key responsibilities as Chairman is to promote effective
governance across the Group thus ensuring that we remain a
successful and sustainable entity with good governance procedures
practised across all 24 countries in which the Group operates. To
enable shareholders to understand how this goal 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
business from achieving its objectives and the actions being taken
to overcome these potential obstacles.
During the year we commissioned an external evaluation of the
Board’s performance. The findings confirmed that the Board is
well balanced with a diverse mix of skills and experience and is
performing effectively. Nevertheless the report indicates that there
is scope for improvement and we shall be working to ensure that
the governance is further improved in 2016.
02
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 Shareholders
During the year I met with a number of Bodycote’s largest
shareholders and received positive feedback from them on their
views of the Group. In the coming year I will maintain this valuable
dialogue and also look forward to meeting as many shareholders
as possible at this year’s AGM in May, when there will be an
opportunity to discuss the Group’s business and future prospects
with Board members.
Summary
The performance of the Group was resilient throughout 2015. This
reflects the decisive cost actions taken in the face of weak market
conditions, together with the delivery of an improved business mix.
The Group is well positioned and has exciting prospects going
forward. We have developed a strong, high-performance culture
serving a wide range of international customers, with a committed
workforce and absolute integrity in our operating procedures. The
long-term prospects for the Group are encouraging and I remain
confident that these should ensure an attractive return for both our
employees and our shareholders over the coming years.
A.M. Thomson
Chairman
25 February 2016
Hand-in-hand with good governance goes transparent reporting,
and during 2015 we have made further changes to the Annual
Report to ensure that this is achieved. This includes a viability
statement, which can be found on page 27 of this Annual Report
and also a complete listing of the Group’s subsidiary undertakings.
In part these are mandated by changes in UK reporting regulation,
others arise through changes to the UK Corporate Governance
code, and sometimes by proactively 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.
It should be noted that these topics now make up a material part
of each management committee and Board meeting.
Board matters
It is the responsibility of every Board to ensure that there is an
appropriate succession plan 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 performed an in-depth
review of its Board succession plan.
Raj Rajagopal, the Senior Independent Director, who joined the
Board in September 2008, will retire after the 2016 AGM. His wise
counsel has been invaluable throughout the whole period of Group
transformation. We thank him for his contribution over the last
eight years and wish him well for the future. We have engaged
Zygos Partners, a firm of international search consultants, to work
with us to identify a new non-executive director. We will report to
shareholders on progress as appropriate.
Ian Duncan, who is a qualified Chartered Accountant, joined the
Board in November 2014 and assumed the Chair of the Audit
Committee after the 2015 AGM. Ian is a highly experienced
independent director having served a number of international
companies in both executive and non-executive Board positions
over the last 15 years. I am pleased to report that Ian will become
our Senior Independent Director following the 2016 AGM in May.
David Landless, the Group Finance Director, has informed the
Board of his intention to retire as a director of the Board. David has
agreed to remain with the Group to ensure a smooth handover to
his successor and he will oversee the publication of the Group’s
2016 full year results if the handover has not been completed ahead
of this date. On behalf of the Board I would like to thank David
for his dedication and exceptional service to the Group over many
years and we wish him all the best in the next stage of this career
as he grows his non-executive director portfolio.
People
Whilst Bodycote has become a large Group operating on a
global basis, we have tried to maintain the agility of a smaller
company, with a flat organisational structure and clear lines of
responsibility, thus enabling us to provide a fast and efficient
service to our customers. Bodycote is a first-class service business,
our employees are our ambassadors, and with their continued
commitment and professionalism we can achieve our ambitious
plans. I would like to thank each and every one of them for their
enthusiasm, hard work and commitment throughout 2015.
Despite the improvement in the overall performance of safety
across the Group it is with great regret that I have to report that one
of our employees was seriously injured in an accident at a facility
in North America in October 2015 and, as a result of these injuries,
the employee died on 17 February 2016.
24472.04 4 March 2016 10:52 AM PROOF 5
03
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Chief Executive’s review
“The Group delivered a resilient
performance in 2015. The speed
and effectiveness of management’s
actions, in addition to the continued
focus on improved mix, enabled
headline operating margins to be
sustained.”
S.C. Harris l Group Chief Executive
Overview
The Group benefits from serving a broad spread of industrial
sectors and geographies. In 2015 the macro-economics were
favourable for our aerospace and automotive sectors, but the
rapid decline in oil prices weighed heavily on our customers in the
energy sector. The weakness in the energy sector bled over into
the general industrial markets and was further compounded by
the slowing growth in China, weakening global demand for many
commodities and the embargo on global trade with Russia.
The net result for Bodycote was a 7% decline in revenue to
£567.2m (2014: £609.1m). However, headline operating profit only
reduced by 8% to £102.1m (2014: £111.1m), including negative
foreign currency translation of £2.3m.
The potential impact the weakening global demand conditions
would have on the Group started to become clear early in the year.
As a consequence, management decided to undertake a series of
actions to mitigate the situation, some giving immediate benefit,
while others are aimed at accelerating future growth.
A restructuring programme was announced at the half year, with
an associated charge of £20m (of which £9m related to non-cash
impairments) and which focused on our facilities serving the
oil services and general industrial sectors. By year end we had
successfully exited the businesses in Brazil and India. Elsewhere
we have closed five facilities and consolidated poorly performing
activities within a further six facilities. Closure of an additional five
facilities will be completed in the first half of 2016. Equipment is
being relocated within the Group, and in many cases business is
being transferred to neighbouring facilities.
The speed and effectiveness of management’s actions, in
conjunction with the ongoing drive for mix and efficiency
improvements, have been such that the headline margin1 has
been sustained at 18%.
04
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 Improving the flexibility of the Group’s cost base has been a high
priority for several years. A noteworthy element of this has been
greater use of temporary labour which can be flexed at little or no
cost to suit the prevailing workload. Temporary employees were
reduced by 11% during the year, however at year end, temporary
and contract labour still represented 12.7% of total employees.
Basic headline earnings per share was 39.5p, a decline of 9.8%
which reflects the absence of the one-off tax credit the Group
enjoyed in 2014. Bodycote is reporting another year of strong cash
generation, with 80% of headline operating profit turned into cash2
(2014: 90%). As a result, the Group continues to be in a strong
financial position and had net cash of £12.3m at 31 December 2015.
Return on capital employed remained excellent at 19.0% for the
year (2014: 20.7%).
Strategic progress
To enhance our future growth we have accelerated investment in
high growth potential areas, mindful of the Group’s 20% hurdle rate
for return on capital employed. The increase in capital expenditure
was driven by the number of greenfield facilities under construction
along with specific capacity expansion in Specialist Technologies
and civil aerospace. Nine greenfield sites were under construction
in 2015, of which four are for Specialist Technologies and three are
in the targeted expanding markets of Eastern Europe, Mexico and
China. Additionally, capacity has been expanded at specific existing
Specialist Technologies and civil aerospace facilities.
Overall capital investment increased by 14% to £61m,
corresponding to 1.2 times depreciation.
The strategy of preferential investment in Specialist Technologies
continues to benefit the Group. While two of these technologies,
Surface Technology and HIP Product Fabrication, were hard hit
by the decline in activity in the oil sector, the remaining four
showed good growth. Average margins continue to exceed 30%
in Specialist Technologies.
During the year we launched a new specialist technology in
the field of ion implantation. We believe it to be the only form
of ion implantation that is capable of processing bulk material.
Applications include hardening of materials without temperature
distortion and the reduction of surface friction in polymers,
eliminating the need for lubrication. Sales are currently at the
pilot stage.
The pursuit of operational excellence in the Group is a major
priority. Part of this effort is a goal to improve the margins in the AGI
Classical Heat Treatment business to the level we have been able to
achieve in ADE Classical Heat Treatment. This is particularly the case
in AGI in Europe where margins have been lower for some years.
One of the tools used for this is the Bodycote Margin Model which
employs a job costing methodology and strategic pricing process
to help facilities drive the mix of work towards higher added value.
Lean techniques are also being deployed at an increasing rate,
which help to improve production flows and efficiencies. This
work, in conjunction with the restructuring actions taken, drove
the margins in the AGI business up by 90 bps, notwithstanding the
decline in revenues.
During 2015 we continued to pursue potential acquisitions, although
none were completed during the year. The acquisition priorities
are divided into two broad areas. The first is to acquire bolt-on
activities in Classical Heat Treatment that will enhance our network
of operations. These will typically be small businesses in Western
Europe and North America as there are few, if any, suitable targets
outside of these territories and very few of any scale. The second
area we look to acquire in is Specialist Technologies. There are few
potential targets given the rarity of competitors, but some of the
targets are of a larger scale. We also actively pursue ideas in areas
adjacent to our existing technologies. The environment in 2016
looks more conducive to making acquisitions and the Group is well
placed should sufficiently attractive targets become available.
Summary and outlook
The Group delivered a resilient performance in 2015. Automotive
and aerospace revenues moved ahead. However, the decline in oil
price combined with downward pressures on our general industrial
business led to Group revenues falling by 4% at constant exchange
rates. The speed and effectiveness of management’s actions, in
addition to the continued focus on improved mix, enabled headline
operating margins to be sustained. Recognising the Group’s
net cash position, the Board is recommending a further special
dividend.
The Group will continue to follow its strategy of investing in areas
of robust revenue opportunity, notably in Specialist Technologies
and in higher growth territories, as well as further enriching the
mix towards higher added value services. The Board is confident
that management’s continued focus on business improvements will
generate good returns throughout the cycle.
S.C. Harris
Group Chief Executive
25 February 2016
1. Return on sales is defined as headline operating profit as a percentage of
revenue.
2. Cash conversion is defined as headline operating cash as a percentage of
headline operating profit.
24472.04 4 March 2016 10:52 AM PROOF 5
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)
■■ Our 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
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 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
Serving the aerospace, defence
and energy markets, with a
and energy markets, with a
focused network of globally
Serving the aerospace, defence
focused network of globally
coordinated facilities, attuned to
and energy markets, with a
coordinated facilities, attuned to
these customers’ specific needs
focused network of globally
these customers’ specific needs
and requirements.
coordinated facilities, attuned to
and requirements.
these customers’ specific needs
and requirements.
Serving the automotive and
Serving the automotive and
chosen general industrial markets
chosen general industrial markets
through a regionally organised
Serving the automotive and
through a regionally organised
business, catering to these
chosen general industrial markets
business, catering to these
customers’ specific local needs
through a regionally organised
customers’ specific local needs
and proximity requirements.
business, catering to these
and proximity requirements.
customers’ specific local needs
and proximity requirements.
Our strategy
Our strategy
Our strategy
is based on these
is based on these
is based on these
fundamentals
fundamentals
fundamentals
Capitalising on our Specialist
Capitalising on our Specialist
Technologies to provide our
Technologies to provide our
customers with the ability to
Capitalising on our Specialist
customers with the ability to
create innovative, differentiated
Technologies to provide our
create innovative, differentiated
products.
customers with the ability to
products.
create innovative, differentiated
products.
Expanding with our customers
Expanding with our customers
to rapid growth countries with
to rapid growth countries with
an emphasis on Eastern Europe,
Expanding with our customers
an emphasis on Eastern Europe,
Mexico and China.
to rapid growth countries with
Mexico and China.
an emphasis on Eastern Europe,
Mexico and China.
Achieving the highest levels of
Achieving the highest levels of
customer service in terms of
customer service in terms of
quality, delivery, reliability and
Achieving the highest levels of
quality, delivery, reliability and
technical problem solving.
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
We are honest and act with
take for granted. Bodycote lives by
take for granted. Bodycote lives by
integrity. This is not something we
a culture of honest and transparent
a culture of honest and transparent
take for granted. Bodycote lives by
behaviour, which is at the core of
behaviour, which is at the core of
a culture of honest and transparent
all our business relationships.
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
We manage our business with
approach to our dealings with
approach to our dealings with
respect, applying an ethical
those with whom we interact.
those with whom we interact.
approach to our dealings with
We believe in taking ownership
We believe in taking ownership
those with whom we interact.
for, and being mindful of the impact
for, and being mindful of the impact
We believe in taking ownership
of, our actions.
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
Creating value is the very essence
the focus of our endeavours. We
the focus of our endeavours. We
of our business and needs to be
create value for our customers,
create value for our customers,
the focus of our endeavours. We
our employees and our
our employees and our
create value for our customers,
shareholders.
shareholders.
our employees and our
shareholders.
Return on capital employed
Return on capital employed
Headline earnings per share
Headline earnings per share
Return on capital employed
Headline earnings per share
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
£
£
£
24472.04 4 March 2016 10:52 AM PROOF 5
07
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Business model
Provider of essential services to engineering manufacturers
Classical Heat Treatment
■■ Working to very exacting quality
specifications, heat treatment uses
precisely controlled furnaces to process
a huge variety of metals and alloys,
improving their material properties.
■■ Bodycote’s Classical Heat Treatments
describe a group of mature heat
treatment processes and includes metal
joining technologies which are used to
join and assemble parts.
The global leader
Customer focus
■■ Bodycote is focused on continual
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.
Virtually every type of metal component,
whatever its application, has received some
form of processing before its introduction to
service to enable it to perform to the required
standard and last longer.
Specialist Technologies
■■ Bodycote’s Specialist Technologies refer
to a group of processes which require
very specialist expertise and technology.
These technologies offer unique solutions
for a variety of applications, and some are
proprietary.
➔
Global network
■■ Bodycote’s global network of 178 market-
focused facilities12, 13 in 24 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.
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
choice 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 reference to other pages in the report where further information can
be found.
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 Measuring progress
Return on capital employed
(%)
19.9%
20.7%
19.0%
17.9%
16.3%
2011
2012
2013
2014
2015
Headline earnings per share
(pence)
43.8p
41.2p
39.5p
37.5p
32.6p
2011
2012
2013
2014
2015
Return on sales
(%)
16.6% 17.3%
18.2% 18.0%
14.9%
2011
2012
2013
2014
2015
Headline operating cash flow
(£m)
110.8m 108.9m 100.0m
96.0m
Performance
Return on capital employed decreased by 1.7 percentage points during the year, from
20.7% to 19.0%.
£
Headline operating profit decreased by 8.1% from £111.1m to £102.1m, while average
capital employed increased by 0.1% to £538.4m.
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).
Performance
Headline earnings per share decreased by 4.3 pence during the year, from 43.8 pence to
39.5 pence.
Headline earnings decreased by 10.1% from £83.4m to £75.0m, while the average number
of shares in issue remained static.
Definition
Headline earnings per share is defined in note 10 to the Group financial statements.
Performance
Return on sales decreased by 0.2 percentage points during the year, from 18.2% to 18.0%.
Headline operating profit decreased by 8.1% from £111.1m to £102.1m, while revenue
decreased by 6.9% from £609.1m to £567.2m.
Definition
Headline operating profit as a percentage of revenue.
Performance
Headline operating cash flow for the Group was £81.6m (2014: £100.0m). This was 80% of
headline operating profit (2014: 90%).
81.6m
Definition
Operating cash flow stated before cash flow relating to restructuring of £8.4m (2014:
£3.0m) and acquisition costs of £nil (2014: £0.2m).
2011
2012
2013
2014
2015
Accident frequency
(number)
1.9
1.7
1.5
1.7
1.5
2011
2012
2013
2014
2015
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 1.5 in the year (2014: 1.7). 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 5 200,000 hours
(approximately 100 man years), divided by the total number of employee hours worked.
Carbon footprint
(tonne CO2e/£m sales))
645.9
642.3
654.6
Performance
On a normalised basis, the carbon footprint decreased by 1.0% from 628.2 tonnes per
£m sales to 621.9 tonnes per £m sales. Further details are included in the Corporate
responsibility and sustainability section on page 34.
628.2
621.9
Definition
Carbon footprint is defined as tonnes of CO2 equivalent emissions divided by £m revenue.
2011
2012
2013
2014
2015
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.
09
24472.04 4 March 2016 10:52 AM PROOF 5
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Our technologies
Classical Heat Treatment
Specialist Technologies
Virtually every type of metal component, whatever its application,
has received some form of processing before its introduction
to service to enable it to perform to the required standard and
last longer. Working to very exacting quality specifications, heat
treatment uses precisely controlled furnaces to process a huge
variety of metals and alloys, improving their material properties.
Bodycote’s Classical Heat Treatments describe a group of mature
processes such as nitriding, carburising, annealing, tempering (and
many more) that are used to achieve the desired properties.
Below are a few examples of material properties obtained by heat
treatment:
Bodycote’s Specialist Technologies refer to a group of processes
which require very specialist expertise and technology. In some cases,
they are proprietary technologies which have undergone extensive
development and offer unique solutions for a variety of applications.
HIP
Hot Isostatic Pressing Services
Impact resistance and fatigue properties, in particular, are extremely
sensitive to small amounts of porosity. Through the simultaneous
application of heat and pressure, the HIP process eliminates internal
porosity from components, improving fatigue strength, tensile ductility
and fracture toughness.
What is it? The ability of a material to resist deformation,
scratching and indentation under force.
Why is it important? Improving a material’s hardness through
heat treatment allows it to resist various types of wear.
HIP PF
s
s
e
n
d
r
a
H
s
s
e
n
h
g
u
o
T
What is it? The ability of a material to absorb energy and
plastically deform without fracture.
Why is it important? Heat treatment can be used to strengthen
the material and help improve its resistance to impact.
e
u
g
i
t
a
F
h
t
g
n
e
r
t
s
What is it? The stress level at which component failure occurs
when subjected to repeated stress cycles.
Why is it important? Part failure due to fatigue can have
catastrophic consequences, particularly if the part is safety
critical. Through heat treatment, a material’s fatigue strength is
improved.
p
e
e
r
C
e
c
n
a
t
s
i
s
e
r
What is it? The measure of a material’s ability to resist high
temperature deformation.
Why is it important? Some metals and alloys must operate
at temperatures close to their melting point. Heat treatment
enables them to perform at higher temperatures with little or no
movement.
What is it? The ability of a material to deform without breaking.
Why is it important? In order to form or shape a complex
component, good ductility is required. Heat treatment is used to
soften the material which makes it easy to work as part of the
manufacturing process.
y
t
i
l
i
t
c
u
D
Hot Isostatic Pressing Product Fabrication
This method of manufacture combines the HIP process with
design and production expertise to create a component from
metal powder. The flexibility of the HIP PF process means
that combinations of materials can be used to give desired
properties, enabling metallic compositions that are difficult or
impossible to forge or cast.
Speciality Stainless Steel Processes
Steel is often chosen for its inherent corrosion resistance, but
often requires hardening. Standard heat treatments will harden
the steel, but can negatively impact the corrosion resistance.
S3P technology uniquely hardens stainless steel, nickel-based
alloys and cobalt-chromium alloys improving mechanical and
wear properties without adversely affecting corrosion resistance.
Low Pressure Carburising
A case hardening process used to obtain a hardened surface and
tough core, giving increased wear resistance and fatigue life,
with minimal risk of treatment distortion. LPC is a clean process,
carried out under vacuum, and is an environmentally-friendly
treatment.
Corr-l-Dur®
A proprietary thermochemical treatment for the simultaneous
improvement of corrosion and wear resistance through the
generation of a nitride-oxide combination layer. Corr-l-Dur® is an
environmentally-friendly alternative to the use of hard chromium,
electroless nickel and other galvanic coatings.
Surface Technology
ST incorporates specialised plasma spray, HVOF (High Velocity
Oxygen Fuel) and thermo-chemically formed coatings to improve
wear resistance, hardness and durability and is able to surface
engineer components (including complex shapes and internal
bores) designed to operate in the most demanding of industrial
applications.
S3P
LPC
CiD
ST
10
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015
Adding value – a component journey
ADDING VALUE – A COMPONENT JOURNEY
3D-PRINTED METAL PART
Almost all metal parts built by the additive
manufacturing process require secondary
treatments to make them suitable for their
intended use.
Bodycote provides a complete post-manufacture
service solution including hot isostatic pressing to
remove micro-porosity and reduce the extent of
segregation in the built structure, heat treatment
to improve material properties, and associated
quality assurance testing.
The metal part is ‘built’ onto a plate in a
3D printing machine by depositing metal
powder in layers which are then consolidated,
for example by use of lasers.
Photo courtesy of Simon Scott-AM
The part is stress
relieved in a vacuum
furnace to minimise
any distortion.
The part next undergoes
heat treatment to achieve
full material properties and
improve the microstructural
characteristics of the
component if needed.
Various testing methods are
used to check that the part
meets specification – these
may include radiography,
tensile testing, and
metallography.
The component is then
removed from its build plate
by electrical discharge
machining (EDM) to prepare
for HIP and heat treatment.
Photo courtesy of Simon Scott-AM
Hot Isostatic Pressing (HIP) ensures
that any porosity within the part is
removed, thereby reducing the
variation in mechanical properties
when compared with the as-built
part, and improving ductility and
fatigue strength.
The component will undergo
any necessary finish machining
and dimensional inspection.
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
3D printing is creating components in a
range of industries including aerospace,
medical, and power generation.
Credit: MBFZ Toolcraft GmbH
ID185763_3D.indd 1
29/02/2016 13:13
11
24472.04 4 March 2016 10:52 AM PROOF 5
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 178 worldwide
locations to deliver global, or local, services for customers.
Overview
As the only 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 178 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. Similarly, network utilisation is enhanced by using
logistics to put customers’ work into the most effective facilities
to meet their requirements.
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.
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.
Our facilities offer the widest and deepest range of processes for
aerospace and energy applications and all the leading technologies
for automotive applications.
Although Bodycote is headquartered in the UK, 91% of the Group’s
revenue is derived outside the UK. With facilities in 24 countries,
Bodycote is truly global.
Group revenue by market sector
£m
Revenue by market sector — North America
£m
Aerospace and Defence
135.1
Aerospace and Defence
Energy
Automotive
General Industrial
Total
66.3
153.0
212.8
567.2
Energy
Automotive
General Industrial
Total
81.0
27.6
54.6
56.4
219.6
12
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015
Although Bodycote is headquartered in the UK, 91% of the Group’s
revenue is derived outside the UK. With facilities in 24 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 26 facilities in emerging geographies covering
Eastern Europe, China, Mexico, 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
52.6
37.1
76.0
141.4
307.1
Aerospace and Defence
Energy
Automotive
General Industrial
Total
1.5
1.6
22.4
15.0
40.5
24472.04 4 March 2016 10:52 AM PROOF 5
13
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Markets
Aerospace, Defence & Energy markets
Automotive & General Industrial markets
Civil aerospace revenues increased in 2015 by 1% at constant
exchange rates (1% increase at actual exchange rates), reflecting
increased demand for new generation engines, especially in France,
and despite continued significant Original Equipment Manufacturer
(OEM) weakness in the UK. Available seat kilometres grew by 6%
indicating a continued increase in aircraft flying hours which, in turn,
resulted in resilient demand for aftermarket parts. Sales into the
civil aerospace sector account for 18% of Group revenues.
Sales into the defence sector, which accounted for 6% of Group
revenues, were again soft.
Demand for the Group’s services in the power generation sector
were weak, with revenues below 2014 by 9% at constant exchange
rates (9% decrease at actual exchange rates).
Revenues in oil & gas were substantially lower in 2015 as a result
of the fall in crude oil prices. Heat treatment and surface technology
bore the brunt of the reduction in demand. HIP PF revenues were
lower than in 2014 but by notably less than the background market
as new orders continue to be won. Overall revenues were down
28% (at constant exchange rates) compared to 2014 and by 29%
at actual exchange rates. Sales into the oil & gas sectors accounted
for 8% of Group revenue.
Revenues in car and light truck markets increased year-on-year by
6% at constant exchange rates (2% at actual exchange rates). The
increase in revenue was widely spread across the Group, reflecting
both new contract wins and strong OEM production rates.
Heavy truck sector revenues in North America grew strongly
again in 2015 and were ahead of the prior year by 9% at constant
exchange rates (18% at actual exchange rates). In contrast, demand
in Western Europe was very weak and revenues declined by 10%
at constant exchange rates, in part driven by a notable programme
turning end-of-life in Sweden (the decline was 19% at actual
exchange rates).
Bodycote provides thermal processing services for a wide range
of capital equipment customers. In 2015, many sectors served
by Bodycote were badly affected by the heavy declines in most
commodity prices. This was particularly noteworthy in agricultural
equipment and in many types of industrial machinery. Overall
revenues fell by 5% at constant exchange rates (11% decline at
actual exchange rates).
14
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 Business performance
Revenue
Operating profit
Acquisition costs
Reorganisation costs
Operating profit prior to exceptional items
Amortisation of acquired intangible fixed assets
Headline operating profit
2015
£m
567.2
77.9
–
20.0
97.9
4.2
102.1
2014
£m
609.1
107.0
0.2
–
107.2
3.9
111.1
Group revenue was £567.2m, a decrease of 6.9%, with revenues at constant exchange rates down 4.1% and foreign exchange rate
movements having a negative impact of 2.8%.
Headline operating profit for the year decreased by 8.1% from £111.1m to £102.1m, and headline operating margin was 18.0% (2014:
18.2%). Headline operating profit at constant exchange rates decreased by £6.7m, whilst adverse foreign exchange rate movements
decreased headline operating profit by a further £2.3m.
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
2015
£m
102.1
49.6
–
(0.4)
(2.1)
149.2
(61.3)
(6.3)
81.6
(8.4)
–
73.2
(2.6)
(23.2)
47.4
2014
£m
111.1
51.2
2.7
1.9
(1.4)
165.5
(53.8)
(11.7)
100.0
(3.0)
(0.2)
96.8
(2.7)
(19.0)
75.1
Operating cash flow was £73.2m (2014: £96.8m) with the decrease, compared to prior year, attributable to a reduction in profits, increased
capital investment and reorganisation costs. Group net cash at 31 December 2015 was £12.3m (2014: £35.7m).
Capital spend (net of asset sales) in 2015 was £61.3m (2014: £53.8m), being 1.2 times depreciation2 (2014: 1.0 times). There has been
a continued focus on cash collection and receivable days at 31 December 2015 were 62 days (31 December 2014: 60 days). There was
a working capital outflow in the year mainly due to an increase in receivable days caused by lower than anticipated cash collection in
December and a decrease in payables, arising primarily due to a reduction in accruals for variable staff costs.
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.
24472.04 4 March 2016 10:52 AM PROOF 5
15
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Business review –
Business review
Aerospace, Defence & Energy
Aerospace, Defence & Energy
Above
and beyond
Propulsion components
Propulsion components
A rocket relies on its propulsion system for thrust at take-off and again in space to
A rocket relies on its propulsion system for thrust at take-off and again in space
change velocity. High nickel and refractory alloys are used to meet these demands
to change velocity. High nickel and refractory alloys are used to meet these
and extend component life under these extreme operating environments. Many of
demands and extend component life under these extreme operating environments.
the components require welding, forming, forging and casting. Thermal processing
Many of the components require welding, forming, forging and casting.
will depend on the material, and is applied to achieve the desired post-fabrication
Thermal processing will depend on the material, and is applied to achieve the
properties. Processes include stress relieving, annealing, brazing, solution and ageing.
desired post-fabrication properties. Processes include stress relieving, annealing,
A comprehensive range of fused coatings is also used to isolate the environment
brazing, solution and ageing. A comprehensive range of fused coatings is also
preventing oxidation of the underlying material.
used to isolate the environment preventing oxidation of the underlying material.
.
For further information about our services
For further information about our services
go to www.bodycote.com/services
go to www.bodycote.com/services
18
16
Bodycote plc
annual report for the year ended 31 December 2012
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015
Average capital employed in ADE in 2015 was £234.2m (2014:
£236.3m). The Group continues to invest in high-return projects in
the ADE business. Return on capital employed in 2015 was 23.0%
(2014: 26.6%).
Achievements in 2015
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. In ADE Heat Treatment, new agreements were signed
with key suppliers to the growing A350 and A320NEO aerospace
programmes. In Surface Technology, a new agreement was signed
for the provision of thermal spray coating services for helicopter
turbine blades.
The HIP division continues to make good progress, with new
customers choosing to use the Group’s proprietary Product
Fabrication (PF) technology for the first time.
Organisation and people
Total full-time equivalent headcount at 31 December 2015 was
1,785 (2014: 1,898), a decrease of 6.0% compared to the revenue
decline in ADE of 8.1% (at constant currencies).
Looking ahead
Order books for commercial aerospace OEMs remain strong, and
destocking at certain OEMs and their supply chains is expected to
be completed at some point in 2016. We anticipate no near term
improvement in the oil & gas sector. Defence markets are expected to
be stable. Bodycote believes it will continue to capitalise on its world
leading position in the aerospace, defence and energy markets.
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 an understanding of operating in all of the world’s
key manufacturing areas. A number of Bodycote’s multinational
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
60 facilities in total.
Results
Revenues for the ADE business were £243.5m in 2015 compared
to £263.0m in 2014, a decrease of 7.4% (8.1% decrease 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 delivered good
growth on the back of new engine series and airframes. Defence
demand has been subdued, resulting in further modest declines in
revenue. Demand in the energy sector and particularly the oil & gas
sector, has been very weak. Oil & gas revenues have been most
depressed in North American heat treatment and in both the USA
and the UK for Surface Technology. Declines in HIP PF have been
less severe, despite a number of delays to subsea projects,
as customers continue to convert to HIP PF from forgings.
Headline operating profit1 for ADE was £59.2m (2014: £70.6m) and
headline operating profit margin reduced from 26.8% to 24.3%,
demonstrating good cost control in the face of reduced demand.
In 2015, the Group added capacity in a number of facilities,
including installation of a new high pressure HIP in the USA. In
addition initial works have been undertaken to establish a new
aerospace focused facility in South East Poland. In the coming
year it is expected that capital expenditure will be slightly above
depreciation as further capacity and capability are added to support
anticipated growth in the Group’s Specialist Technologies and other
high-value offerings.
Net capital expenditure in 2015 was £17.4m (2014: £18.4m) which
represents 0.9 times depreciation (2014: 0.9 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
111.2
130.3
2.0
243.5
Aerospace and Defence
125.9
Energy
Automotive &
General Industrial
Total
57.1
60.5
219.6
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Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Business review –
Business review
Automotive & General Industrial
Automotive & General Industrial
Taking
shape
Moulds and dies
Moulds and dies
During the injection process, the mould must not only form the part, but also
During the injection moulding process, the mould must not only form the part,
dissipate the heat at the surface and allow for easy ejection of the finished
but also dissipate the heat at the surface and allow for easy ejection of the
component. Moulding tools often employ vacuum brazing techniques with
finished component. Moulding tools often employ vacuum brazing techniques
integrated heat treatment. Forming and extrusion dies used in supply chains’
with integrated heat treatment. Forming and extrusion dies used in supply chains'
mass production lines must resist wear and fracture so as to avoid costly
mass production lines must resist wear and fracture so as to avoid costly
unplanned shutdown of the process line. In addition, maintaining the surface
unplanned shutdown of the process line. In addition, maintaining the surface
finish is important. Parts may be vacuum hardened and then be given a gas or
finish is important. Parts may be vacuum hardened and then be given a gas or
plasma nitriding treatment.
plasma nitriding treatment.
For further information about our services
For further information about our services
go to www.bodycote.com/services
go to www.bodycote.com/services
.
18
18
Bodycote plc
annual report for the year ended 31 December 2012
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015
Achievements in 2015
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 and enhanced corrosion performance,
continues to provide Bodycote with market share gains. A number
of new contract wins in each of our AGI focused Specialist
Technologies of S3P, Low Pressure Carburising and Corr-I-Dur®
continues to be a key driver of improved profitability in the AGI
business.
The AGI business 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 2015, the number of full-time equivalent
employees in AGI was 3,331 compared to 3,616 at the end of 2014
and 1,913 less than its peak in July 2008.
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.
Whilst the Automotive & General Industrial (AGI) marketplace
has many multinational customers which tend to operate on a
regionally-focused basis, it also has numerous medium-sized and
smaller businesses, all of whom are very important to Bodycote.
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
118 AGI facilities enables the business to offer the widest range
of technical capability and security of supply, while 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 £323.7m in 2015, compared to
£346.1m in 2014, a decrease of 6.5% (1.1% decrease at constant
exchange rates).
In 2015, overall sales from the automotive sector increased by
3.6%, at constant exchange rates. Sales into car and light truck
have again been good in all geographies, with the increase
reflecting both new contract wins and strong OEM production
rates. Revenues to heavy truck declined overall, with strong North
American growth being more than offset by weak demand in
Europe. General industrial markets have been weak in all territories.
Headline operating profit1 in AGI was £53.4m compared to £54.1m
in 2014. Headline operating margin increased to 16.5% (2014:
15.6%) reflecting a further improvement in mix towards higher
value work along with strong cost control. Revenues from the
Group’s Specialist Technologies grew well at high margins.
Net capital expenditure in 2015 was £39.8m (2014: £31.1m), which
represents 1.3 times depreciation (2014: 0.9 times). Notable
projects included the opening of a new facility for S3P in France, for
LPC in Mexico and, in Classical Heat Treatment, new facilities were
opened in Poland and China.
In 2016 we expect that capital expenditure will be approximately
1.2 times depreciation as we continue to expand our Specialist
Technologies and operations in the rapid growth countries. Return
on capital employed in 2015 was maintained at 16.0% (2014:
16.0%). This reflects the continued focus on improving capital
returns by continuing to target higher added-value work. On
average, capital employed in 2015 was £304.1m (2014: £301.8m).
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
195.9
89.3
38.5
323.7
General Industrial
Automotive
Aerospace, Defence
& Energy
Total
160.5
144.8
18.4
323.7
24472.04 4 March 2016 10:52 AM PROOF 5
19
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Finance Director’s report
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
2015
£m
567.2
102.1
2014
£m
609.1
111.1
(4.2)
(3.9)
Headline operating cash flow1 for the Group was £81.6m (2014:
£100.0m). This was 80% of headline operating profit (2014: 90%).
Net capital expenditure was 1.2 times depreciation (2014: 1.0
times) as the Group continued to follow its strategy of investing
in Specialist Technologies and greenfield facilities in higher growth
markets. There was a working capital outflow in the year mainly due
to an increase in receivable days caused by lower than anticipated
cash collection in December and a decrease in payables, arising
primarily due to a reduction in accruals for variable staff costs.
97.9
–
(20.0)
77.9
(2.9)
75.0
(18.8)
56.2
107.2
(0.2)
–
107.0
(3.3)
103.7
(24.4)
79.3
After deducting interest and tax, the Group recorded positive free
cash flow2 of £47.4m (2014: £75.1m).
Exceptional costs
Total exceptional costs charged to the income statement amounted
to £20.0m (2014: £0.2m). Of this, reorganisation costs amounting
to £23.8m (2014: £nil) were incurred, offset by a profit on disposal
of the Group’s Brazilian and Indian operations of £3.8m (2014: £nil).
Cost savings of £4m as a result of the reorganisation were realised
in 2015 and a further £6m are anticipated in 2016. In 2015 no
acquisition costs were expensed (2014: £0.2m).
Group revenue was £567.2m, a decrease of 6.9%, with revenues
at constant exchange rates down 4.1% and foreign exchange rate
movements having an adverse impact of 2.8%.
Headline operating profit for the year decreased by 8.1% from
£111.1m to £102.1m and headline operating margin was 18.0%
(2014: 18.2%). Headline operating profit at constant exchange
rates decreased by £6.7m, whilst adverse foreign exchange rate
movements decreased headline operating profit by a further £2.3m.
The amortisation of acquired intangible assets arises from
acquisitions in prior years. The charge has increased to £4.2m
(2014: £3.9m).
Operating profit was £77.9m (2014: £107.0m) after charging £4.2m
(2014: £3.9m) in respect of the amortisation of acquired intangible
assets, £nil (2014: £0.2m) of acquisition costs and reorganisation
costs of £20.0m (2014: £nil).
Restructuring provisions outstanding at 31 December 2015 totalled
£14.7m (2014: £9.4m), £11.0m is expected to be spent in 2016
and £3.7m in 2017 and later. All expenditure after the end of 2016
relates to ongoing environmental remediation, primarily in the USA.
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.
20
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 Profit before taxation
Headline profit before taxation was £99.2m (2014: £107.8m). Profit
before taxation was £75.0m (2014: £103.7m). 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
2015
£m
102.1
(2.9)
99.2
2014
£m
111.1
(3.3)
107.8
(4.2)
(3.9)
95.0
–
(20.0)
75.0
103.9
(0.2)
–
103.7
Finance charge
The net finance charge was £2.9m compared to £3.3m in 2014. The
net interest payable is higher as a result of lower average net cash
during the year, offset by lower bank and financing charges and a
lower pension finance charge.
Net interest payable
Financing costs
Bank and other charges
Pension finance charge
Net finance charge
2015
£m
0.3
1.5
0.8
0.3
2.9
2014
£m
0.2
1.6
0.9
0.6
3.3
Taxation
The taxation charge was £18.8m for the year (2014: £24.4m).
The effective taxation rate of 25.1% (2014: 23.5%) resulted from
the blending of differing tax rates in each of the countries in which
the Group operates. The increase in the taxation rate is primarily
due to more of the Group’s profits deriving from countries with a
higher rate of tax.
The headline taxation rate for 2015 was 24.4% (2014: 22.7%), being
stated before accounting for exceptional items and amortisation of
goodwill and acquired intangibles.
In recent years the Group’s effective tax rate has benefited from the
use of historical tax losses, the majority of the remaining benefits
of which are reflected in the 2015 taxation rate. As a result it is
expected that the underlying Group effective taxation rate will be
approximately 28% going forward, all other things remaining equal.
Earnings per share
Basic headline earnings per share (as defined in note 10) decreased
to 39.5p from 43.8p. Basic earnings per share for the year
decreased to 29.6p from 41.7p.
Dividend and dividend policy
The Group aims to pay ordinary dividends so that dividend cover
will be at or above 2.0 times earnings (see note 10). The Board
may also recommend payment of a supplemental distribution to
shareholders. The amount of any supplemental distribution will
be assessed in light of the cash position of the Group, along with
funding requirements for both organic growth and acquisitions.
The Board has recommended a final ordinary dividend of 10.3p
(2014: 9.8p) bringing the total ordinary dividend to 15.1p per share
(2014: 14.4p). The Board has also recommended a supplemental
distribution, by way of a special dividend, amounting to 10.0p
per share (2014: 20.0p). If approved by shareholders, the final
ordinary dividend of 10.3p per share for 2015 and the supplemental
distribution of 10.0p per share for 2015 will be paid on 3 June 2016
to all shareholders on the register at the close of business on
22 April 2016.
Capital structure
The Group’s balance sheet at 31 December 2015 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 2015
Net assets as at
31 December 2014
Assets
£m
Liabilities
£m
Net Assets
£m
429.6
175.2
–
–
429.6
175.2
152.7
(160.9)
(8.2)
0.6
–
31.2
789.3
16.2
(11.3)
(10.7)
(17.9)
(61.9)
(252.0)
(3.9)
(17.9)
(30.7)
537.3
12.3
805.5
(255.9)
549.6
825.1
(254.2)
570.9
Net assets decreased by £21.3m (3.7%) to £549.6m (2014:
£570.9m). At constant exchange rates, net assets decreased by
£10.9m (1.9%). The major movements compared to 31 December
2014 were a decrease in net cash of £23.4m, an increase in
goodwill and intangible assets of £3.1m and a decrease in property,
plant and equipment of £5.0m.
The decrease in property, plant and equipment was predominantly
due to additions of £61.1m offset by depreciation of £48.8m, asset
impairments of £9.0m, foreign exchange movements of £3.8m,
disposals of subsidiaries of £1.0m, transfer of assets to assets held
for sale of £0.3m and other asset disposals of £3.2m.
The increase in goodwill and intangible assets was due to
continuing investment of £5.6m in Group IT systems, amortisation
charge of £5.0m and foreign exchange movements of £2.6m.
24472.04 4 March 2016 10:52 AM PROOF 5
21
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Finance Directors’ report continued
Net cash
Group net cash at 31 December 2015 was £12.3m (2014: £35.7m).
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.
Cash flow
The net decrease in cash and cash equivalents was £23.6m (2014:
£21.3m increase), made up of net cash from operating activities of
£111.3m (2014: £131.6m), less investing activities of £59.9m (2014:
£54.8m) and less cash used in financing activities of £75.0m
(2014: £55.5m).
The decrease in net cash flow from operating activities from
£131.6m to £111.3m was driven primarily by the decrease in
headline EBITDA3 from £165.5m to £149.2m and a £6.3m decrease
in payables.
Net cash outflows from investing activities increased from £54.8m
to £59.9m, primarily as a result of greater investment in property,
plant and equipment in 2015 compared to the prior year. The level
of net capital expenditure in 2015 was £61.3m (2014: £53.8m),
consistent with plans to increase the Group’s capacity in Specialist
Technologies and in high growth markets.
Net cash outflows used in financing activities increased from
£55.5m to £75.0m, due primarily to the increase in dividend
payments, from £45.2m in 2014 to £66.0m in 2015.
There has been a continued focus on cash collection, although
receivable days at 31 December 2015 increased by two to 62 days
(2014: 60 days).
Net interest payments for the year were £2.6m (2014: £2.7m).
Tax payments were £23.2m (2014: £19.0m).
Capital expenditure
Net capital expenditure (capital expenditure less proceeds from
asset disposals) for the year was £61.3m (2014: £53.8m). The
multiple of net capital expenditure to depreciation was 1.2 times
(2014: 1.0 times). Major capital projects which were in progress
during 2015 include a new high pressure HIP in the USA, the
creation of a new S3P facility in France, a new LPC facility in
Mexico, the establishment of an aerospace focused facility in South
East Poland, and the creation of Classical Heat Treatment facilities
in Poland and China. 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 £9.6m, from £42.0m in 2014 to £51.6m in 2015.
Borrowing facilities
The Group is financed by a mix of cash flows from operations,
short-term borrowings, long-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 long-term funding.
The total undrawn committed facility funding available to the Group
at 31 December 2015 was £230.0m (2014: £230.0m). The Group
also has access to a US$10m committed letter of credit facility
maturing in August 2016.
At 31 December 2015, the Group had the following committed
facilities:
Facility
Expiry Date
£230m
Revolving Credit 3 July 2019
31 August
$10m
2016
Letter of Credit
Loan and
Letter of
Credit
Utilisation
£m
Facility
Headroom
£m
–
1.8
1.8
230.0
5.0
235.0
Facility
£m
230.0
6.8
236.8
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
2015 the gearing ratio is 0% (2014: 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
2015
£m
2.7
2.0
0.5
5.2
12.6
0.1
12.7
17.9
2014
£m
1.0
1.6
0.6
3.2
13.7
0.1
13.8
17.0
The UK plan is closed to new entrants but the 66 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.
22
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 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
25 February 2016
UK Scheme liabilities have decreased by £3.4m over the year
(2014: £103.3m, 2015: £99.9m). This is largely due to a change in
the actuarial assumptions used to assess the present value of the
liabilities. Most notably, the discount rate assumption has increased
from 3.30% in 2014 to 3.50% in 2015 which has resulted in a
decrease in the liabilities and was only partially offset by an increase
in the inflation assumptions over the year by 0.10%.
Scheme assets decreased in the year by £0.9m to £101.4m
(2014: £102.3m).
The assumptions used indicate a surplus of £1.5m. As the Group
is not automatically entitled to recover this amount it is required
to recognise additional liabilities under IFRIC14 to reflect existing
future contractual commitments to the scheme of £4.2m. This
results in a reported liability of £2.7m.
The liability for the other European Schemes decreased by £0.7m.
The key reason for the decrease in the deficit in the European
Schemes is an increase in the discount rate assumptions used in
most countries due to rises in corporate bond yields over the year.
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 and
the Group’s viability statement made on page 27, 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 2015 were as follows:
■■ £230m Revolving Credit Facility maturing 3 July 2019
■■ $10m Letter of Credit Facility maturing 31 August 2016
The December 2015 weighted average life of the committed
facilities was 3.4 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.
24472.04 4 March 2016 10:52 AM PROOF 5
23
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Principal risks and uncertainties
Effective management and a robust assessment of risks is essential to the delivery of the Group’s objective of creating superior shareholder
returns. The Group’s risk framework was reviewed by the Board during 2015 and updated to ensure it continues to meet UK Corporate
Governance requirements. 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’s risk management framework is used 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 support the Group Head of Risk in identifying critical
risks, to embed risk management and facilitate the implementation of risk management measures throughout the Group.
A variety of approaches is used to identify and report risks, which are aggregated first at a 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, the Committee concluded that a robust assessment of the Group’s
principal risks had been undertaken. In addition, the Board examines a specific risk topic at each Board meeting and in 2015 this included a
discussion on Group risk appetite.
The table below highlights the major risks that may affect Bodycote’s ability to deliver the strategy, as laid out on page 7. These risks have
been reviewed throughout the year and they have not materially changed since 2014. In the 2014 Annual Report the Group highlighted the
risk that Bodycote’s operations could lead to damage to the environment. This is not currently considered to be a material risk to the Group
but is subject to regular review. 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 19 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 24 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 (24%) tend to track
behind the economic cycle. Sales to
the energy sectors (12%) are closely
linked to energy prices, which in turn
can be affected by general economic
activity.
■■ Bodycote’s presence in 24
countries across 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 15% 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
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 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.
Corporate and community risks
Safety and health
The nature of Bodycote’s activities
presents safety and health risks.
The erosion of market share resulting
in loss of revenue and profit.
■■ The close control of proprietary
knowledge.
■■ Rapid increase in the scale of the
Group’s offerings to maintain the
position as supplier of choice.
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.
■■ 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, health and
environmental teams.
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.
■■ 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.
■■ 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.
24472.04 4 March 2016 10:52 AM PROOF 5
25
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Principal risks and uncertainties continued
Risk description
Impact
Mitigation and control
Relevance to
strategy
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.
■■ Bodycote has a global network
of 178 facilities that creates a
framework to provide back-up
capability for any affected facility.
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.
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.
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 continuity plans
developed and updated and
tested annually 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.
■■ 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.
26
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 Viability statement
In preparing this statement of viability, the directors have considered the prospects of the Group over the three year period immediately
following the 2015 financial year. This longer-term assessment process supports the Board’s statements on both viability, as set out below,
and going concern (on page 23). A three year period was determined as the most appropriate as it is the period covered by the Group’s
annual strategic planning process, which sets the long-term direction of the Group and is reviewed at least annually by the directors. The
Board concluded that a period of longer than three years would not be meaningful for the purpose of concluding on longer-term viability,
given the limited forward visibility of the Group.
The strategic plan considers metrics which enable assessment of the Group’s key performance indicators (including return on capital
employed, headline earnings per share and headline operating cash flow) in addition to net debt, liquidity and financing requirements.
In conducting the review of the Group’s prospects the directors assessed the three year plan alongside the Group’s current position,
the Group’s strategy and the principal risks facing the Group (all of which are detailed in the Strategic Report on pages 6 to 26). This
assessment considered the impact of the principal risks on the business model and on future performance, liquidity and solvency and was
mindful of the limited forward visibility that the Group has as it carries a minimal order backlog. The directors’ viability assessment included
a review of the sensitivity analysis performed on the three year plan, whereby the principal risks, and particularly those related to markets
and customers (see page 24), were applied to the plan in a number of diverging scenarios. The developed scenarios were designed to be
plausible, yet severe.
In making this viability statement the directors considered the mitigating actions that would be taken by the Group in the event that the
principal risks of the Company become realised. The directors also took into consideration the Group’s financial position at 31 December
2015, with net cash of £12.3m, available committed facility headroom of £230m and a history of strong cash generation.
The directors have assessed the viability of the Group and, based on the procedures outlined above in addition to activities undertaken
by the Board in its normal course of business, confirm that they have a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period to 31 December 2018.
24472.04 4 March 2016 10:52 AM PROOF 5
27
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Corporate responsibility and sustainability
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.
2828
Bodycote plc annual report for the year ended 31 December 2012
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 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.
Busi-
ness
re-
view
Investors / Funders
Capital is rewarded
through dividends and
share price.
Capital
Funds
Return on
Investment
Productivity
Sales
Employees
5,400 employees’
knowledge, expertise and
skill are a major part of the
Group’s intangible value.
£220.3m 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 £116.5m
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
24472.04 4 March 2016 10:52 AM PROOF 5
29
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Corporate responsibility and sustainability continued
Accident frequency1
1.7
1.5
1.7
1.5
1.9
2011
2012
2013
2014
2015
Carbon footprint2
(tonne CO2e/£m sales normalised3)
645.9
642.3
654.6
628.2
621.9
2011
2012
2013
2014
2015
Water consumption
(thousand m3/£m sales normalised3)
1.86
1.70
1.61
1.40
1.48
2011
2012
2013
2014
2015
Chlorinated solvents
(kg/£m sales normalised3)
175.0
158.3
140.4
111.7
117.9
2011
2012
2013
2014
2015
ISO 14001 accredited facilities
(%)
81
78
85
87
91
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 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 17% (2014: 14%)
and at manager level it is 24% (2014: 27%). Females represent
18% (2014: 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
5
63
1
20
6
83% 17% 100%
83
76% 24% 100%
Other staff
4,340
941
5,281
82% 18% 100%
4,408
962
5,370
82%
18% 100%
2011
2012
2013
2014
2015
1. Accident frequency is defined as the number of lost time accidents
x 200,000 hours (approximately 100 man years), 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
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 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.
Customers and suppliers
Bodycote has no significant suppliers who are wholly dependent
upon the Group’s business and has no significant suppliers on
which the Group is dependent upon for a substantial part of its
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 Anti-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.
Our Core Values are straightforward and are as follows:
Honesty and Transparency
We are honest and act with integrity. Trust stems from honesty
and trust is at the heart of everything we engage in: our customers
trust us to deliver what we say we will, our colleagues trust us
to act in their best interests and our suppliers trust us to conduct
business according to agreed terms. 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 respect our
colleagues, who are all of the employees of Bodycote. Part of our
respect for our colleagues is our commitment to safe and responsible
behaviour and our fundamental belief that no-one should come to
any harm at work. We show respect for our customers, our suppliers
and our competitors. We respect the communities around us and
behave as responsible corporate citizens by being compliant with the
laws and regulations of the countries in which we do business and by
ensuring that our effect on the environment is minimal. 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. The realities are harsh. If we do not
create value for our customers then we have no reason for existence. If
we do not create value for our employees there will be no-one to create
value for our customers. Our shareholders rightfully require that we
ultimately create value for them as they are the owners of the business.
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.
24472.04 4 March 2016 10:52 AM PROOF 5
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 as a minimum;
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’s online incident reporting and SHE management tool
has been operational since 2013. This has enabled more consistent
and thorough reporting of workplace injuries, near misses and
unsafe conditions. Following the implementation, 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 and in 2015 the LTI rate
has shown a further decline to 1.5. Although regrettable and not
acceptable, accidents represent learning opportunities and so
accurate reporting is an essential part of building a robust safety
management system.
Despite the improvement in the overall performance of safety
across the Group we regret to state that one of our colleagues
was seriously injured in an accident at a facility in North America
on 22 October 2015 and, as a result of these injuries, he died on
17 February 2016. Our thoughts and condolences are with his
family, friends and colleagues. We have investigated the incident
thoroughly and are cooperating with the relevant authorities in their
ongoing enquiries.
Accident frequency (lost time injury rate)
Accident frequency is defined as the number of lost time accidents
x 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. This much improved reporting of incidents permits
Greenhouse gas emissions
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 and Board 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. This system was further strengthened
in 2015 with actions being tracked via the online incident
management system.
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. In addition,
many of our sites are in the process of obtaining ISO 50001 Energy
Management Systems Standard.
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 treatment
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.
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.
2015
2014
2014 (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*
147.8
204.5
352.3
260.9
361.0
621.9
158.2
213.4
371.6
259.7
350.5
610.2
158.2
213.5
371.7
267.4
360.8
628.2
* 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.
32
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 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.
TiAl
Titanium-Aluminide (TiAl) alloy, a lightweight
replacement for nickel cobalt super alloys
Vital enabler
Bodycote has developed heat treatment and
Hot Isostatic Pressing cycles specifically for TiAl.
Without Bodycote’s treatments, TiAl alloy
would not be suitable for use
140kg
reduction in weight of an
engine that uses TiAl fan blades
8 people
the average equivalent weight saving
by manufacturing blades from TiAl
Less
oil wasted on the tarmac by development of
an oil collector using Bodycote’s brazing techniques
30%
the weight reduction of outer guide vanes enabled by
electron beam welding and heat treatment by Bodycote
33
24472.04 4 March 2016 10:52 AM PROOF 5
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY Corporate responsibility and sustainability continued
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 2015, 91% of our operating
facilities had achieved ISO 14001 accreditation (2014: 87%).
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.
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 decreased by 5.2%, though sales at
constant exchange rates decreased by 4.1%.
The total CO2e emissions per £m sales in 2015 were 621.9 Te (2014:
as previously reported 610.2 Te; normalised† 628.2 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 increased by 8.8%. On a normalised†
basis, water usage per £m sales increased by 5.7%.
In 2015 our EU based operational sites have sought to achieve
compliance with the Energy Efficiency Directive 2012/27/EU.
This Directive is transposed into local legislation and requires
sites to monitor their energy usage and assess energy reduction
opportunities which are in addition to the ongoing energy saving
activities on sites. One mechanism for ensuring compliance is
for sites to become certified to ISO 50001 Energy Management
Systems Standard. This enables sites to measure energy usage
consistently and target the most effective ways of reducing
energy usage. Our sites in France, Germany, Austria, Denmark and
Netherlands are largely already certified and working on further
energy management programmes.
In the UK all Bodycote plants were audited by TUV Sud with support
from npower. As expected this identified that over 97.5% of total
energy consumption is at operating sites. Of these, the estimated
energy savings would be less than 6% in 59% of the operating
plants, demonstrating that a high level of energy efficiency is
already well established. The main opportunities identified for
energy savings in the remaining sites were primarily incorporating
existing good practice throughout the Group, such as energy
efficient lighting, increased fitting of variable speed drives on water
cooling systems, and additional insulation on some furnaces.
One example was energy efficiency lighting which was installed at
our Skelmersdale Surface Technology plant, producing a saving of
69.5Te CO2e per year with a payback of 1.3 years. Similar lighting
has been installed at other sites with the added benefit of improving
lighting levels and safety, such as Chard, Coventry and Haag-Winden
which have seen projected savings of 35, 80 and 15 Te CO2e each
year. The TUV/ npower report identified similar savings at other sites
and will help Bodycote identify cost-effective energy savings.
Another example of best practice identified was the HybridCarb
generator recently installed at our Rotherham facility, which replaces
the endothermic generator with a more efficient system that not
only generates the process gas, but also recycles it for further
heat treatment, greatly increasing the carburising efficiency. This
gassing method offers the possibility of saving 90% of the process
gas during the carburisation cycle, thus reducing the exhausting of
carbon dioxide (CO2) caused during the process-gas burn-off. This
new unit is currently being assessed for use at other sites, subject
to establishing the full benefit. A further three units have already
been ordered for use at our Chard facility.
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 2015, the normalised† solvent use
showed a slight increase of 5.6% 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
25 February 2016
34
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 Injecting life into alloy steel – a component journey
INJECTING LIFE INTO ALLOY STEEL - A COMPONENT JOURNEY
AUTOMOTIVE DIESEL INJECTORS
Injector part failure due to wear is a costly
hazard, leading to potential damage to other
areas of the engine. The diesel injectors shown
in this example are used in trucks, and each
truck can have between 6-12 injectors. As part
of the manufacturing process, the part must
go through various thermal processing stages
to enable it to perform to the required
standard in service.
Controlled gas nitriding
gives the part very high
surface hardness with
minimum distortion,
providing excellent wear
and corrosion resistance.
The injector is rough
machined to within tight
tolerance of its final
size, adding fuel ports
and passageways.
The injector begins life
either as an alloy steel
forging or steel bar.
To obtain the correct core
structure prior to nitriding,
the part is hardened and
tempered, to provide the
necessary toughness and
impact resistant properties.
The part is thermal deburred
to remove any burrs in the
passageways and to activate
the surface by neutralising
the chromium, which helps
accelerate the diffusion of
nitrogen into the surface during
the nitriding cycle, ensuring
a uniform case depth.
Due to the nitriding process, minimal finishing
operations are needed. The part undergoes
finish grinding and lapping to its final size.
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
End application – truck engine
ID4993_SP_CJ_Injectors.indd 1
35
02/03/2016 15:24
24472.04 4 March 2016 10:52 AM PROOF 5
Strategic reportGovernanceFinancial statementsAdditional informationwww.bodycote.comStock code: BOY
Board of Directors
David Landless
Stephen Harris
Alan Thomson
Executive Directors
Non-Executive Directors
S.C. Harris, 57 | Group Chief Executive
Appointed: November 2008
Committees: Nomination and Executive (Chairman)
Qualifications: Chartered Engineer, graduated from Cambridge
University, masters degree in business administration from the
University of Chicago, Booth School of Business
Experience: Spent his early career in engineering with Courtaulds
plc and then moved to the USA to join APV Inc from 1984 until
1995, where he held several senior management positions. He
was appointed to the Board of Powell Duffryn plc as an Executive
Director in 1995 and then went on to join Spectris plc as an
Executive Director from 2003 to 2008. He was also a Non-
Executive Director of Brixton plc from 2006 to 2009.
External appointments: Non-Executive Director of Mondi plc.
D.F. Landless, 56 | Group Finance Director
Appointed: March 1999
Committees: Executive
Qualifications: Chartered Management Accountant, graduated from
the University of Manchester Institute of Science and Technology
Experience: Started his career with Bowater and Carrington Viyella
and then 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 Courtaulds Coatings (Holdings) Limited
from 1997 to 1999.
External appointments: Non-Executive Director of Luxfer Holdings
plc and Innospec Inc. (appointed 1 January 2016).
A.M. Thomson, 69 | Chairman
Appointed: December 2007
Committees: Nomination (Chairman) and Remuneration
Qualifications: Chartered Accountant, graduated from Glasgow
University with a masters degree
Experience: Worked on a variety of audits for Arthur Andersen
and Price Waterhouse, followed by senior management positions
with Rockwell International plc, Raychem Ltd and Courtaulds
plc. Joined Rugby Group plc as a Group Finance Director from
1992 to 1995 followed by Smiths Group plc from 1995 to 2006.
Chairman of Polypipe Group plc from 2007 to 2015. He was also
a Non-Executive Director of Laporte Plc from 1996 to 2002 and
of Johnson Matthey Plc from 2002 to 2011. Past President of the
Institute of Chartered Accountants of Scotland.
External appointments: Chairman of Hays PLC and Non-Executive
Director of Alstom SA.
R. Rajagopal, 62 | Senior Independent Director
Appointed: September 2008
Committees: Audit, Remuneration and Nomination
Qualifications: A Chartered Mechanical Engineer, graduated with a BTech
(Mechanical Engineering) from IIT Madras, India, followed by a PhD in
Mechanical Engineering from the University of Manchester and was
awarded a honorary doctor of science degree by Cranfield University. A
Fellow of the Royal Academy of Engineering, the Institute of Engineering
and Technology (IET) and the Institute of Mechanical Engineers.
Experience: Joined BOC Edwards after obtaining his PhD and worked
in various positions in operations management including Operations
Director. Promoted to Managing Director of Edwards in 1993 and
Chief Executive of BOC Edwards in 1996. Appointed Executive
Director of BOC Group plc in 2000 until 2006. Past member of UK
Council for Science and Technology and the Audit Commission. He
was Non-Executive Director of Foseco plc from 2005 until 2008 and
FSI International (a NASDAQ company) 2000 to 2005.
External appointments: Chairman of UMI3 since 2010 and of HHV
Pumps Ltd since 2009. Non-Executive Director of W.S. Atkins
plc since 2008, Spirax-Sarco Engineering plc from 2009, E2V
Technologies PLC from 2010 and Porvair plc from 2014.
36
XX
Bodycote plc
annual report for the year ended 31 December 2015
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015
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Ian Duncan
Eva Lindqvist
Raj Rajagopal
U.S. Ball | Group Company Secretary
Springwood Court, Springwood Close, Tytherington Business Park,
Macclesfield, Cheshire, SK10 2XF.
Tel: +44(0)1625 505300 Fax: +44(0)1625 505313.
Registered Number 519057 England and Wales.
E. Lindqvist, 58 | Non-Executive Director
Appointed: June 2012
Committees: Remuneration (Chair, appointed 1 January 2013),
Audit and Nomination
Qualifications: Engineer, graduated with a Masters from Linköping
Institute of Technology, Diploma in Marketing from IHM Business
School and MBA Financial Analysis from University of Melbourne
Experience: Began her career in various positions with Ericsson
working in Continental Europe, North America and Asia from 1981
to 1990 followed by director roles with Ericsson from 1993 to
1999. Joined Teliasonera in 2000 as Senior Vice President moving
to Xelerated initially as Chairman and later as Chief Executive from
2007 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
Assa Abloy AB in 2008, Tieto Corporation from 2010 (it is Eva’s
intention to retire from the Tieto Board in March 2016) as well as
Sweco AB, Caverion Oy and Micronic AB since 2013, ComHem
Holding AB in 2014 and Alimak Holding since 2015.
I.B. Duncan, 54 | Non-Executive Director
Appointed: November 2014
Committees: Remuneration, Audit and Nomination
Qualifications: Chartered Accountant, qualified with Deloitte &
Touche after graduating from St. Catherine’s College, University of
Oxford.
Experience: Worked on a variety of audits with Deloitte and Touche,
followed by four years with Dresdner Kleinwort Wasserstein. From
1990 to 1992 he worked for Lloyds Bank plc and then moved to
British Nuclear Fuels plc 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 Fiberweb plc from 2013 to 2013
and of Mouchel Group from 2013 to 2015.
External appointments: Appointed as Non-Executive Director and
Chairman of the Audit Committees of Babcock International Group
plc in 2010 and WANdisco plc in 2012.
Stock code: BOY
24472.04 4 March 2016 10:52 AM PROOF 5
www.bodycote.com
37
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance
Corporate governance statement
Chairman’s message
Dear Shareholders,
I am pleased to introduce the Group’s corporate governance report on behalf of our Board of Directors. We are committed to maintaining
high standards of corporate governance to enhance performance underpinned by our business model. We have sought to manage the
affairs of the Group not by merely following regimented rules, but by promoting a culture of open and transparent discussion, constructive
challenge and support in the Board and across the Group. 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 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. The important governance developments at Bodycote over the last year are detailed in the governance reporting
section below.
It is of great importance to me, as Chairman, to ensure that the Board has the right composition. This means having the right balance
of skills and experience to contribute, and where appropriate challenge, decision making and ensuring that all directors have a good
knowledge of the Group and the context in which it operates.
I encourage all shareholders to attend the AGM, which will be held at our Macclesfield head office on 27 May 2016. This event provides an
excellent opportunity to meet the executive and independent non-executive directors.
A.M. Thomson
Chairman
Board performance
2015 key actions
2015 achievements
Priorities for 2016
■■ Implement actions from the 2015
■■ Accelerated growth from Specialist
■■ Undertake 2016 strategy review
strategy review
Technologies and enhanced business
processes
■■ Undertake 2015 external Board evaluation
■■ All recommendations made at the 2012
external evaluation have been addressed
■■ Process recommendations from the
2015 external Board evaluation
■■ Appointment of a new Audit Committee
■■ I.B. Duncan was appointed Audit
■■ Continued focus on management
Chairman and Senior Independent
Director
Committee Chairman and R. Rajagopal
Senior Independent Director
development and succession planning
■■ Continued emphasis on external Board
training and development
■■ The Board visited plants in the UK and
Poland during the year and developed
the directors’ understanding of these
businesses and the markets they serve
■■ Use Board visits to meet the Czech and
Turkish teams to promote understanding
of markets and the opportunities they
offer
■■ Continued review of the risk register,
including major programme risks
■■ 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 24 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 E. Lindqvist to the Board as a Non-Executive Director on 1 June 2012. We also appointed I.B. 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, three 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.
38
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 Female representation on our Board is currently 17% (2014: 14%) and at manager level it is 24% (2014: 27%). Females represent 18%
(2014: 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.
Board evaluation
The Board has undertaken its second external Board Evaluation during 2015. Following a review of proposals from external facilitators, the
Board appointed ICSA Board Evaluation to facilitate a review of its performance. The facilitator Mr G.A.G. Shepheard (who is independent of
the Group), met with each director on an individual basis to obtain their views on seven aspects of the Board’s performance and to ascertain
whether their needs and expectations were being met. The evaluator ensured that pre-defined constituent elements of each topic were
covered in the discussions and a qualitative score was assigned by each director. The seven topics were as follows:
■■ Board responsibilities
■■ Oversight
■■ Board meetings
■■ Support for the Board
■■ Board composition
■■ Working together
■■ Outcome and achievements
The results of the evaluation were considered by the Board at its meeting in October 2015 which Mr Shepheard attended and the directors
discussed the recommendations which are now in the process of being implemented. Additional emphasis will be placed on succession
planning and certain operational matters. The approach to Board Evaluation included relevant questions to cover the activities of each Board
committee. The Board is considered to be functional and working well. 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 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.
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 Executive Directors Messrs S.C. Harris and D.F. Landless were also appraised in February 2016.
Led by the Senior Independent Non-Executive Director, the directors carried out an evaluation of the Chairman’s performance in September
2015. 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, 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 financial reporting developments and in particular on the viability statement.
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.
Board refreshment will continue over the coming years.
Non-executive tenure
(in years)
7
8
3
1
E. Lindqvist
R. Rajagopal
A.M. Thomson
I.B. Duncan
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance Corporate governance statement continued
Individual roles of the Board
Chairman
Group Chief Executive
Group Finance Director
■■ operate leadership and governance of
the Board and chairs the Nomination
Committee
■■ Board effectiveness
■■ overall responsibility and leadership of the
Group performance
■■ stewardship of Group assets
■■ plans and executes objectives
■■ ensures members receive accurate,
and strategies
■■ maintains strong financial management
and implements effective financial
controls
■■ provides financial and commercial decision
leadership, vision and support
■■ maintains a close working relationship
with the Chairman, ensuring effective
dialogue with investors and stakeholders
■■ ensures the appropriateness of risk
management systems
■■ oversees all aspects of accounting/
timely and clear information on Board
issues
■■ ensures, together with the Group
Company Secretary, comprehensive
induction of new directors
■■ sets Board agenda, style and tone of
Board discussions
■■ ensures the leadership and development
frameworks are developed to generate a
positive pipeline for future opportunities
for the Group
■■ effective communication with
■■ has overall responsibility for the Group’s
shareholders
sustainability performance
■■ communicates the vision and values of
the Group
■■ manages the senior management team
finance operations including accounting
policies and integrity of financial data and
external financial reporting
■■ responsible for corporate finance
functions, financial planning and budget
management
■■ supports and advises the senior
management team
■■ leads the development of investor
relations strategy and communications
Senior Independent Director
Non-Executive Directors
Group Company Secretary
■■ acts as a sounding board for the
Chairman
■■ serves as an intermediary for other
directors
■■ is available to meet shareholders if they
have concerns which they have not
been able to resolve through the normal
channels
■■ conducts an annual review of the
performance of the Chairman and
convenes a meeting of the non-executive
directors to discuss the same
■■ provide constructive challenge
■■ secretary to the Board and its
■■ help develop strategy
■■ ensure financial controls and systems
of risk management are robust and
defensible
■■ determine appropriate levels of
remuneration for the executive directors
■■ monitor reporting of performance
■■ scrutinise performance of management
■■ are available to meet with major
shareholders
committees
■■ ensures efficient information flows
within the Board and its committees and
between senior management and non-
executive directors
■■ facilitates induction of new directors and
assists with training and development
needs as required
■■ regularly updates the Board on corporate
governance matters, legislative changes
and regulatory regimes affecting the Group
■■ ensures compliance with Board
procedures
■■ co-ordinates external Board evaluation
and conducts internal Board evaluation
40
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Bodycote plc annual report for the year ended 31 December 2015 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 2015, 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 2014 (“the Code”).
In respect of the year ended 31 December 2015, 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 from
the Group’s advisers on investor meetings and results presentations is circulated to all directors. During the year the Chairman met with
shareholders to discuss governance matters.
Apart from this distinct area, Bodycote was in compliance with the provisions of the Code throughout 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 48 to 73, 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 eight occasions during 2015, including a specific meeting to review and update the Group’s long-term strategy. The
Board of Directors comprises six members, of whom four are non-executive directors and two are executive directors, led by the Group’s
part-time Non-Executive Chairman, A.M. Thomson, who also chairs the Nomination Committee. The Group Chief Executive is S.C. Harris
and the Senior Independent Non-Executive Director is R. Rajagopal. I.B. Duncan chairs the Audit Committee and 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 the UK and Poland. 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.
24472.04 4 March 2016 10:52 AM PROOF 5
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance Corporate governance statement continued
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.
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 must submit themselves for re-election. All directors 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 74. The
Board also operates three committees. These are the Nomination Committee, the Remuneration Committee and the Audit Committee. All
non-executive directors serve on each Board Committees.
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.
42
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 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
Focus 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 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
R. Rajagopal
E. Lindqvist
D.F. Landless
I.B. Duncan
J.A. Biles
Full Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Eligible
Attended
Eligible
Attended
Eligible
Attended
Eligible
Attended
8
8
8
8
8
8
3
8
8
7
8
8
8
3
–
–
4
4
–
4
2
–
–
4
4
–
4
2
7
–
7
7
–
7
2
7
–
7
7
–
7
2
5
5
5
5
–
5
3
5
5
5
5
–
5
3
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.
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance 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,
E. Lindqvist and I.B. Duncan will stand for re-election at the 2016 AGM. R. Rajagopal will retire as a Non-Executive Director at the
May 2016 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 2015 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 was 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.
The Board with the assistance of the Internal Audit department monitors the Group’s internal financial control system. Internal Audit 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 2015, 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 regarding the ways in which the principal business risks and uncertainties affecting the Group are managed is shown on pages
24 to 26. 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.
44
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Bodycote plc annual report for the year ended 31 December 2015 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 review of
remuneration packages, 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
25 February 2016
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
24472.04 4 March 2016 10:52 AM PROOF 5
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance Directors’ report
The directors are pleased to submit their report and the audited financial statements for the year ended 31 December 2015.
The Chairman’s statement, the Chief Executive’s review, the Finance Director’s report and all the information contained on pages 36 to 73
together comprise the Directors’ report for the year ended 31 December 2015.
Strategic report
The Strategic report is provided on pages 6 to 35 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 2015, 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 10.3p (2014: 9.8p) bringing the total ordinary dividend to 15.1p per share (2014:
14.4p). The Board has also recommended a supplemental distribution, by way of a special dividend, amounting to 10.0p per share (2014:
20.0p). If approved by shareholders, the final ordinary dividend of 10.3p per share for 2015 and the supplemental distribution of 10.0p per
share for 2015 will be paid on 3 June 2016 to all shareholders on the register at the close of business on 22 April 2016.
Share capital
The Company’s issued ordinary share capital as at 31 December 2015 was £33.1m. No shares were issued during the year. At the AGM
on 23 April 2015 the shareholders authorised the Company to purchase up to 22,046,468 of its own shares. This authority expires at the
conclusion of the forthcoming AGM to be held on 27 May 2016, at which time a further authority will be sought from shareholders.
Capital structure
Details of the issued share capital are shown in note 24. 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 28 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 page 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 2015 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 2016 AGM are A.M. Thomson, S.C. Harris, D.F. Landless, I.B. Duncan
and E. Lindqvist. R Rajagopal will step down as a director at the 2016 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 54 to 73. No director has had any dealings in any shares or options in the
Company since 31 December 2015. 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 2015 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.
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 2016 and permitted each affected director to attend and vote at Bodycote directors’ meetings, on the basis that each such
46
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 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. 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 2014 or 2015.
Shareholders
An analysis of the Company’s shareholders and the shares in issue at 18 February 2016 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
139.
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 or she ought to have taken as a director to make him or herself 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 2016 Annual General Meeting will be held on 27 May 2016 in accordance with the notice being sent to shareholders with this report.
By order of the Board:
U.S. Ball
Group Company Secretary
25 February 2016
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
24472.04 4 March 2016 10:52 AM PROOF 5
47
Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance Report of the Nomination Committee
Committee membership
Director
A.M. Thomson
S.C. Harris
I.B. Duncan
E. Lindqvist
R. Rajagopal
J.A. Biles
Dear Shareholders,
No. of meetings 2015: 5
Main committee responsibilities
Attendance
5
5
5
5
5
3
■■ regularly review the structure, size and composition (including the
skills, knowledge, experience and diversity) of the Board and make
recommendations to the Board with regard to any changes.
■■ give full consideration to succession planning for directors and other
senior executives in the course of its work.
■■ be responsible for identifying and nominating for the approval of the
Board, candidates to fill Board vacancies as and when they arise.
I am pleased to introduce the Nomination Committee report for 2015. The Committee’s key objective is to support the Board in fulfilling
its responsibilities to ensure there is a formal, rigorous and transparent process for the appointment of new directors to the Board and to
ensure that effective succession planning processes are in place across the Group. John Biles, former Chairman of the Audit Committee
and Senior Independent Director (SID), stood down at the 2015 AGM. Ian Duncan has taken over as Chairman of the Audit Committee and
Raj Rajagopal was appointed SID. The Committee will continue to focus on ensuring that the present and future composition of the Board
is appropriate for the delivery of the Group’s strategy and that all relevant UK Corporate Governance Code requirements continue to be met.
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 annually 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 whose members also comprise the
directors listed above. To ensure executive input on nominations matters, the Chief Executive is also a member of the Committee. The
Nomination Committee –
allocation of agenda time
Board composition
and succession planning
55%
Performance of
Group Chief Executive
15%
Governance and
reporting
Independence and
re-electionPI CHARTS
25%
5%
Chairman cannot chair the Committee when it is dealing with either the succession to the
Chairmanship of the Group or the review of his own performance. 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 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.
Director appointment policy and progress
The Committee has developed a formal rigorous and transparent procedure for the
appointment of new directors. Prior to making any appointment, the Committee, having
evaluated the skills, experience and diversity of the Board, will determine the qualities and
experience they seek and will then prepare a detailed description of the role with a view to
appointing the most appropriate candidate. The Committee will use open advertising or the
services of independent external advisers to facilitate the search.
A long list of candidates will be drawn up, from which an appropriate number will be selected
for interview. Upon completion the Committee will recommend to the Board the appointment
of the preferred candidate.
Board succession planning
Upon the retirement of J.A. Biles at the 2015 AGM, he was replaced as Senior Independent
Director by R. Rajagopal and as Audit Committee Chair by I.B. Duncan who joined the Board in
2014 in anticipation of this retirement. After eight years as a member of the Board,
R. Rajagopal will step down in May 2016. The Committee, advised by an international search
consultancy, is currently engaged in the process of identifying a suitably qualified individual
to join the Board. A formal announcement will be made once a suitable candidate has been
appointed.
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Bodycote plc annual report for the year ended 31 December 2015
Main activities of the Nomination Committee
In 2015 the Committee formally met five 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 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 line with the UK Corporate Governance Code the Committee carried out its second external Board Evaluation during 2015. The project
was undertaken by Geoffrey Shepheard of ICSA Board Evaluation, who presented the report to the October Nomination Committee
meeting, with both executive and non-executive directors in attendance. Further details of the review can be found in the Corporate
Governance section of the Annual Report. Recommendations arising from the 2015 Board Evaluation are in the process of being addressed.
In December 2015 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 2016 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 R. Rajagopal, all current directors of the Company be proposed for re-election at the forthcoming AGM.
As Chairman of the Committee I will be available at the 2016 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
25 February 2016
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49
Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance Report of the Audit Committee
Committee membership
Director
I.B. Duncan
E. Lindqvist
R. Rajagopal
J.A. Biles
No. of meetings 2015: 4
Attendance
4
4
4
2
Main committee 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.
■■ monitor the integrity of the financial statements including annual and
half-yearly reports, trading updates and any other formal announcements
relating to its financial performance. Reviewing and reporting to the
Board on significant financial reporting issues and judgements.
■■ where requested by the Board, review the content of the Annual Report
and advise the Board whether taken as a whole it is fair, balanced and
understandable and provides the information necessary for shareholders
to assess the Company’s position and performance, business model and
strategy.
■■ monitor and review the adequacy and effectiveness of the Company’s
internal financial control and risk management systems including the
robust assessment of principal risks.
■■ oversee the relationship with the external auditor including consideration
of fees, audit scope, terms of engagement and recommendation to the
Board for approval by shareholders, the appointment, reappointment or
removal of the external auditors.
■■ monitor and review the effectiveness of the Company’s internal audit
function.
■■ review the adequacy and security of the Company’s arrangements for its
employees to raise concerns, in confidence, about possible wrongdoing
in financial reporting or other matters.
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.
Membership
The members of the Audit Committee are all independent non-executive directors. Their biographical details are shown on pages 36 and 37
and their remuneration on page 71. The Group Company Secretary is the secretary to the Audit Committee. In April 2015, J.A. Biles stepped
down as a Non-Executive Director of the Company.
I.B. Duncan was appointed Chairman of the Audit Committee as of March 2015 and was appointed as a Non-Executive Director of the
Company on 17 November 2014. The Board considers that I.B. Duncan has recent and relevant financial experience. He qualified as a
Chartered Accountant with Deloitte & Touche, served as a plc Finance Director (Royal Mail Holdings plc 2006-2010) 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.
Committee meetings
The Audit Committee met four times during 2015 and in February 2016 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.
I.B. Duncan also held preparatory meetings separately with Deloitte, the Group Financial Controller 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.
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Bodycote plc annual report for the year ended 31 December 2015 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 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.
Principal areas of judgement
The principal areas of judgement considered by the Committee in relation to the 2015 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 11 to the Financial Statements on
pages 102 and 103. The Committee has concluded that no impairment charge is required in the year, other than those included within
reorganisation costs.
■■ 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 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. The Committee reviewed and challenged the assumptions used in calculating the
2015 reorganisation charges.
■■ 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.
■■ Viability Statement. The Committee challenged the validity of the assumptions used in the preparation of the three year strategic plan,
used as the basis of the assessment of the longer-term viability of the Group, 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
consider the impact of certain risks and to understand the impact of changes to all key variables.
■■ 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, life expectancy and the application of IFRIC 14 to the UK pension
scheme, by considering current norms and the sensitivity of the reported liability to changes in the assumptions.
24472.04 4 March 2016 10:52 AM PROOF 5
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance Report of the Audit Committee continued
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 on issues raised via 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 the Guidance on Risk Management, Internal Control and Related Financial and
Business Reporting as issued by the FRC (September 2014).
Internal audit
The internal audit plan for 2016 was presented to the Committee in October 2015 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 October 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 2015 the Committee
considered carefully the scope in respect of smaller and more remote locations and noted that all local audits are undertaken by Deloitte.
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.
Overview
The Committee examined the 2015 Annual Report and was specifically tasked by the Board to advise it on whether the 2015 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 2015, the Committee has
decided to recommend to the Board that Deloitte be reappointed for the 2016 audit and a resolution to this effect will be put to the 2016
AGM. The Committee reviewed and agreed the fee for 2016.
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. Mr M. Mullins replaced Mrs N. Mitchell as current lead partner in 2015.
Deloitte has been the Group’s auditor for 14 years.
In accordance with the transition arrangements of the Competition and Markets Authority Audit order, the Group has until 2023 to hold a
competitive tender for external audit services; it is the intention of the Group to hold a competitive tender, at a time which coincides with
the next change of the lead audit partner.
The Group complies with the provisions of the “Statutory Audit Services for Large Companies Market Investigation Order 2014”.
Independence
The independence of the external auditor has been confirmed by Deloitte every half year and was last confirmed in February 2016. 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;
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Bodycote plc annual report for the year ended 31 December 2015 ■■ 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.
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 2015. 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 99 and
amounted to 23% of the audit fee.
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”) 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.
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.
The effectiveness of internal audit is reviewed and discussed annually with the Group Head of Risk and the Ernst & Young engagement
partner. The review takes into account the views of directors and senior management on matters such as independence, proficiency,
resourcing and audit strategy, planning and methodology. The review confirmed that the Internal Audit function was independent and
objective and remained an effective element of the Group’s corporate governance framework.
Committee evaluation
The Committee’s activities formed part of an external review of Board effectiveness which was undertaken in October 2015. 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:
I.B. Duncan
Chairman of the Audit Committee
25 February 2016
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance Board report on remuneration
Committee membership
Director
E. Lindqvist
A.M. Thomson
I.B. Duncan
R. Rajagopal
J.A. Biles
No. of meetings 2015: 7
Attendance
7
7
7
7
2
Main committee responsibilities
■■ Responsibility for setting the remuneration policy for all executive
directors and the Company’s Chairman.
■■ Recommend and monitor the level and structure of remuneration for
senior management.
■■ Review the ongoing appropriateness and relevance of the remuneration
policy.
■■ Appointment of remuneration consultants.
■■ Approve the design of and determine targets for executive directors and
other senior executives’ performance-related pay schemes.
■■ Review the design of all share incentive plans for approval by the Board
and shareholders. Determine whether awards will be made on an annual
basis.
Chairman’s letter
As Chairman of the Remuneration Committee (“the Committee”) and on behalf of the Board of Directors, I am pleased to present our
Directors’ Remuneration Report for the 2015 financial year, in line with the requirements of the Large and Medium sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2013.
Consistent with last year, this report comprises two sections. The first part (Section A) summarises the policy of the Board with regard to
the remuneration of the directors, which will be put to shareholders for approval at the Company’s 2016 AGM. The second part (Section B)
describes how the existing policy, approved at the 2014 AGM, was implemented in 2015. This section will be subject to an advisory vote.
Context to the Committee’s decisions
2015 was another successful year for Bodycote. Although we faced strong challenges from the softening of the energy and industrial
machinery markets and significant fluctuations in the exchange rates used to translate the results of our subsidiaries, the Company has
made firm progress in the execution of our strategy under the leadership of Stephen Harris and David Landless.
Our profitability remains good despite these difficult trading conditions, and strong cash generation and return on capital employed has
been delivered in the year. The external market pressures we face will continue to impact the business over the coming years, in part
motivating the review of remuneration undertaken by the Committee in 2015, with a revised policy developed to ensure that we are able to
motivate, reward and retain our exceptional executive team as they work to deliver strong performance for the Company in the years ahead.
Remuneration decisions in 2015
Key decisions made by the Committee in the year included:
■■ A salary increase of 2.5% was awarded to S.C. Harris, taking his salary to £511,309 from 1 January 2016. D.F. Landless has also received
an increase of 2.5%, taking his salary to £326,556.
■■ No financial performance targets set for the 2015 bonus plan were achieved, but personal strategic objectives were achieved and annual
bonus payments of 20% and 26% of base salary for the Group Finance Director and the Group Chief Executive respectively (equivalent
to 20% maximum opportunity for both), were paid out.
■■ The vesting outcome of the Bodycote Incentive Plan (BIP) award made in 2013 (which had a performance period ending on 31 December
2015) was determined. As the EPS underpin set at 42p was not achieved, awards made to S.C. Harris and D.F. Landless will not vest.
■■ The 2012 Co-Investment Plan (CIP) vested at 100% of maximum in May 2015, reflecting the strong TSR performance of Bodycote over
the three year performance period.
■■ Performance targets were determined for 2016 BIP awards, based on current and stretch performance for the business and the sector,
together with broker consensus forecasts. Targets have been revised in the context of significant pressures in the sector (particularly in
the oil & gas market and the tax rate changes which will affect Bodycote in future years), and to ensure the Committee is able to deliver
upper quartile reward for upper quartile performance.
■■ The calibration of the underpin has also been amended to ensure it represents a baseline affordability threshold below which no vesting
under the BIP is considered appropriate. The Committee has determined that the underpin should be set at 85% of the threshold EPS
performance level.
■■ Review of executive remuneration and development of new policy (see below).
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Bodycote plc annual report for the year ended 31 December 2015 New Directors’ Remuneration Policy
In 2015 the Committee undertook an in-depth review of the remuneration arrangements in place at Bodycote, and determined that a
number of changes should be made to the existing policy (which was approved by shareholders at the 2014 AGM). These changes are set
out below, and will be incorporated into the revised policy that will be put to shareholders at the 2016 AGM:
1. Removal of the current CIP opportunity in order to simplify our arrangements and improve line of sight for participants.
2. Increasing the existing annual bonus opportunity to 200% of salary for the CEO and 150% of salary for the CFO. This increase partially
replaces the value forgone through the removal of the CIP.
3. Introduction of bonus deferral to support alignment with shareholders and with market best practice. From 2018 onwards, 35% of any
bonus earned will be deferred as shares, with a transitional arrangement operating in 2016 and 2017 to preserve cash flow to participants
in the initial years of the new policy’s operation.
4. Introduction of clawback into incentives, reflecting the requirements of the UK Corporate Governance Code and best practice.
We believe that the new structure (which is set out in full in Section A of this report) will continue to reward and motivate our executive
directors, and support the Company in achieving its short and long-term strategic ambitions. In particular, these changes reflect the
following key drivers:
■■ Simplicity: The Committee believes that the previous structure, comprising two long-term elements (CIP and BIP) was excessively
complex, and reduced transparency for all stakeholders and line of sight for participants. We also recognise that simplicity is a key theme
for investors, with the use of a single long-term incentive plan viewed as best practice by many.
■■ Competitive reward: To allow the Committee to continue to deliver upper quartile reward for upper quartile performance.
■■ Retention: The introduction of deferral on the annual bonus provides a retention tool for key management.
■■ To align with corporate governance and best practice: To comply with the UK Corporate Governance Code by introducing clawback
alongside the existing malus arrangements, and to meet shareholder expectations of bonus deferral and long-term alignment.
Our proposed amendments to the policy were shared with the Company’s ten largest shareholders, together with the Investment
Association (IA) and Institutional Shareholder Service (ISS). I was able to talk to many of these stakeholders, and discussed with them
in depth the rationale for our proposals. We received broadly supportive responses, and through consideration of shareholder feedback
identified a number of areas in which changes to our initial proposals were appropriate. The Committee is extremely appreciative of the
input we received from shareholders as part of this process.
I would also like to thank my fellow Committee members as well as all those who supported the Committee in the year for their support
throughout this review. As a Committee we are fully committed to continue an open dialogue with our shareholders, and so I would
welcome your views on any part of our revised remuneration policy.
E. Lindqvist
Chairman of the Remuneration Committee
25 February 2016
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Section A: Directors’ Remuneration Policy
Remuneration Policy
Bodycote’s Executive Remuneration Policy is to attract and motivate our senior executive team to execute our strategy and deliver value to
our shareholders while ensuring the Group pays no more than is necessary.
In order to ensure continued alignment between remuneration and the evolving strategic direction of our business, the Committee has
determined it appropriate that a revised policy be put to our shareholders for approval. This policy is set out below, with the intention that it
will apply for three years from the date of the 2016 AGM.
Summary of changes from the 2014 Remuneration Policy
The table below sets out a summary of the proposed changes under the new Remuneration Policy from the previous Remuneration Policy
approved by shareholders at the 2014 AGM. It is the intention that the new Remuneration Policy will apply for the three years from the date
of the 2016 AGM.
Element
Base salary
Benefits
Pension
Annual bonus
Summary of changes from 2014 Remuneration Policy
No change in policy.
No change in policy.
No change in policy.
Incentive opportunity has been increased from 130% to 200% of salary for the CEO and from
100% to 150% of salary for the CFO. This increase has been made to replace the opportunity
previously provided to executive directors under the Co-Investment Plan.
Mandatory deferral of 35% of any bonus earned into shares for three years from 2018 with phased
introduction of deferral in 2016 and 2017.
Bodycote Incentive Plan (‘BIP’)
Introduction of clawback in conjunction with existing malus provisions.
Introduction of clawback in conjunction with existing malus provisions.
Co-Investment Plan (‘CIP’)
Removed from 2016 onwards (final award was in 2015).
Shareholding requirement
Increased from 100% of salary to 200% and 150% for the CEO and CFO (and other executive
directors) respectively.
Discretion
The Committee has discretion in several areas of Policy as set out in this report. The Committee may also exercise operational and
administrative discretions under relevant Plan rules approved by shareholders as set out in those rules. In addition, the Committee
has the discretion to amend policy with regard to minor or administrative matters where it would be, in the opinion of the Committee,
disproportionate to seek or await shareholder approval.
Executive Remuneration Policy
The table below sets out the key components of executive directors’ pay packages, including why they are used and how they are operated
in practice.
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Bodycote plc annual report for the year ended 31 December 2015 Performance measures
None
Maximum opportunity
under the element
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
who is being moved to
market positioning over
time.
None
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.
Future policy table
Element and how
it supports our
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.
Benefits
Provides market-
competitive benefits
at an appropriate
cost.
Operation of the element
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 Company’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 Company 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 Company 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.
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.
The Group operates a defined contribution
scheme. Executive directors are provided
with a contribution to this scheme or a
cash allowance of equivalent value. Base
salary is the only pensionable element of
remuneration.
The same general approach applies to all
employees, although contribution levels
vary by seniority.
Company contribution (or cash
equivalent) of up to 30% of
salary.
None
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Maximum opportunity
under the element
The maximum potential is
200% of base salary for
the CEO and 150% of base
salary for the CFO and other
executive directors.
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.
Element and how
it supports our
strategy
Annual bonus
To incentivise delivery
of corporate strategy
on an annual basis
and reward delivery of
superior performance.
The deferred portion
of the bonus supports
longer-term shareholder
alignment.
Operation of the element
The level of bonus paid each year is
determined by the Committee after the year-
end based on performance against targets.
A portion of the annual bonus is paid in cash
shortly after the financial year-end with the
remaining portion deferred for three years
in Bodycote shares (see details below).
Vesting of the deferred shares is not subject
to further performance conditions (please
see the 2016 AGM Notice for a summary of
the Plan).
Dividend equivalents are payable in
respect of the shares which vest.
From 2018 onwards, 35% of any bonus
earned is deferred into shares for
three years, conditional on continued
employment until vesting date.
Transitional treatment applies to deferral
for 2016 and 2017. For 2016, any bonus
earned over 130% of base salary is
deferred into shares.
For 2017, 15% of any bonus paid up to a
value of 130% of base salary is deferred,
with bonus earned over 130% also deferred
in full. The deferral above 130% of salary
would be capped so that no more than 35%
of the total bonus is deferred.
Malus provisions apply for the duration
of the performance period and to shares
held under deferral.
Clawback provisions apply to cash amounts
paid for three years following payment.
Malus and/or clawback may be applied in
the following scenarios:
■— Discovery of a material misstatement
resulting in an adjustment in the
audited accounts of the Group or any
Group Company;
■— The assessment of any performance
condition or condition was based
on error, or inaccurate or misleading
information;
■— The discovery that any information
used to determine the cash payment
under the bonus or the number of
shares subject to deferral was based
on error, or inaccurate or misleading
information; or
■— Action or conduct of a participant
which amounts to fraud or gross
misconduct.
The Committee believes that the rules
of the Plan provide sufficient powers
to enforce malus and clawback where
required.
Performance measures
The Committee considers the
performance conditions selected for the
annual bonus to appropriately support
the Company’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.
The weighting of the measures and
specific targets are reviewed on an
annual basis to ensure alignment to
strategy and are set to be in line with
budget. Information on measures and
weights that will apply for specific
years will be included in the relevant
year’s Annual Report on Remuneration.
At least 70% of the bonus will be
based on the achievement of Group
financial targets.
The Committee retains discretion in
exceptional circumstances to change
performance measures and targets
and the weightings attached to
performance measures part-way through
a performance year if there is a significant
and material event which causes the
Committee to believe the original
measures, weightings and targets are no
longer appropriate.
Discretion may also be exercised in
cases where the Committee believe
that the bonus outcome is not a fair
and accurate reflection of business
performance. The exercise of this
discretion may result in a downward
or upward movement in the amount
of bonus earned resulting from
the application of the performance
measures.
Any adjustments or discretion applied by
the Committee will be fully disclosed in
the following year’s Remuneration Report.
The Committee is of the opinion that
given the commercial sensitivity
arising in relation to the detailed
financial targets used for the annual
bonus, disclosing precise targets for
the Annual Bonus Plan in advance
would not be in shareholder interests.
Actual targets, performance achieved
and awards made will be published at
the end of the performance periods
so shareholders can fully assess the
basis for any pay-outs under the annual
bonus.
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Bodycote plc annual report for the year ended 31 December 2015 Element and how
it supports our
strategy
Bodycote Incentive
Plan (BIP) 2016
To incentivise
delivery of long-term
strategic goals and
shareholder value
and aid retention of
senior management.
Maximum opportunity
under the element
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.
At the threshold performance
level there will normally be
no more than 0% vesting.
Awards commence vesting
progressively from this point
with maximum performance
resulting in awards vesting in
full.
Performance measures
Awards vest based on performance
over three years against performance
measures chosen by the Committee
to align with business and strategic
priorities. For the 2016 financial year
the measures for executive directors
are:
■■ 50% ROCE
■■ 50% headline EPS
In addition, the vesting of awards may
only occur if headline EPS is above a
defined hurdle level.
The Committee considers these
performance conditions selected for
the BIP to currently appropriately
underpin the Company’s strategic
objectives. Due to the nature
of the Company’s activities the
Committee consider ROCE to provide
shareholders with an appropriate
measure of how well the Company
is performing and is being managed,
while EPS provides a measure of the
level of value created for shareholders.
ROCE and EPS are our top two KPIs
as shown on page 69 of the Annual
Report.
The Committee may adjust the
performance measures attaching to
awards and the weighting of these
measures if it feels this will create
greater alignment with business and
strategic priorities.
A significant change to the measures
used would only be adopted following
consultation with major shareholders.
The targets for the performance
measures are reviewed on an annual
basis to ensure alignment to strategy
and are set to be in line with budget.
Details of performance targets will be
included in the relevant year’s Annual
Report on Remuneration.
Operation of the element
Awards will be granted annually under
the Bodycote Incentive Plan (please see
the 2016 AGM Notice for a summary of
the Plan) subject to a three year vesting
period and stretching performance
conditions measured over three years.
Dividend equivalents are payable in
respect of the shares which vest.
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 report on
remuneration.
Discretion may also be exercised in cases
where the Committee believes that
the outcome is not a fair and accurate
reflection of business performance. The
exercise of this discretion may result in
a downward or upward movement in
the amount of the LTIP vesting resulting
from the application of the performance
measures.
Malus provisions apply for the duration of
the performance period.
Clawback provisions apply to amounts for
two years following vest.
Malus and/or clawback may be applied in
the following scenarios:
■— Discovery of a material misstatement
resulting in an adjustment in the
audited accounts of the Group or any
Group Company;
■— The assessment of any performance
condition or condition was based
on error, or inaccurate or misleading
information;
■— The discovery that any information
used to determine the number of
shares subject to an award was based
on error, or inaccurate or misleading
information; or
■— Action or conduct of a participant
which amounts to fraud or gross
misconduct.
The Committee believes that the rules
of the Plan provide sufficient powers
to enforce malus and clawback where
required.
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Element and how
it supports our
strategy
Shareholding
requirement
To provide alignment
of interest between
participants and
shareholders.
Operation of the element
Maximum opportunity
under the element
Performance measures
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 CEO and CFO (and other
executive directors) are
required to build up a holding of
200% and 150% of base salary
respectively.
None
Legacy awards –
Co-Investment Plan
(CIP)
To provide a link
between short and
long-term incentive
arrangements and
to provide further
alignment with
shareholders.
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 vesting of matching
shares will be based on share price related
performance conditions as determined by
the Committee.
Final award made in
2015.
Dividend equivalents are payable in respect
of the matching shares which vest.
Executive directors are invited
annually to purchase shares up
to 40% of basic salary (net of
tax) against which performance
based matching shares are
granted on a 1:1 basis.
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 a 1:1
match.
Awards vest based on performance
over three years against performance
measures chosen by the Committee
to align with business and strategic
priorities. For recent grants the
measures for executive directors have
been:
50% ROCE
50% headline EPS
In addition, the vesting of awards may
only occur if headline EPS is above a
defined hurdle level.
Legacy awards –
Bodycote Incentive
Plan (‘BIP’) 2006
To incentivise
delivery of long-term
shareholder value.
Aids retention of
senior management.
Final award made in
2015.
Awards are granted annually under the
Bodycote Incentive Plan subject to a
three year vesting period and stretching
performance conditions measured over
three years.
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.
At the threshold performance
level there will normally be
no more than 0% vesting.
Awards commence vesting
progressively from this point
with maximum performance
resulting in awards vesting in
full.
Shares delivered following the vest of
an award attract additional dividend
shares calculated on the basis of the
re-investment back into shares of the
dividend that would have been received
had the shares been beneficially held.
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 report on remuneration.
Malus provisions apply for the duration of
the performance period and to shares held
under deferral.
Notes to the Remuneration Policy table
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 pages 57 to 65 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 Company 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 Company 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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Bodycote plc annual report for the year ended 31 December 2015 Illustrations of application of remuneration policy
The remuneration package for the executive directors is designed to provide an appropriate balance between fixed and variable
performance-related components. The Committee is satisfied that the composition and structure of the remuneration package is
appropriate, clearly supports the Company’s strategic ambitions and does not incentivise inappropriate risk taking and reviews this on an
annual basis.
Fixed Elements
Annual Variable Element
Long-Term Variable Elements
£3,000,000
£2,500,000
£2,000,000
£1,500,000
£1,000,000
£500,000
£0
£2,524,958
48%
26%
£1,407,564
25%
28%
£656,731
100%
47%
26%
£1,493,454
48%
27%
25%
£818,997
27%
24%
49%
£398,244
100%
Minimum
On-Target
Maximum
Minimum
On-Target
Maximum
Group Chief Executive
Group Finance Director
For the purposes of this analysis, the following methodology has been used:
■■ Fixed elements comprise base salary and other benefits:
■— Base salary reflects the base salary as at 1 January 2016.
■— Benefits reflect benefits received in 2015.
■■ For on-target performance, an assumption of 60% of annual bonus is applied and vesting of 50% of the maximum for the BIP.
■■ No share price increase has been assumed or dividend reinvestment.
■■ Fixed Elements are salary, benefits and pension.
■■ Annual Variable Element is the annual bonus both cash and deferred shares.
■■ Long-Term Variable Element is the BIP award.
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Board report on remuneration continued
Non-Executive Director (NED) fee policy
The policy on non-executive director (NED) and Chairman fees is set out below.
Maximum opportunity under the
element
Performance measures
None
Fees for non-executive directors are
set out in the statement of
implementation of policy in the
following financial year section on
page 71.
The Company’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 further
responsibilities (for example, Senior
Independent Directorship).
In line with the Articles of Association,
accumulative total fees for non-
executive directors are capped at
£500,000 p.a.
Element and how it
supports our strategy
Fees for non-executive
directors
To attract NEDs who
have a broad range
of experience and
skills to oversee the
implementation of our
strategy.
Operation of the element
The fees for the non-executives are
determined by the Chairman and the
Chief Executive.
The fee for the Chairman is reviewed
by the Board in the absence of the
Chairman.
The Chairman and non-executive fees
are reviewed on an annual basis. When
reviewing fees, the primary source
of comparative market data is FTSE
250 companies and other companies
of similar size and complexity, as
appropriate.
The fees for the Chairman and non-
executives are set a level that will
attract individuals with the necessary
experience and ability to make a
significant contribution to the Group’s
affairs. The fees reflect the time
commitment and responsibilities of
the roles.
The Chairman and non-executive
directors are not entitled to any pension
or other employment benefits or to
participate in any incentive scheme.
Appropriate benefits may be provided
to non-executives and the Chairman
from time to time.
The Company will pay reasonable
expenses incurred by the non-executive
directors and Chairman and may settle
any tax incurred in relation to these.
Fees retained for external Non-Executive Directorships
To broaden the experience of executive directors, they may hold positions in other companies as non-executive directors provided that
permission is sought in advance. Any external appointment must not conflict with the directors’ duties and commitments to Bodycote plc.
Statement of consideration of employment conditions elsewhere in the Group
The Company 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 Company 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.
The Committee does not use any remuneration comparison metrics.
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Bodycote plc annual report for the year ended 31 December 2015 Statement of consideration of shareholder views
The Committee always welcomes the views of shareholders in respect of pay policy as well as those views expressed on behalf of
shareholders by their respective proxy advisers. The Committee documents all remuneration related comments made at the Company’s AGM
and feedback received during consultation with shareholders throughout the year. Any feedback received is fully considered by the Committee.
In developing the proposed Remuneration Policy for 2016 and beyond the Remuneration Committee engaged extensively with the
Company’s key shareholders and their representative bodies. Through this process the Remuneration Committee took on board the
feedback received and refined the proposed Remuneration Policy as appropriate to ensure it meets the expectations of our shareholders.
Approach to recruitment remuneration
When recruiting new executive directors, the Company’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 pay policy table on pages 62 and 63. Each element of
remuneration to be included in the package offered to a new director would be considered separately and collectively in this context.
Component
Policy
General
The Company’s policy is to pay what is necessary to attract individuals with the skills and experience appropriate to the
role to be filled.
The initial notice period may be longer than the Company’s one year policy (up to a maximum of two years). However,
this will reduce by one month for every month served, until the Company’s policy position is reached.
Base salary
Base salary levels will be set at an appropriate level to recruit the best candidate 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 Company and current market levels for the role.
Other benefits
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 Company and shareholders, the Committee may consider providing additional benefits, potentially
including relocation costs, tax equalisation or advisers’ fees.
Pension
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 other executives.
Annual bonus
Normal awards will be made under the annual bonus plan in line with the Remuneration Policy. The executive director
may be invited to participate in the bonus on a pro rated basis in the first year of appointment.
Long-term
incentives
Normal awards will be made under the BIP in line with the Remuneration Policy. The executive director may be invited to
participate in ‘in flight’ BIP awards on a pro rated basis when appointed.
Replacement
awards
The Company is required to set out the maximum amount of variable pay which could be paid to a new director in
respect of his/her recruitment. In order to provide the Company 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 “buyout” 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 Company
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 “buyout” 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 Company’s recent performance and payout levels and any other factors we
consider appropriate. If a buyout 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
and clawback 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 buyout award has been granted.
Internal
promotions
For internal promotions any commitments made prior to appointment may continue to be honoured as the executive is
transitioned to the new remuneration arrangements.
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 out on pages 62 and 63.
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Service contracts
All directors’ service contracts and letters of appointment 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.
S.C. Harris, Group Chief Executive
D.F. Landless, 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 provided).
evidence provided).
■■ Private medical insurance.
■■ Private medical insurance.
■■ Company car allowance.
■■ 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
Company has right to terminate on payment of a
termination payment with agreement of executive.
Company has 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 obligations that may give rise to remuneration.
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
The non-executive directors of the Company (including the Chairman) do not have service contracts. The non-executive directors are
appointed by letters of appointment. Each independent non-executive director’s term of office runs for a maximum three year period.
The initial terms of the non-executive directors’ positions are subject to their re-election by the Company’s shareholders at the next AGM
and to re-election at any subsequent AGM at which the non-executive directors stand for re-election.
All directors will be put forward for re-election by shareholders on an annual basis.
Termination remuneration policy
It is the Company’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.
The Committee will honour executive directors’ contractual entitlements. Service contracts do not contain liquidated damages clauses.
If a contract is to be terminated, the Committee will determine such mitigation as it considers fair and reasonable in each case. There are
no contractual arrangements that would guarantee a pension with limited or no abatement on severance or early retirement. There is no
agreement between the Company and its executive directors or employees, providing for compensation for loss of office or employment
that occurs because of a takeover bid (other than a legacy arrangement for D.F. Landless).
64
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Bodycote plc annual report for the year ended 31 December 2015 Component
Policy
Compensation for
loss of office in
service contracts
Currently, under the terms of the executive directors’ contracts, the Company 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.
Treatment of cash
element of the
bonus under plan
rules
If termination is by way of death, injury, illness, disability, redundancy, retirement, or any other circumstances
the Committee determines (a “good leaver”), the level of bonus will be measured at the bonus measurement
date. Bonus will normally be pro-rated for the period worked during the financial year. The Committee retains the
discretion:
Treatment of
unvested deferred
bonus awards
under plan rules
■■ to determine that an executive is a good leaver. It is the Committee’s intention to only use this discretion in
circumstances where there is an appropriate business case which will be explained in full to shareholders;
■■ not to pro-rate the bonus to time. The Committee’s policy is that it will pro-rate bonus for time. It is the
Committee’s intention to use its discretion to not pro-rate in circumstances where there is an appropriate
business case which will be explained in full to shareholders.
Under all other circumstances no bonus will be earned on cessation of employment (other than set out above in the
legacy arrangements for current executive directors).
If termination is by way of death, injury, illness, disability, redundancy, retirement, or any other circumstances the
Committee determines (a “good leaver”), deferred shares may be released to the participant at the normal vesting date.
Under all other circumstances unvested awards will lapse on cessation of employment.
The Committee has the following elements of discretion:
■■ to determine that an executive is a good leaver. It is the Committee’s intention to only use this discretion in
circumstances where there is an appropriate business case which will be explained in full to shareholders;
■■ to vest deferred shares at the end of the original deferral period or at the date of cessation. The Committee’s
policy is that shares will vest on the original date of vesting. The Committee will make this determination
depending on the type of good leaver reason resulting in the cessation.
Treatment of
unvested BIP 2016,
BIP 2006 and CIP
awards
On cessation of employment, awards under the BIP and CIP will lapse in full, unless the Committee determines that
the individual is a good leaver (see above for definition). In instances where the Committee determines that awards
should not lapse in full, awards will normally vest at the normal vesting date, pro-rated for time served and subject to
the achievement of the original performance conditions.
The Committee has the following elements of discretion:
■■ to determine that an executive is a good leaver. It is the Committee’s intention to only use this discretion in
circumstances where there is an appropriate business case which will be explained in full to shareholders;
■■ to measure performance over the original performance period or at the date of cessation. The Committee will
make this determination depending on the type of good leaver reason resulting in the cessation; and
■■ to pro-rate the maximum number of shares to the time from the date of grant to the date of cessation. The
Committee’s policy is that it will pro-rate awards for time. It is the Committee’s intention to use discretion to
not pro-rate in circumstances where there is an appropriate business case which will be explained in full to
shareholders.
Exercise of
discretion
In the event that an executive director leaves the Company, 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.
Change of control
Further, in the event of a compromise or settlement agreement, the Committee may agree payments it considers
reasonable in settlement of legal claims. This may include an entitlement to compensation in respect of their
statutory rights under employment protection legislation in the UK or in other jurisdictions. The Committee may also
include in such payments reasonable reimbursement of professional fees in connection with such agreements.
Our policy is not to have a change in 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 in control or for payments in lieu of
notice.
On change of control the awards under the Company’s incentive plans will generally vest subject to performance and
time apportionment as determined by the Committee and in accordance with the rules of the relevant plan.
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Section B: Annual report on remuneration
Committee membership
During 2015 the Committee was chaired by E. Lindqvist. The Committee also comprised J.A. Biles (retired on 23 April 2015), A.M. Thomson,
R. Rajagopal and I.B. Duncan.
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 2015 the Committee met seven times and once in February 2016 to consider, amongst other matters:
Theme
Best practice
Agenda items
■■ The Group’s Remuneration Policy, discussions and feedback from the Group’s AGM in 2015 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 revised Remuneration Policy to be put to shareholders, as summarised
in Section A of the Board report on remuneration
Implementation policy
■■ 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 2015
■■ The annual bonus structure and performance targets for the year ended 31 December 2016
■■ 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
■■ Design of a new bonus and share plan as part of benefit package
Advisers to the Committee
The Committee was until July 2015 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 £40,250. Following a competitive tender, in July 2015 PwC was appointed by the Remuneration Committee as
remuneration committee advisers. PwC’s fees for the year, based on the quantity and complexity of the work undertaken, amounted to
£25,500. PwC also undertakes tax and accounting work for the Company. Legal advice was provided by Eversheds and fees amounted to
£1,926. All fees are based on the quantity and complexity of work undertaken. 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. PwC
and Towers Watson have signed up to the Remuneration Consultant Group’s code of conduct.
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.
66
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Bodycote plc annual report for the year ended 31 December 2015 Statement of shareholder voting
The table below displays the voting results on the remuneration resolution at the 2015 AGM as well as the result of the remuneration policy
at the 2014 AGM:
Votes cast
For
Against
Number of abstentions
2015 Board report on
remuneration
(% votes)
2014 Directors’
Remuneration Policy
(% votes)
84%
97%
3%
14,666
79%
96%
4%
40,318
Remuneration for 2015
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 2015 base salary increases and
comparative figures can be found in the Remuneration Committee Chairman’s letter.
Base salaries are reviewed in January every year.
Name
S.C. Harris
D.F. Landless
Position
Salary from 1 January 2015*
Salary from 1 January 2016
Group Chief Executive
Group Finance Director
£498,838
£318,591
£511,309
£326,556
*The 2015 increase compares to the average 2015 salary increase across the Group of 2.3%.
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
£87,068. 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 £50,586. In addition D.F. Landless was given 3,168 of Luxfer American Depositary Receipts valued at $12.23 at the date of grant
on 29 May 2015. D. F. Landless has been appointed a Non-Executive Director of Innospec Inc. with effect from 1 January 2016. No fees
have been retained for the 2015 reporting period.
Pension
Following a contractual review of pension provision during 2015, it was decided that D.F. Landless’ salary supplement above the defined
benefit scheme cap should be increased from 16% to 20%. This was decided in March 2015 with effect from 1 January 2015.
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 D.F. Landless receives a salary supplement of 25% of basic salary up to the defined benefit
scheme cap and 20% of basic salary above the cap, of which £50,095 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
£13,939
£18,822
Fuel
Healthcare
Salary
supplement
£2,400
£1,200
£1,256
£1,570
£124,710
£50,095
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.
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance Board report on remuneration continued
Annual performance related bonus
Retrospective disclosure of 2014 annual bonus targets
In the 2013 Annual report on remuneration, the Committee communicated its intention to retrospectively disclose information in respect
of the prior year annual bonus targets. The table below provides details of the annual bonus awards received in respect of the Group and
individual performances in the 2014 financial year.
£
2014 was another successful year. While our reported revenues 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%. The actual payout, as a percentage of the
total award, in respect of Group headline operating profit and Group headline operating cash flow, was 46.5% and 10.0% respectively. The
targets for Group headline operating profit and Group headline operating cash flow were £128.9m and £93.4m respectively. The Committee
also assessed the Group Chief Executive’s 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 16.0% and 14.6% for the Group Chief Executive and Group Finance Director respectively.
Threshold
Target
Maximum % of award
Actual
perform-
ance
achieved
Actual payout
(% of award)
CEO
FD
Group headline
operating profit
Group headline
operating cash flow
Personal scorecard
Total
£107.4m
£115.1m
£128.9m
70%
£111.1m
46.5%
46.5%
£88.7m
£93.4m
✓
£93.4m
10%
20%
£100.0m
10.0%
16.0%
72.5%
10.0%
14.6%
71.1%
2015 Annual bonus
During the year the Committee has decided, in line with market practice, to disclose information in respect of last year’s annual bonus
targets. The table below provides the details of the annual bonus awards received in respect of the Group and individual performances in
the 2015 financial year.
The annual bonus potential for the period to 31 December 2015 for executive directors was split 70% in respect of Group headline
operating profit, 10% on 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.
Due to significant pressures particularly in the oil & gas sector, the performance of the Group during the year included headline operating
profit of £102.1m (8.1% decrease on the previous year, 6.0% decrease at constant exchange rates) and headline operating
cash flow of £81.6m (18.4% decrease on last year). No bonus is payable on the financial elements of the performance targets.
The Committee also assessed the performance of both the Group Chief Executive and Group Finance Director against their personal
objectives, which included targets relating to safety, focus on preservation and maximisation of value and cash flow as well as
implementation of major projects. The Committee concluded that personal strategic objectives were achieved at a level of 20% of the
maximum award for both the Group Chief Executive and Group Finance Director.
Threshold
Target
Maximum % of award
Actual
perform-
ance
achieved
£111.1m
£116.0m
£122.0m
70%
£102.1m
£99.0m
£104.2m
104.2m
✓
10%
20%
£81.6m
Actual payout
(% of award)
CEO
0%
0%
20%
20%
FD
0%
0%
20%
20%
Group headline
operating profit
Group headline
operating cash flow
Personal scorecard
Total
68
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£
Bodycote Incentive Plan (BIP)
Awards with performance periods ending in the year
BIP awards made in 2013 had a three-year performance period ending on 31 December 2015, 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%
19.0%
0%
100%
6.6%
42.0p
61.3p
39.5p
0%
100%
0%
If headline EPS at the end of the performance period was below 42.0p, then no awards will vest. Over the period, ROCE was 19.0% and
the headline EPS figure for the year was 39.5p. As the underpin was not achieved, the Committee concluded that the 2013 share award will
not vest.
Awards made in the year
BIP awards with a face value of 175% of salary were granted to both executive directors in April 2015 and will vest in March 2018, subject
to the achievement of ROCE and headline EPS growth performance targets. The performance period will end on 31 December 2017. 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 will 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 over-incentivising on capital employed can lead to
unintended consequences in terms of short-term capital underinvestment 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 72.
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 2012
had a three-year performance period ending on 30 April 2015. 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 25.4%. 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 72.
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Board report on remuneration continued
Awards made in the year
CIP awards were made to both executive directors in May 2015 and will vest in May 2018, 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.
Threshold
Maximum
Performance target
Target
Vest
Target
Vest
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 72.
Implementation of policy in 2016
In 2015 the Committee undertook an in-depth review of the remuneration arrangements and determined that a number of changes should
be made to the existing policy (to be approved by shareholders at the May 2016 AGM). These changes are set out below:
1. Removal of the current CIP opportunity in order to simplify our arrangements and improve line of sight for participants.
2. Increase in the existing annual bonus opportunity to 200% of salary for the CEO and 150% for the CFO. This increase partially replaces
the value forgone through the removal of the CIP.
3. Introduction of bonus deferral to support alignment with shareholders and with market best practice. From 2018 onwards, 35% of any
bonus earned will be deferred as shares, with a transitional arrangement operating in 2016 and 2017 to preserve cash flow to participants
in the initial years of the new policy’s operation.
4. Introduction of clawback onto incentives, reflecting the requirements of the UK Corporate Governance Code and best practice.
Base salary is reviewed on an annual basis. The 2016 base salary increases from 1 January 2016 were 2.5% for the Group Chief Executive
and 2.5% for the Group Finance Director. As 2016 base salary increases for the Group are applied after the publication of this report, the
comparative figure for 2016 can only be provided in next year’s report. The comparative figure for 2015 is disclosed in the base salary
section on page 67.
For 2016 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 has determined to set the targets for the 2016 BIP awards as disclosed in the consultation exercise. The targets below
were set in the context of significant pressures in the sector, and to ensure that the Committee are able to deliver upper quartile reward for
upper quartile performance.
Performance metric
Weighting (% of total award)
Performance period
Threshold Performance
Vesting level
Maximum performance
Vesting level
EPS underpin
BIP Targets for 2016 Award
EPS
50%
3 years
31.7p
0%
52p
Full vesting
27p
ROCE
50%
3 years
15.5%
0%
23%
Full vesting
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Auditable section
Total single figure table
Incumbent
Financial
year
Executive Directors
S.C. Harris
D.F. Landless
2015
2014
2015
2014
Non-Executive Directors
A.M. Thomson
J.A. Biles4
R. Rajagopal
E. Lindqvist
I.B. Duncan5
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Total
salary /
fees
£000
Total
other
benefits1
£000
Total
fixed
pay
£000
Annual
bonus
£000
Total
BIP2
£000
Total
CIP3
£000
Total
LTI
£000
Dividend
equiva-
lent for
BIP+
CIP
Total
variable
pay
£000
499
484
319
309
165
160
23
63
52
50
60
58
60
8
142
135
72
85
–
–
–
–
–
–
–
–
–
–
641
619
391
394
165
160
23
63
52
50
60
58
60
8
130
456
64
220
–
652
–
417
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
76
61
20
–
–
–
–
–
–
–
–
–
–
–
728
61
437
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
130
1,184
125
657
–
–
–
–
–
–
–
–
–
–
Total
£000
771
1,803
516
1,051
165
160
23
63
52
50
60
58
60
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, sick pay and Board
travel expenses are also provided. The only benefit received by the non-executive directors is the payment of Board travel expenses.
2. The 2015 figures relate to BIP awards made in 2013 with performance periods ending on 31 December 2015. No shares vested as the underpin was not
achieved.
3. The 2015 figures relate to CIP awards made in 2012 with performance periods ending 30 April 2015. The shares vested in May 2015 at a share price of
740.5p.
4. J.A. Biles resigned at the AGM on 23 April 2015.
5. I.B. Duncan was appointed in November 2014.
Payments to past directors and for loss of office
During the year no payments were made to past directors or for loss of office.
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 conditional shares were granted to both executive directors, equivalent in value to 175% of their base salaries
on 13 April 2015, 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 69.
■■ CIP: Awards consisting of shares were granted to both executive directors, equivalent in value to 8% of S.C. Harris’ base salary and 12%
of D.F. Landless’ base salary on 27 May 2015, 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 pages 69 and 70.
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Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance Board report on remuneration continued
Directors’ interests under the Bodycote Incentive Plan
Interests
as at
1 January
2015
449,728
–
287,248
–
Awarded
in year1
Vested in
year2
Lapsed in
year
At 31
December
2015
Market
price at
award date
Market
value at
date of
vesting
Vesting
date
110,687
–
70,691
85,761
–
54,780
–
107,892
–
68,918
–
–
366,762
–
234,241
£3.94
£7.66
£3.94
£7.66
£7.61 2 March 2015
– March 2018
£7.61 2 March 2015
– March 2018
S.C. Harris
D.F. Landless
1. Mid-market closing price of a share on the day before grant was £7.16. The face value of the award to S.C. Harris was £847,530. The face value of the award
to D.F. Landless was £541,281.
2. Subject to satisfaction of the relevant performance conditions (details of which are set on page 69). The awards that vested during the year did so at 44.3%
of the maximum.
Directors’ interests under the Bodycote Co-investment Plan
S.C. Harris
D.F. Landless
Interests
as at 1
January
2015
11,450
–
23,299
–
Awarded
in year1
Vested in
year2
Lapsed in
year
At 31
December
2015
Market
price at
award date
–
5,113
–
5,113
–
–
8,187
–
–
–
–
–
–
16,563
–
20,225
–
£7.49
£3.79
£7.49
Market
value at
date of
vesting
Vesting
date
–
–
May 2017
£7.41 22 May 2015
May 2017
–
1. Mid-market closing price of a share on the day before grant was £7.44. The face value of the award to S.C. Harris was £38,271. The face
value of the award to D.F. Landless was £38,271.
2. Subject to satisfaction of the relevant performance conditions (details of which are set on pages 69 and 70). The awards that vested
during the year did so in full.
Directors’ shareholdings
The interests in ordinary shares of directors and their connected persons as at 31 December 2015, including any interests awarded under
the CIP or BIP, are presented below.
As at 25 February 2016, the interests of the directors were unchanged from those at 31 December 2015.
Executive Directors
S.C. Harris
D.F. Landless
Non-Executive Directors
A.M. Thomson
R. Rajagopal
E. Lindqvist
I.B. Duncan
Beneficial
177,422
125,203
46,071
22,368
5,000
–
Shares subject
to performance
conditions BIP1
Shares subject
to performance
conditions CIP1
366,762
234,241
16,563
20,225
–
–
–
–
–
–
–
–
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. At the December 2015 Remuneration Committee meeting it was decided to increase the minimum shareholding
requirement to 200% of salary for the Chief Executive and to 150% of salary for the Group Finance Director. The new shareholding
requirement will not need to be achieved until five years after the adoption of the new requirement. As at 31 December 2015, the
Committee is satisfied that executive directors have fulfilled this requirement. At the 31 December 2015 share price, S.C. Harris held 202%
of salary and D.F. Landless held 223% of salary.
End of auditable section
72
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 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
Dec 15
Bodycote FTSE All Share Industrial Index
The table below shows how total remuneration for the Group Chief Executive, S.C. Harris, developed over the last seven years.
Single figure of remuneration £000
Annual variable element award (as a % of maximum)
opportunity
Long-term incentive vesting (as a % of maximum)
2009
531
5%
0%
2010
906
98%
0%
2011
3,252
95%
100%
2012
3,840
73%
100%
2013
3,089
46%
99%
2014
1,803
73%
44%
2015
771
20%
0%
Percentage change in remuneration of Chief Executive
The total value of salary, non-pension benefits and bonus decreased by 32.6% for the Group Chief Executive in 2015 compared to the
previous financial year (2014: £957,998; 2015: £646,132). The equivalent average percentage change for the senior management population
as a whole was a 3.7% increase on 2014. The Remuneration Committee has chosen the senior management population as the group
which should provide the most appropriate comparator. The salary increase for the Group Chief Executive in 2015 compared to the previous
financial year was 3.0% (2014: £484,306; 2015: 498,838). Non-pension benefits increased by 2.2% for the Group Chief Executive in 2015
compared to 2014 (2014: £17,214; 2015:17,596). Bonus payable to the Group Chief Executive decreased by 72% in 2015 compared to 2014
(2014: £456,478; 2015: £129,698). The equivalent average percentage change in 2014 for the senior management population was 3.2% for
salary and a 4.7% increase for bonus.
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 2014 and 2015.
Staff and employee costs
Distributions to shareholders
Corporation tax paid
E. Lindqvist
Chairman of the Remuneration Committee
25 February 2016
2015
£m
220.3
66.0
23.2
2014
£m
234.9
45.2
19.0
% change
(6.2)%
46.0%
22.1%
24472.04 4 March 2016 10:52 AM PROOF 5
73
Financial statementsAdditional informationwww.bodycote.comStock code: BOYStrategic reportGovernance
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 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), including FRS 101 “Reduced
Disclosure Framework”. 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 judgments and accounting estimates that are reasonable and prudent; 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.
This responsibility statement was approved by the Board of Directors on 25 February 2016 and is signed on its behalf by:
By order of the Board:
S.C. Harris
Group Chief Executive
25 February 2016
D.F. Landless
Group Finance Director
25 February 2016
74
24472.04 4 March 2016 10:52 AM PROOF 5
Bodycote plc annual report for the year ended 31 December 2015 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 2015 and of the Group’s and the Parent Company’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, including FRS 101 “Reduced Disclosure Framework”; 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 Parent 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 to the consolidated financial statements (notes 1 to 30) and to the company
financial statements (notes 1 to 14). 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), including FRS 101 “Reduced Disclosure Framework”.
Going concern
and the directors’
assessment of
the principal
risks that would
threaten the
solvency or
liquidity of the
Group
As required by the Listing Rules we have reviewed the directors’ statement regarding the appropriateness of
the going concern basis of accounting on page 23 and the directors’ statement on the longer-term viability of the
Group on page 27.
We have nothing material to add or draw attention to in relation to:
■■ the directors’ confirmation on page 24 that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business model, future performance, solvency or
liquidity;
■■ the disclosures on pages 24 to 26 that describe those risks and explain how they are being managed or
mitigated;
■■ the directors’ statement on page 23 about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them and their identification of any material uncertainties to the Group’s
ability to continue to do so over a period of at least twelve months from the date of approval of the financial
statements;
■■ the director’s explanation on page 23 as to how they have assessed the prospects of the Group, over what
period they have done so and why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the group will be able to continue in operation and meet
its liabilities as they fall due over the period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We agreed with the directors’ adoption of the going concern basis of accounting and we did not identify any such
material uncertainties. 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.
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and we confirm
that we are independent of the Group and we have fulfilled our other ethical responsibilities in accordance with
those standards. We also confirm we have not provided any of the prohibited non-audit services referred to in
those standards.
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. The significant
risks identified below are consistent with those in the previous year, with the addition of the risk regarding
Restructuring provisions for this report.
The Audit Committee has requested that, whilst not required under International Standards on Auditing (UK and
Ireland), we include in our report any significant key observations in respect of these assessed risks of material
misstatement.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Independent auditor’s report continued
To the Members of Bodycote plc
Risk
How the scope of our audit responded to the risk
Key observations
Impairment of non-current assets
The Group has a significant non-current asset base
including tangible fixed assets of £429.6m and
intangible assets (including goodwill) of £175.2m as
shown in notes 11, 12 and 13 respectively. Current
macro-economic uncertainties result in a risk regarding
the carrying value of these assets. Performing an
impaiment review of these non-current assets requires
the exercise of significant judgement regarding
future growth rates, discount rates and sensitivity
assumptions, as described in note 11 and the key
sources of estimation uncertainty within the accounting
policies on page 86.
Environmental remediation provisions
Given the nature of the Group’s operations and
potential environmental contamination which could
have arisen historically, a risk arises in connection
with the appropriateness and completeness of the
£13.2m environmental remediation provisions. The risk
specifically applies to the level of judgement involved
in calculating the provisions required and to the
likely period of utilisation, as described in the Critical
judgments within the accounting policies.
Based on the procedures
performed, no
impairments were noted
and we have concluded
that the assumptions in
the impairment model
were appropriate.
Based on the results
of work carried out
we concur that the
provision recognised
by management is in
accordance with IAS
37. We also concur
with management’s
assessment that the
impact of discounting the
provision is not material.
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 and World Bank historical
GDP data 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
individual inputs to the discount rates of between
12.4% and 13.4% applied as described in note
11; 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
undertaking the following testing:
■■ 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
the available third party evidence collated by
management’s experts and assumptions detailing
the assessment of environmental liabilities for
the Group together with correspondence from
the Group’s internal environmental remediation
team. We considered the appropriateness of the
qualifications of management’s experts and have
benchmarked the Group’s accounting policy against
comparator companies. We have also considered
the requirement to discount the balance should
the impact of doing so be material and audited
management’s calculation for this assessment.
76
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Bodycote plc annual report for the year ended 31 December 2015 Risk
How the scope of our audit responded to the risk
Key observations
Taxation – deferred tax assets and tax provisions
The tax risk concerns the judgements and estimates
applied in the determination of tax balances, in
particular in relation to the recognition of the £31.2m
deferred tax asset balance for which an amount of
£3.1m is recognised in relation to £14.1m of tax
losses across the Group based on future profitability,
as disclosed in note 20 and provisions for liabilities
attributed to specific uncertain tax positions linked to
the Group’s corporate arrangements.
Pensions – liability assumptions for defined benefit
schemes
This risk concerns the appropriateness of the actuarial
assumptions applied in calculating the Group’s defined
benefit liability of £99.9m (2014: £103.3m) within the
net defined benefit liability of £2.7m (2014: £1.0m) as
shown in note 30. The valuation of the Group’s IAS 19
liability involves significant judgement as described
in note 30 and in the key sources of estimation
uncertainty in the accounting policies, in particular in
relation to the discount rate, inflation and mortality
assumptions.
Restructuring provisions
During 2015 the Group has implemented a significant
global restructuring programme driven by the fall in
global oil prices along with widespread softer economic
conditions, both of which have combined to cause
a notable fall in demand for many types of industrial
equipment and machinery. This restructuring has led to
management recognising a net exceptional charge of
£20.0m in the Income Statement.
A risk exists regarding the completeness, utilisation
and validity of the provision as shown in note 23.
There is also a risk relating to ensuring the appropriate
classification of these costs in the Income Statement
as exceptional items in accordance with the Group’s
policy.
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. In conjunction with our
taxation audit specialists, 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.
From the work performed
we are satisfied that the
assumptions applied in
respect of the Income
Statement and the
carrying value of amounts
held on the balance sheet
regarding current and
deferred tax balances are
appropriate.
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 assessed the
appropriateness of the assumptions in the context of
the Group’s own position.
We evaluated the restructuring provisions by
comparing the basis for the recognition of provisions
to assess whether the recognition criteria of a
constructive obligation arising from a past event
are satisfied, assessing the value of the provision
recognised and challenging the status and utilisation
of provisions.
Additionally we have assessed the disclosure of the
costs incurred within the Income Statement to assess
whether those costs described as exceptional are in
accordance with the Group’s policy for exceptional
costs as per note 5.
From the work performed
we are satisfied that
the assumptions
applied in respect of the
valuation of the Group’s
IAS 19 liabilities are
materially correct and are
considered to be towards
the prudent end of our
benchmarked range.
From the work performed
we are satisfied that the
provisions recognised
were complete, valid and
appropriately utilised and
appropriately presented
as exceptional costs.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Independent auditor’s report continued
To the Members of Bodycote plc
Our application
of materiality
The description of risks above should be read in conjunction with the significant issues considered by
the Audit Committee discussed on page 50 and 51.
These matters were addressed in the context of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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 £4.8m (2014: £4.9m), which is below 5% of adjusted
pre-tax profit, which has been determined to be the most stable basis of underlying performance
(2014: 5% of pre-tax profit), and below 1% (2014: 1%) of equity. The adjustment to pre-tax profit
relates to the adding back of exceptional restructuring costs of £20.0m in order to use an underlying
pre-tax profit base for materiality. There were no such exceptional costs in 2014.
We agreed with the Audit Committee that we would report to the Committee all audit differences
in excess of £0.15m (2014: £0.145m), 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.
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.
Based on this assessment, we focused our Group audit scope primarily on the audit work at thirteen
countries, being USA, UK, France, Italy, Germany, Poland, Sweden, Netherlands, Czech Republic,
Turkey, Singapore, China and Mexico. 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 Netherlands,
Luxembourg, Germany and Turkey.
In 2015 we have continued to have direct Group oversight, leadership and control over the
components of the Group accounted for in the US Shared Service Centre (‘SSC’) and in conjunction
with our Czech component audit team we jointly audited the components of the Group accounted for
at the Prague SSC.
As a consequence of the audit scope determined, we achieved coverage of approximately 86%
(2014: 86%) of revenue, 99% (2014: 97%) of profit before tax and 91% (2014: 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 £2.5m
(2014: £0.5m to £2.9m).
The Group audit team continued to follow a program 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 include the component audit team in our
team briefing, discuss their risk assessment, attend close meetings by conference call and review
documentation of the findings from their work.
At the parent entity level we also tested the consolidation process and carried out analytical
procedures to confirm our conclusion that there were no significant risks of material misstatement
of the aggregated financial information of the remaining components not subject to audit or audit of
specified account balances.
An overview of the scope
of our audit
Revenue
Full audit scope
86%
Review at group level
14%
Profit before tax
Full audit scope
99%
Review at group level
1%
Net assets
Full audit scope
91%
Review at group level
9%
78
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Bodycote plc annual report for the year ended 31 December 2015
Opinion on
other matters
prescribed by the
Companies Act
2006
In our opinion:
■■ the part of the Board report on remuneration 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 Board report on remuneration 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 part of the Corporate Governance Statement relating to
the Company’s compliance with certain 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
Respective
responsibilities of
directors and auditor
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.
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). 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.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Independent auditor’s report continued
To the Members of Bodycote plc
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.
Mark Mullins FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
25 February 2016
80
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Bodycote plc annual report for the year ended 31 December 2015 Consolidated income statement
For the year ended 31 December 2015
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
5
5
3
6
7
8
10
2015
£m
567.2
(469.3)
97.9
–
(20.0)
77.9
0.1
(3.0)
75.0
(18.8)
56.2
56.2
–
56.2
Pence
29.6
29.6
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
Consolidated statement of comprehensive income
For the year ended 31 December 2015
Profit for the year
Items that will not be reclassified to profit or loss:
Actuarial (losses) / gains 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 gains / (losses) on translation of foreign operations
Cumulative exchange differences recycled to profit or loss on disposal of subsidiaries
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
2015
£m
56.2
(1.7)
0.2
(1.5)
0.4
(3.3)
(2.9)
(4.4)
51.8
51.9
(0.1)
51.8
2014
£m
79.3
0.5
1.0
1.5
(7.0)
–
(7.0)
(5.5)
73.8
73.9
(0.1)
73.8
81
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements
Consolidated balance sheet
At 31 December 2015
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
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
Translation reserves
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Note
11
12
13
14
20
16
15
16
16
17
22
21
18
23
30
20
21
23
22
24
2015
£m
140.0
35.2
429.6
0.2
31.2
0.4
636.6
19.5
26.3
105.7
16.2
1.2
168.9
805.5
111.1
37.3
0.1
3.8
12.5
164.8
4.1
17.9
61.9
–
8.8
2.5
91.1
255.9
549.6
33.1
177.1
(9.3)
134.1
(5.8)
220.0
549.2
0.4
549.6
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
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue on
25 February 2016.
They were signed on its behalf by:
S.C. Harris
Director
D.F. Landless
Director
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Bodycote plc annual report for the year ended 31 December 2015 Consolidated cash flow statement
For the year ended 31 December 2015
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 sundry investments
Disposal of subsidiary undertakings
Net cash used in investing activities
Financing activities
Interest received
Interest paid
Dividends paid
Repayments of bank loans
Payments of obligations under finance leases
New bank loans raised
Own shares purchased / settlement of share options
Net cash used in financing activities
Net (decrease) / 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
26
26
2015
£m
111.3
(61.1)
5.4
(5.6)
–
(0.2)
–
1.6
(59.9)
0.1
(2.7)
(66.0)
–
(0.2)
0.5
(6.7)
(75.0)
(23.6)
36.0
–
12.4
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
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Consolidated statement of changes in equity
For the year ended 31 December 2015
Share
capital
£m
Share
premium
account
£m
Own
shares
£m
Other
reserves
£m
Translation
reserves
£m
Retained
earnings
£m
Equity
attributable
to equity
holders of
the parent
£m
Non
controlling
interests
£m
33.1
–
177.1
–
(5.5)
–
140.1
–
4.7
–
197.3
79.4
546.8
79.4
0.6
(0.1)
1 January 2014
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
Net profit for the year
Exchange differences on
translation of overseas
operations
Cumulative exchange
differences recycled to profit or
loss on disposal of subsidiaries
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
Dividends paid
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31 December 2015
33.1
177.1
–
–
–
–
–
–
–
–
–
–
Total
equity
£m
547.4
79.3
(7.0)
1.5
(7.0)
–
(7.0)
–
1.5
1.5
–
–
(7.0)
80.9
73.9
(0.1)
73.8
(7.0)
1.9
(45.2)
–
570.4
56.2
–
–
–
–
0.5
–
(7.0)
1.9
(45.2)
–
570.9
56.2
0.5
(0.1)
0.4
–
–
–
(0.7)
(3.0)
–
–
(45.2)
0.7
233.7
–
56.2
0.5
(3.3)
–
–
(3.3)
–
–
(3.3)
(1.5)
–
(1.5)
(1.5)
(2.8)
54.7
51.9
(0.1)
51.8
(2.2)
–
–
(9.3)
(2.1)
(0.4)
–
–
–
–
(2.4)
–
(66.0)
134.1
(5.8)
220.0
(6.7)
(0.4)
(66.0)
549.2
–
–
–
(6.7)
(0.4)
(66.0)
0.4
549.6
Included in other reserves is the capital redemption reserve of £129.8m (2014: £129.8m) and the share-based payments reserve of £3.5m
(2014: £5.9m).
The own shares reserve represents the cost of shares in Bodycote plc purchased in the market. At 31 December 2015 1,464,515 (2014:
1,212,547) 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 28).
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Bodycote plc annual report for the year ended 31 December 2015 Group accounting policies
Year ended 31 December 2015
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.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Group accounting policies continued
Year ended 31 December 2015
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.
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, intangible assets 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 £140.0m (2014: £138.4m). Details of the accounting policies applied in respect of impairment are set out on pages
87 and 90.
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 30. Details of the accounting policies applied in respect of retirement benefit schemes are
set out on pages 88 and 89.
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.
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Bodycote plc annual report for the year ended 31 December 2015 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.
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.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Group accounting policies continued
Year ended 31 December 2015
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 page 92); 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, reorganisation costs and profits and losses on disposal of subsidiaries and
other one off items which meet this definition.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are recognised 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 recognised 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 7).
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Bodycote plc annual report for the year ended 31 December 2015 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.
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.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Group accounting policies continued
Year ended 31 December 2015
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.
Intangible assets
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated
impairment losses. Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at
fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business
combination are reported at cost less accumulated amortisation and accumulated impairment losses.
Amortisation is recognised on a straight-line basis over their estimated useful lives, on the following bases:
Software
Non-compete agreements
Customer relationships
Years
3 to 10
4 to 5
10 to 15
Amortisation is recognised within administration expenses.
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.
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Bodycote plc annual report for the year ended 31 December 2015 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.
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 than 12 months and it is not expected to be realised or settled within
12 months.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Group accounting policies continued
Year ended 31 December 2015
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 19 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.
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 Payments.
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.
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Bodycote plc annual report for the year ended 31 December 2015 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 88.
Adoption of new and revised standards
The Group has applied IFRIC 21 Levies for the first time in the year. IFRIC 21 addresses when a liability to pay a levy imposed by a
government should be recognised.
In addition, the following amendments have been adopted in the year:
■■ IFRS 1 “Clarification of the meaning of ‘effective IFRSs’”
■■ IFRS 3 “Clarification of the scope exclusion for joint ventures”
■■ IFRS 13 “Clarification of the scope of the portfolio exemption”
■■ IAS 40 “Clarification of the relationship between IFRS 3 and IAS 40”
■■ IAS 19 “Defined benefit plans: employee contributions”
■■ Annual improvements to IFRSs 2010-2012 cycle (Dec 2014)
■■ Annual improvements to IFRSs 2011-2013 cycle (Dec 2013)
The above interpretations and revised standard have not had any material 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 14
■■ IFRS 15
■■ IFRS 16
Financial instruments
Regulatory deferral accounts
Revenue from contracts with customers
Leases
■■ Amendments to IAS 1
Disclosure initiative
■■ Amendments to IFRS 10, IFRS 12 and IAS 28
The application of the investment entities exemptions
■■ Amendments to IFRS 10 and IAS 28
Sale or contribution of assets between an investor and its associate or joint venture
■■ Amendments to IFRS 11
Accounting for acquisitions of interest in joint operations
■■ Amendments to IAS 16 and IAS 38
Clarification of acceptable methods of depreciation and amortisation
■■ Amendments to IAS 27
Equity method in separate financial statements
■■ 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;
■■ IFRS 15 may have an impact on revenue disclosures and is unlikely to impact significantly the financial statements; and,
■■ IFRS 16 will impact the recognition, measurement and disclosure of operating leases. It is considered that a material amount of lease
assets and liabilities will require recognition on the Group balance sheet. It is anticipated that finance charges will require reclassification
in the Group income statement.
Beyond the information above, it is not practicable to provide a reasonable financial estimate of the effect of these standards until a detailed
review has been completed.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements
Year ended 31 December 2015
1. Revenue
Heat treatment and metal joining, hot isostatic pressing and surface technology services
Other operating income (see note 3)
Investment revenue (see note 6)
Total Revenue (as defined in IAS 18 Revenue)
2. Business and geographical segments
2015
£m
567.2
4.1
0.1
2014
£m
609.1
5.4
0.1
571.4
614.6
The Group has 178 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
Reorganisation 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.
94
Central
costs and
eliminations
2015
£m
AGI
2015
£m
Consolidated
2015
£m
ADE
2015
£m
243.5
323.7
–
567.2
59.1
0.1
–
59.2
(1.4)
57.8
(5.1)
52.7
53.7
(0.3)
–
53.4
(2.8)
50.6
(14.9)
35.7
–
0.8
(11.3)
(10.5)
–
(10.5)
–
(10.5)
112.8
0.6
(11.3)
102.1
(4.2)
97.9
(20.0)
77.9
0.1
(3.0)
75.0
(18.8)
56.2
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the consolidated financial statements
Year ended 31 December 2015
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
Operating profit prior to exceptional items
Reorganisation costs
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
Reorganisation 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
Acquisition costs
Segment result
Investment revenue
Finance costs
Profit before taxation
Taxation
Profit for the year
Western
Europe
2015
£m
North
America
2015
£m
Emerging
markets
2015
£m
111.2
130.3
23.4
(0.1)
23.3
(0.3)
23.0
(3.3)
19.7
35.6
0.2
35.8
(1.1)
34.7
(1.8)
32.9
2.0
0.1
–
0.1
–
0.1
–
0.1
Western
Europe
2015
£m
North
America
2015
£m
Emerging
markets
2015
£m
Total
ADE
2015
£m
243.5
59.1
0.1
59.2
(1.4)
57.8
(5.1)
52.7
Total
AGI
2015
£m
195.9
89.3
38.5
323.7
34.1
(0.3)
33.8
(0.2)
33.6
(8.0)
25.6
ADE
2014
£m
16.3
0.1
16.4
(2.4)
14.0
(1.6)
12.4
AGI
2014
£m
3.3
(0.1)
3.2
(0.2)
3.0
(5.3)
(2.3)
53.7
(0.3)
53.4
(2.8)
50.6
(14.9)
35.7
Central
costs and
eliminations
2014
£m
Consolidated
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
95
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
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
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
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
2015
£m
17.9
20.3
15.5
–
15.5
(2.2)
13.3
–
13.3
AGI
2015
£m
43.3
32.7
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
2015
£m
Consolidated
2015
£m
5.5
0.8
66.7
53.8
309.2
421.5
74.8
805.5
(69.0)
240.2
(0.4)
239.8
(111.1)
310.4
(0.6)
309.8
(75.8)
(255.9)
(1.0)
1.0
–
549.6
–
549.6
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the consolidated financial statements continued
Year ended 31 December 2015
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
Group
Gross capital additions
Depreciation and amortisation
Balance sheet
Assets:
Segment assets
Liabilities:
Segment liabilities
Allocation of head office net liabilities
Adjusted segment net assets
Western
Europe
2015
£m
8.7
9.0
North
America
2015
£m
9.2
11.0
136.2
170.6
(35.8)
100.4
Wester
Europe
2015
£m
18.5
19.6
(32.1)
138.5
North
America
2015
£m
13.4
8.7
232.7
127.6
(83.4)
149.3
(18.4)
109.2
Emerging
markets
2015
£m
–
0.3
2.4
(1.1)
1.3
Emerging
markets
2015
£m
11.4
4.4
61.2
(9.3)
51.9
Total
ADE
2015
£m
17.9
20.3
309.2
(69.0)
240.2
Total
AGI
2015
£m
43.3
32.7
421.5
(111.1)
310.4
Central
costs and
eliminations
2014
£m
Consolidated
2014
£m
4.3
1.0
59.4
55.1
AGI
2014
£m
36.2
34.0
ADE
2014
£m
18.9
20.1
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
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97
GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
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
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
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:
Revenue from
external customers
Non-current assets
2015
£m
211.5
82.2
50.9
59.8
41.9
23.2
97.7
567.2
2014
£m
206.7
91.4
59.5
65.5
51.4
26.1
108.5
609.1
2015
£m
257.3
60.4
74.6
58.5
35.8
20.9
97.5
605.0
2014
£m
244.9
63.1
71.2
59.9
37.6
22.9
107.1
606.7
USA
France
UK
Germany
Sweden
Netherlands
Others
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the consolidated financial statements continued
Year ended 31 December 2015
3. Operating profit
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administration expenses*
Other operating income / (expenses)
Headline operating profit
Amortisation of acquired intangible fixed assets*
Operating profit prior to exceptional items
Exceptional items*
Operating profit
* Administration and exceptional expenses total £118.0m (2014: £106.2m).
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
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 - recognised in exceptional items
Impairment of fixed assets - recognised in operating profit
Impairment of other assets - recognised in exceptional items
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
Audit related assurance services*
Taxation compliance services
Total non-audit fees
2015
£m
567.2
(359.0)
208.2
4.1
(18.5)
(93.8)
2.1
102.1
(4.2)
97.9
(20.0)
77.9
2015
£m
–
20.0
20.0
2015
£m
0.4
44.5
48.8
5.0
(2.1)
220.3
1.3
9.0
–
0.5
2015
£m
0.1
0.6
0.7
0.1
0.1
0.2
0.9
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
0.6
0.7
0.1
0.1
0.2
0.9
In addition to the amounts shown above, the auditor received fees of £5,900 (2014: £5,750) 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.
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.
*This includes £0.1m (2014: £0.1m) for the review of the half year report.
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Year ended 31 December 2015
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
2015
Number
2014
Number
940
884
27
1,895
912
773
209
29
5,669
2015
£m
185.9
27.1
7.3
220.3
976
943
24
1,963
927
812
193
29
5,867
2014
£m
198.5
29.6
6.8
234.9
Included in wages and salaries are share-based payments resulting in a credit of £0.4m (2014: £1.9m charge).
Included in other pension costs are £6.0m relating to defined contribution schemes (2014: £5.6m) and £1.3m relating to defined benefit
schemes (2014: £1.2m).
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 54 to 73 and form part of these financial
statements.
5. Exceptional items
Reorganisation costs
Profit on disposal of subsidiaries (see note 25)
Acquisition costs
2015
£m
23.8
(3.8)
–
20.0
2014
£m
–
–
0.2
0.2
Reorganisation costs of £23.8m (2014: £nil) relate to restructuring initiatives in Europe, Brazil, USA and India. This has been driven by
the fall in global oil prices along with widespread weakness in industrial production, both of which have coincided to cause a notable
fall in demand for many types of industrial equipment and machinery, affecting a number of plants.
Reorganisation costs include £11.9m of net restructuring charges (see note 23) and £2.4m of net restructuing environmental charges
(see note 23), together with asset impairments amounting to £9.5m (see note 3).
Restructuring initiatives announced during the first half of the year and their associated costs have been reviewed during the second
half. As a result of this review and the decision to expand the scope of the restructuring actions, there has been a net increase of
£0.1m to the total exceptional items reported at 30 June 2015.
Bodycote Brazil was sold on 25 September 2015 and Bodycote India was sold on 11 September 2015. Further details are disclosed in
note 25. No acquisition costs have been expensed in the year (2014: £0.2m).
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Year ended 31 December 2015
6.
Investment revenue
Interest on bank deposits
Total interest and investment revenue
All investment revenue relates to bank balances and other receivables.
7. 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.
8. Taxation
Current taxation - charge for the year
Current taxation - adjustments in respect of previous years
Deferred tax (see note 20)
2015
£m
0.1
0.1
2015
£m
0.4
0.4
0.3
2.3
3.0
2015
£m
22.3
(0.1)
(3.4)
18.8
UK corporation tax is calculated at 20.25% (2014: 21.50%) 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 20.25% (2014: 21.50%)
Tax effect of income that is not taxable in determining taxable profit
Deferred tax (assets) / liabilities 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 £0.2m (2014: credit of £1.0m).
Tax on exceptional items and amortisation of acquired intangible fixed assets is £5.4m (2014: £0.1m).
9. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2014 of 9.8p (2013: 9.1p) per share
Special dividend for the year ended 31 December 2014 of 20.0p (2013: 10.0p) per share
Interim dividend for the year ended 31 December 2015 of 4.8p (2014: 4.6p) per share
Proposed final dividend for the year ended 31 December 2015 of 10.3p (2014: 9.8p) per share
Proposed special dividend for the year ended 31 December 2015 of 10.0p (2014: 20.0p) per share
2015
£m
75.0
15.2
(6.0)
(1.5)
0.1
0.2
10.8
18.8
2015
£m
18.7
38.2
9.1
66.0
19.6
19.0
2014
£m
0.1
0.1
2014
£m
0.3
0.3
0.6
2.5
3.4
2014
£m
30.4
(7.1)
1.1
24.4
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
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.
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Year ended 31 December 2015
10. 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
2015
£m
2014
£m
56.2
79.4
Number
Number
189,991,657
190,243,625
–
–
Weighted average number of ordinary shares for the purpose of diluted earnings per share
189,991,657
190,243,625
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
11. Goodwill
Cost
At 1 January
Exchange differences
Recognised on acquisition of subsidiaries
Derecognised on disposal of subsidiaries
At 31 December
Accumulated impairment
At 1 January
Exchange differences
Derecognised on disposal of subsidiaries
At 31 December
Carrying amount
Pence
Pence
29.6
29.6
£m
56.2
3.2
–
15.6
75.0
41.7
41.7
£m
79.4
3.8
0.2
–
83.4
Pence
Pence
39.5
39.5
2015
£m
207.4
(0.6)
–
(6.2)
200.6
69.0
(2.2)
(6.2)
60.6
43.8
43.8
2014
£m
205.1
0.9
1.4
–
207.4
69.4
(0.4)
–
69.0
140.0
138.4
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Bodycote plc annual report for the year ended 31 December 2015
Notes to the consolidated financial statements continued
Year ended 31 December 2015
11. 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
Emerging markets
AGI:
Western Europe
North America
Emerging markets
2015
£m
26.4
46.2
–
18.1
43.7
5.6
140.0
2014
£m
26.5
45.4
–
18.6
42.1
5.8
138.4
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 and growth rates 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 12.4% (2014: 12.3%) and 13.4% (2014: 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% (2014: 3.0%), 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
43.6
43.6
Long term
growth rate
%
3.2
3.2
Discount
rate
%
12.4
12.4
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 11.2% 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 32.1 percentage points and 6.9 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 2015.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
12. Other intangible assets
Cost
At 1 January 2014
Exchange differences
Additions
Acquired on acquisition of subsidiaries
Disposals
At 1 January 2015
Exchange differences
Additions
Disposals
Derecognised on disposal of subsidiaries
At 31 December 2015
Amortisation
At 1 January 2014
Exchange differences
Charge for the year
Disposals
At 1 January 2015
Exchange differences
Charge for the year
Impairment loss
Disposals
Derecognised on disposal of subsidiaries
At 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
Non
compete
agreements
£m
Customer
relationships
£m
Software
£m
20.2
(0.3)
4.1
–
(0.2)
23.8
(0.2)
5.6
(0.4)
–
28.8
12.4
(0.2)
0.9
(0.2)
12.9
(0.2)
0.9
0.1
(0.4)
–
13.3
15.5
10.9
2.9
–
–
–
–
2.9
–
–
–
–
2.9
0.8
–
0.7
–
1.5
–
0.8
–
–
–
2.3
0.6
1.4
32.6
1.4
–
1.2
–
35.2
0.8
–
–
(1.0)
35.0
10.3
0.3
3.2
–
13.8
(0.2)
3.3
–
–
(1.0)
15.9
19.1
21.4
Total
£m
55.7
1.1
4.1
1.2
(0.2)
61.9
0.6
5.6
(0.4)
(1.0)
66.7
23.5
0.1
4.8
(0.2)
28.2
(0.4)
5.0
0.1
(0.4)
(1.0)
31.5
35.2
33.7
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the consolidated financial statements continued
Year ended 31 December 2015
13. 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 2014
Additions
Acquisition of businesses
Exchange differences
Recategorisation
Disposals
At 1 January 2015
Additions
Exchange differences
Transfer to assets held for sale
Recategorisation
Disposals
Disposal of subsidiaries
At 31 December 2015
Accumulated depreciation and
impairment
At 1 January 2014
Charge for the year
Impairment losses incurred
Exchange differences
Recategorisation
Eliminated on disposals
At 1 January 2015
Charge for the year
Impairment losses incurred
Exchange differences
Transfer to assets held for sale
Recategorisation
Eliminated on disposals
Eliminated on disposal of subsidiaries
At 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
220.6
1.0
–
(8.4)
2.1
(1.2)
214.1
0.9
(3.5)
(1.4)
6.5
(0.9)
(1.8)
213.9
85.8
5.8
0.2
(3.7)
–
(1.1)
87.0
5.7
1.7
(2.2)
(1.1)
3.3
(0.6)
(1.8)
92.0
121.9
127.1
2.7
0.3
–
–
4.5
–
7.5
2.0
(0.1)
–
0.9
(0.1)
(0.7)
9.5
1.5
0.4
–
–
2.3
–
4.2
0.6
0.5
–
–
–
(0.1)
(0.5)
4.7
4.8
3.3
14.1
0.2
–
(0.3)
(4.1)
(0.2)
9.7
0.2
(0.4)
–
(0.2)
(0.1)
(0.3)
8.9
7.9
0.6
0.1
(0.2)
(2.3)
–
6.1
0.6
0.1
(0.3)
–
(0.1)
–
(0.3)
6.1
2.8
3.6
751.0
16.6
0.9
(21.2)
24.2
(16.6)
754.9
15.5
(9.6)
–
25.3
(21.2)
(12.1)
752.8
486.1
41.8
2.2
(15.8)
1.3
(14.5)
501.1
40.2
6.2
(7.8)
–
(0.2)
(18.7)
(11.3)
509.5
243.3
253.8
29.6
1.0
–
(1.2)
0.5
(0.8)
29.1
0.9
(1.0)
–
(1.2)
(1.8)
(0.9)
25.1
24.2
1.7
0.2
(1.0)
–
(0.8)
24.3
1.7
0.5
(0.9)
–
(3.0)
(1.8)
(0.9)
19.9
5.2
4.8
Total
£m
1,051.4
55.3
1.1
(31.4)
–
(19.1)
1,057.3
61.1
(15.0)
(1.4)
–
(24.4)
(15.8)
33.4
36.2
0.2
(0.3)
(27.2)
(0.3)
42.0
41.6
(0.4)
–
(31.3)
(0.3)
–
51.6
1,061.8
1.3
–
–
–
(1.3)
–
–
–
–
–
–
–
–
–
–
51.6
42.0
606.8
50.3
2.7
(20.7)
–
(16.4)
622.7
48.8
9.0
(11.2)
(1.1)
–
(21.2)
(14.8)
632.2
429.6
434.6
The carrying amount of leased assets is £nil (2014: £nil).
At 31 December 2015 the Group had entered into contractual commitments for the acquisition of property, plant and equipment
amounting to £1.5m (2014: £5.6m).
In addition to the above, property, plant and equipment amounting to £1.2m (2014: £0.9m) has been classified as held for sale and is
disclosed within current assets.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
13. Property, plant and equipment (continued)
The Group restructured various operations during the year and identified £9.0m of asset impairments. Asset impairments broken down
by business segment are as follows:
ADE:
Western Europe
North America
Emerging markets
AGI:
Western Europe
North America
Emerging markets
2015
£m
0.4
–
–
2.4
0.3
5.9
9.0
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.
14. Subsidiaries and other investments
A list of investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is given on
pages 135 to 137.
Sundry investments
2015
£m
0.2
The sundry investments relate to the Bodycote Investment Incentive Plan, as explained in the Board report on remuneration.
15. Inventories
Raw materials
Work-in-progress
Finished goods and goods for resale
16. 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
–
2014
£m
12.3
8.3
0.3
20.9
2014
£m
92.1
16.9
109.0
2015
£m
11.4
7.8
0.3
19.5
2015
£m
90.6
15.1
105.7
0.4
1.6
* Other financial assets include prepayments of £6.7m (2014: £6.4m), 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 2015 is 62 days (2014: 60 days). An
allowance has been made for estimated irrecoverable amounts from the supply of services of £5.9m (2014: £5.5m). 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.
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Year ended 31 December 2015
16. 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 19.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £19.4m (2014: £17.2m) 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 37 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
Allowance disposed with subsidiaries
Exchange differences
At 31 December
2015
£m
11.5
5.5
0.9
1.5
19.4
2015
£m
5.5
2.4
(0.4)
(1.1)
(0.2)
(0.3)
5.9
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
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 £8.6m (2014: £8.3m).
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
2015
£m
0.9
3.4
4.3
8.6
2014
£m
1.8
2.0
4.5
8.3
107
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Year ended 31 December 2015
16. 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
Euro
US Dollar
Swedish Krona
Chinese Yuan
Czech Republic Koruna
Turkish Lira
Mexican Peso
Polish Zloty
Romanian Leu
Canadian Dollar
Swiss Franc
Brazilian Real
Danish Krone
Indian Rupee
Other
Total cash and bank balances
17. Assets held for sale
Assets held for sale comprise the following:
Property, plant and equipment
2015
£m
5.2
4.0
3.8
1.3
0.4
0.3
0.2
0.2
0.2
0.1
0.1
0.1
–
–
–
0.3
16.2
2015
£m
1.2
2014
£m
25.6
2.4
7.6
0.6
0.1
0.1
–
0.3
0.2
0.2
0.1
0.1
0.1
0.1
0.4
0.6
38.5
2014
£m
0.9
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 2016. The assets held for sale are analysed between operating segments as follows:
ADE:
North America
AGI:
Western Europe
18. 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
2015
£m
0.7
0.5
1.2
2015
£m
3.8
3.8
(3.8)
–
2014
£m
0.7
0.2
0.9
2014
£m
2.5
2.5
(2.5)
–
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the consolidated financial statements continued
Year ended 31 December 2015
18. Borrowings (continued)
Analysis of borrowings by currency:
At 31 December 2015
Bank overdrafts
At 31 December 2014
Bank overdrafts
The weighted average interest rates paid were as follows:
Bank overdrafts and loans
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.
Euro
£m
US Dollar
£m
Other
currencies
£m
Total
£m
0.1
0.2
1.5
2.2
3.8
0.5
1.8
2.5
2015
%
2.2
2015
£m
3.8
2014
%
3.8
2014
£m
2.5
(ii) At 31 December 2015 the Group’s principal borrowing facility had drawings of £nil (2014: £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 2015 was 1.05%).
At 31 December 2015 the Group had available £230.0m (2014: £230.0m) of undrawn committed borrowing facilities. All borrowings are
classified as financial liabilities measured at amortised cost.
19. 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
2015
£m
3.8
3.8
Fair
value
2015
£m
–
–
Notional
amount
2014
£m
5.6
5.6
Fair
value
2014
£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 2015 or 2014.
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).
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
19. 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
2015
£m
0.1
0.1
Euro
2014
£m
(0.4)
(0.4)
US Dollar
2015
£m
2.5
2.5
US Dollar
2014
£m
1.1
1.1
Other
currencies
2015
£m
Total
fair value
2015
£m
(2.6)
(2.6)
–
–
Other
currencies
2014
£m
Total
fair value
2014
£m
(0.7)
(0.7)
–
–
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 2015, the Group had a revolving credit committed borrowing facility of £230.0m (2014: £230.0m) which, together
with net cash of £12.3m (2014: £35.7m), resulted in available funds of £242.3m (2014: £265.7m). 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 2015 the Group’s principal committed bank facilities have the following maturity dates:
■■ £230m Revolving Credit Facility 3 July 2019 (3.5 years)
■■ $10m Letter of Credit Facility 31 August 2016 (0.7 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 2015, the
Group had gross cash of £16.2m (2014: £38.5m).
110
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the consolidated financial statements continued
Year ended 31 December 2015
19. 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 2015, 4% of gross debt and 0% of gross cash were at fixed rates (2014: 9% of gross debt, 0% of gross cash). The
average tenure of the fixed rate debt was 1.2 years (2014: 2.2 years).
Currency risk
Bodycote has operations in 24 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.
91% of the Group’s sales are in currencies other than sterling (EUR 35%, USD 37% and SEK 7%). Cumulatively over the year, sterling
rates moved such that the sales for the year were £16.9m lower than if sales had been translated at the rates prevailing in 2014.
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
91% 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
To represent management’s best estimate of a reasonable range of potential outcomes, 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 2015, 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 2015 would reduce or increase profit before tax by approximately £0.1m (2014: £0.4m).
There is no significant impact on equity in the current or previous year.
Currency sensitivity
Taking the 2015 sales by currency, a 10% weakening / strengthening in the 2015 cumulative average rates for all currencies versus sterling
would have given rise to a +£57.4m / -£46.9m 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 2015 operating profit mix, a 10% weakening / strengthening in
2015 cumulative average rates for all currencies would have given rise to a +£10.9m / -£8.9m 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.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
20. 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 2014
Charge / (credit) to income
Credit to equity
Acquisition of subsidiaries
Transfers*
Exchange differences
Effect of change in tax rate:
Income statement
At 1 Januray 2015
(Credit) / charge to income
Credit to equity
Transfers*
Exchange differences
Effect of change in tax rate:
Income statement
At 31 December 2015
41.8
(0.2)
–
0.1
10.0
(0.7)
–
51.0
(4.1)
–
1.9
0.4
0.1
49.3
(3.7)
1.2
–
–
(0.2)
0.1
0.1
(2.5)
(0.7)
–
–
0.1
–
(3.1)
(5.2)
(0.4)
(1.0)
–
1.1
0.3
–
(5.2)
–
(0.2)
–
0.1
–
(5.3)
The following is the analysis of the deferred tax balances for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
(0.7)
0.5
–
0.3
(9.4)
(0.4)
(0.1)
(9.8)
1.4
–
(1.3)
(0.4)
(0.1)
(10.2)
2015
£m
61.9
(31.2)
30.7
32.2
1.1
(1.0)
0.4
1.5
(0.7)
–
33.5
(3.4)
(0.2)
0.6
0.2
–
30.7
2014
£m
60.7
(27.2)
33.5
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 £40.1m (2014: £71.7m) available for offset against future profits. A
deferred tax asset has been recognised in respect of £14.1m (2014: £10.4m) 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 £26.0m (2014: £61.3m) 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 £nil (2014: £0.2m) 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
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Bodycote plc annual report for the year ended 31 December 2015
Notes to the consolidated financial statements continued
Year ended 31 December 2015
21. 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
2015
£m
0.1
–
0.1
–
0.1
2014
£m
0.1
0.2
0.3
–
0.3
2015
£m
0.1
–
0.1
–
0.1
0.1
0.1
0.1
2014
£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 1.2 years. For the year ended 31 December 2015, the average effective borrowing rate was 8.0%
(2014: 8.0%). 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.
22. 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
2015
£m
36.0
13.9
10.6
50.6
111.1
2014
£m
38.8
15.1
10.4
55.0
119.3
2.5
3.7
* 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 2015 is 41 days (2014: 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.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
22. 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
2015
£m
123.6
0.1
3.8
3.3
130.8
Less than
1 year
2014
£m
126.2
0.1
2.5
5.6
134.4
1–2 years
2015
£m
2–5 years
2015
£m
5+ years
2015
£m
3.2
–
–
0.5
3.7
3.4
–
–
–
3.4
4.7
–
–
–
4.7
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
Total
2015
£m
134.9
0.1
3.8
3.8
142.6
Total
2014
£m
140.3
0.3
2.5
5.6
148.7
* 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 £3.8m (2014: £2.5m) bank loans and overdrafts outflows disclosed above, £nil (2014: £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 £3.8m (2014: £5.6m) derivative financial instruments outflows disclosed above, £3.8m (2014: £5.6m)
are matched by derivative cash inflows, therefore the net impact on the balance sheet is £nil (2014: £nil).
23. Provisions
At 1 January 2015
Increase in provision
Release of provision
Utilisation of provision
Exchange difference
At 31 December 2015
Included in current liabilities
Included in non-current liabilities
Restructuring
£m
Restructuring
Environmental
£m
Environmental
£m
3.3
15.6
(3.7)
(6.3)
(0.8)
8.1
6.1
2.7
(0.3)
(2.1)
0.2
6.6
7.9
–
(1.2)
(0.4)
0.3
6.6
Total
£m
17.3
18.3
(5.2)
(8.8)
(0.3)
21.3
12.5
8.8
21.3
The restructuring provision relates to the costs associated with the closure of a number of Heat Treatment sites. The net increase in
restructuring and restructuring environmental provisions of £14.3m relates to costs associated with the Group’s withdrawal from Brazil,
together with new restructuring initiatives announced, primarily in Europe. Asset impairments of £9.5m have also been recognised.
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 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.
114
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the consolidated financial statements continued
Year ended 31 December 2015
24. Share capital
Issued and fully paid:
2015
£m
2014
£m
191,456,172 (2014: 191,456,172) ordinary shares of 17 ³/11p each
33.1
33.1
25. Disposal of subsidiaries
On 30 June 2015, the Group announced its decision to withdraw from its operations in Brazil. Subsequent to this decision, on 25
September 2015, the Group sold 100% of its interest in Bodycote Brasimet Processamento Termico Ltda (“Bodycote Brazil”). The
decision to exit the Group’s activities in Brazil is the consequence of a prolonged and substantial reduction in demand in the business’s
core markets.
During the year, Bodycote Brazil contributed £4.0m (2014: £7.7m) to Group revenue and contributed a headline operating loss of £1.8m
to Group results (2014: loss of £2.9m). Closure costs incurred during the year were £6.4m (2014: £nil). Bodycote Brazil is disclosed
within the Emerging Markets - AGI operating segment.
On 11 September 2015, the Group also sold 100% of its interest in Bodycote Metallurgical Services India Pvt. Ltd (“Bodycote India”)
due to the company delivering returns below those considered acceptable to the Group. During the year, Bodycote India contributed
£1.0m (2014: £1.4m) to Group revenue and contributed a headline operating loss of £0.2m (2014: loss of £0.2m) to Group results.
Bodycote India is disclosed within the Emerging Markets - AGI operating segment.
The net assets of both subsidiaries at the date of disposal were as follows:
Property, plant and equipment
Trade and other receivables
Inventories
Trade and other payables
Net (liabilities) / assets on date of disposal
Cash consideration
Disposal costs
Cumulative exchange differences recycled on disposal
Profit / (loss) on disposal of subsidiaries recognised in exceptional
items (see note 5)
Net cash (outflow) / inflow arising on disposal:
Cash consideration net of disposal costs
Bodycote
Brazil
£m
Bodycote
India
£m
Other
£m
Group
Total
£m
–
1.0
0.1
(1.4)
(0.3)
–
(0.1)
3.8
4.0
(0.1)
1.0
0.4
–
–
1.4
1.8
(0.1)
(0.7)
(0.4)
1.7
–
–
–
–
–
–
–
0.2
0.2
–
1.0
1.4
0.1
(1.4)
1.1
1.8
(0.2)
3.3
3.8
1.6
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
26. 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
Impairment of other assets
Profit on sale of subsidiaries
EBITDA*
Decrease / (increase) in inventories
Decrease / (increase) in receivables
Decrease in payables
Increase in provisions
Cash generated by operations
Income taxes paid
Net cash from operating activities
2015
£m
56.2
(0.1)
3.0
18.8
48.8
5.0
(2.1)
(0.4)
9.0
0.5
(3.8)
134.9
0.7
0.9
(6.3)
4.3
134.5
(23.2)
111.3
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
* Earnings before interest, tax, depreciation, amortisation, impairment of fixed assets and other assets, profit or loss on disposal of property, plant and
equipment, profit on sale of subsidiaries and share-based payments.
Cash and cash equivalents comprise:
Cash and bank balances
Bank overdrafts (included in borrowings)
27. Operating lease arrangements – the Group as lessee
Minimum lease payments under operating leases recognised as an expense
2015
£m
16.2
(3.8)
12.4
2015
£m
14.6
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
2015
£m
12.2
26.4
16.5
55.1
2014
£m
38.5
(2.5)
36.0
2014
£m
15.9
2014
£m
11.6
24.7
12.2
48.5
Operating lease payments represent rentals payable by the Group for certain of its land and buildings, fixtures and fittings and motor
vehicles.
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Bodycote plc annual report for the year ended 31 December 2015
Notes to the consolidated financial statements continued
Year ended 31 December 2015
28. 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
Average fair value of share awards granted during
the year at date of grant (pence)
BIP
2015
2,322,260
702,072
(706,394)
(313,942)
CIP
2015
186,791
38,688
(60,239)
–
BIP
2014
2,949,936
609,981
(1,027,355)
(210,302)
CIP
2014
176,934
52,312
(42,455)
–
2,003,996
165,240
2,322,260
186,791
723.3
331.0
713.3
337.0
Fair value of awards granted during the year (£)
5,078,087
128,057
4,350,994
176,291
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
%
2015
765.7
nil
3.0
1.9
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
%
%
2015
748.5
nil
26.0
3.0
0.9
1.9
2014
752.8
nil
3.0
1.8
2014
746.0
nil
35.3
3.0
1.2
1.8
The Group recognised a total credit to the income statement of £0.4m (2014: charge of £1.9m) related to equity-settled share-based
payment transactions.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
29. 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
2015
£m
1.6
0.1
1.7
2014
£m
2.0
1.2
3.2
Further information about the remuneration of the individual directors is provided in the Board Report on Remuneration on pages
54 to 73.
30. 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 £6.0m (2014: £5.6m) represents contributions payable to these schemes by the Group at rates
specified in the rules of the plans. As at 31 December 2015 contributions of £0.3m (2014: £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
2015
£m
2.7
15.2
17.9
2015
£m
1.0
0.9
1.9
2014
£m
1.0
16.0
17.0
2014
£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.
118
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the consolidated financial statements continued
Year ended 31 December 2015
30. 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, two employer representatives 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 Group.
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 was completed by
a qualified independent actuary and the results of this have been updated on an approximate basis to 31 December 2015.
The contributions made by the employer over the financial year have been £1.6m, comprising £0.4m in respect of benefit accrual and
£1.2m 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.
As the Group does not have an unconditional right to a return of any surplus in the Scheme under the wording of the Scheme Rules,
the additional reporting requirements of IFRIC14 apply. Under IFRIC14 the Group is required to recognise additional liabilities of £4.2m
as at 31 December 2015 due to the restriction imposed on the surplus in the Scheme at that date and the future contributions agreed
at the 6 April 2014 actuarial valuation that the Group will pay to the Scheme. It has not been necessary to recognise additional liablities
in previous years due to the funding position of the Scheme on an IAS19 basis.
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 (gains) / 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
2015
£m
103.3
0.7
3.3
0.2
–
(2.3)
–
(5.3)
99.9
2015
£m
102.3
3.3
(0.4)
(0.3)
1.6
0.2
(5.3)
101.4
2015
£m
0.7
–
0.3
1.0
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
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
30. Retirement benefit schemes (continued)
UK Scheme (continued)
Assets
Equities
Bonds
Cash
Diversified growth funds
2015
Quoted
£m
2015
Unquoted
£m
2014
Quoted
£m
2014
Unquoted
£m
13.3
53.9
3.5
22.5
93.2
–
7.8
–
0.4
8.2
17.6
60.4
0.3
20.0
98.3
–
4.0
–
–
4.0
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
2015
% per
annum
3.20
2.40
3.00
3.50
2.37
2.40
2014
% per
annum
3.10
2.30
3.00
3.30
2.36
2.30
2015
S2PxA YoB
CMI 2013
1.5% long
term trend
2014
S2PxA YoB
CMI 2013
1.5% long
term trend
22.7
22.6
2015
S2PxA YoB
CMI 2013
1.5% long
term trend
2014
S2PxA YoB
CMI 2013
1.5% long
term trend
24.9
24.8
2015
Members
commute 75%
of maximum
permitted
2014
Members
commute 75%
of maximum
permitted
The weighted average duration of the defined benefit obligation as at 31 December 2015 is approximately 18 years
(31 December 2014: 18 years).
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the consolidated financial statements continued
Year ended 31 December 2015
30. Retirement benefit schemes (continued)
UK Scheme (continued)
Present value of defined benefit obligations, fair value of assets and deficit
Present value of defined benefit obligation
Fair value of plan assets
(Surplus) / deficit in the scheme
Adjustment relating to minimum funding requirements
Net defined benefit liability before deferred tax
2015
£m
99.9
(101.4)
(1.5)
4.2
2.7
2014
£m
103.3
(102.3)
1.0
–
1.0
As all actuarial gains and losses are recognised, the deficit shown above at 31 December 2015 is that recognised in the balance sheet.
As the Group does not have an unconditional right to a return of any surplus in the Scheme under the wording of the Scheme Rules,
the additional reporting requirements of IFRIC14 apply. Under IFRIC14 the Group is required to recognise additional liabilities of £4.2m
as at 31 December 2015 due to the restriction imposed on the surplus in the Scheme at that date and the future contributions agreed
at the 6 April 2014 actuarial valuation that the Group will pay to the Scheme. It has not been necessary to recognise additional liabilities
in previous years due to the funding position of the Scheme on an IAS19 basis.
The best estimate of contributions to be paid into the plan for the year ending 31 December 2016 is £4.4m.
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
Charge due to minimum funding obligations
Total (loss) / gain recognised in Other Comprehensive Income
Impact of changes to assumptions
2015
£m
–
(0.4)
2.3
–
(4.2)
(2.3)
2014
£m
2.0
19.9
(19.6)
1.2
–
3.5
0.25% change in discount rate
0.25% change in discount rate
0.25% change in price inflation (and associated assumptions)
0.25% change in price inflation (and associated assumptions)
1 year change in life expectancy at age 65
1 year change in life expectancy at age 65
Combined non-UK disclosures
The Group operates schemes in the USA and continental Europe.
2015
2014
Increase
£m
Decrease
£m
Increase
£m
Decrease
£m
(4.6)
4.6
1.9
(1.9)
3.6
(3.6)
4.6
(4.6)
(1.9)
1.9
(3.6)
3.6
(4.8)
4.8
2.1
(2.1)
3.7
(3.7)
4.8
(4.8)
(2.1)
2.1
(3.7)
3.7
In Europe the Group operates defined benefit pension, post retirement and long-service arrangements for certain employees in 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 arising from changes in financial assumptions
Experience gains on liabilities
Benefits paid, death in service insurance premiums and expenses
Employee contributions
Exchange rate gain
Defined benefit obligation at end of year
2015
£m
26.2
0.6
0.6
–
0.3
(1.0)
(1.2)
0.1
–
25.6
2014
£m
23.0
0.6
0.7
0.1
3.2
–
(0.4)
0.1
(1.1)
26.2
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2015
30. Retirement benefit schemes (continued)
Combined non-UK disclosures (continued)
Reconciliation of opening and closing balances of the fair value of plan assets
Fair value of assets at start of year
Interest income
(Costs to) / return on scheme assets excluding interest income
Contributions by employer
Contributions by employees
Benefits paid, death in service insurance premiums and expenses
Exchange rate gain / (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
Total expenses
Assets
Equities
Bonds
Cash
Insurance contracts
2015
£m
10.2
0.3
(0.1)
0.2
0.1
(0.8)
0.5
10.4
2015
£m
0.6
0.3
0.9
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
2015
Quoted
£m
2015
Unquoted
£m
2014
Quoted
£m
2014
Unquoted
£m
1.9
0.1
1.5
–
3.5
–
–
0.1
6.8
6.9
1.8
0.1
1.5
–
3.4
–
–
0.1
6.7
6.8
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 2015
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
2.5
n/a
2.5
3.0
4.5
4.5
2.0
2.4
1.9
10.0
0.9
0.9
n/a
n/a
1.8
n/a
1.5
6.0
n/a
n/a
n/a
n/a
1.5
1.8
n/a
n/a
n/a
n/a
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the consolidated financial statements continued
Year ended 31 December 2015
30. Retirement benefit schemes (continued)
Combined non-UK disclosures (continued)
Duration
The weighted average durations of the defined benefit obligations of the overseas schemes at 31 December 2015 range from 11 years
to 19 years. The durations ranged from 11 years to 16 years as at 31 December 2014.
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
2015
£m
25.6
(10.4)
15.2
2014
£m
26.2
(10.2)
16.0
As all actuarial gains and losses are recognised, the deficit shown above at 31 December 2015 is that recognised in the balance sheet.
Amounts recognised in Other Comprehensive Income
Gain from experience on plan liabilities
(Costs to) / 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
2015
£m
1.0
(0.1)
(0.3)
–
0.6
2014
£m
–
0.3
(3.2)
(0.1)
(3.0)
The only funded plans are those operated in USA, Switzerland and Liechtenstein. The best estimate of contributions to be paid into the
plans for the year ending 31 December 2016 is £0.3m.
Sensitivities (changes to total defined benefit obligations)
2015
2014
Increase
£m
Decrease
£m
Increase
£m
Decrease
£m
0.25% change in discount rate
0.25% change in price inflation (and associated assumptions)
(0.9)
0.4
0.9
(0.4)
(1.0)
0.5
1.0
(0.5)
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.
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123
GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements 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)
2015
£m
567.2
102.1
(4.2)
97.9
–
–
–
(20.0)
77.9
(2.9)
75.0
(18.8)
56.2
–
56.2
39.5
15.1
10.0
175.2
429.6
(67.5)
537.3
33.1
516.1
549.2
0.4
(12.3)
537.3
286.9
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
570.7
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
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
19.0
20.7
19.9
17.9
16.3
124
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Bodycote plc annual report for the year ended 31 December 2015 Company statement of financial position
At 31 December 2015
Fixed assets
Intangible fixed assets
Tangible fixed assets
Investments
Receivables
Current assets
Receivables
Current liabilities
Payables
Net current assets / (liabilities)
Total assets less current liabilities
Payables: Amounts falling due after more than one year
Retirement benefit obligations
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other reserves
Profit and loss account
Shareholders’ funds
2015
£m
2014
(Restated)
£m
Note
2
3
4
5
5
6
6
11
8
14.1
0.3
395.0
3.5
412.9
10.8
10.8
(7.2)
3.6
416.5
(17.2)
(2.7)
396.6
33.1
177.1
124.2
62.2
396.6
9.5
0.4
392.6
5.0
407.5
7.9
7.9
(9.1)
(1.2)
406.3
(7.1)
(1.0)
398.2
33.1
177.1
128.9
59.1
398.2
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue on
25 February 2016.
They were signed on its behalf by:
S.C. Harris
Director
D.F. Landless
Director
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Company statement of changes in equity
For the year ended 31 December 2015
1 January 2014 (restated, see note 13)
Profit for the year
Actuarial gains on defined benefit pension schemes net of
deferred tax
Other comprehensive income
Total comprehensive income for the year
Dividends paid
Share-based payments
Acquisition of own shares
Settlement of share options
31 December 2014 (restated)
Profit for the year
Actuarial loss on defined benefit pension schemes net of
deferred tax
Other comprehensive income
Total comprehensive income for the year
Dividends paid
Share-based payments
Acquisition of own shares
Settlement of share options
Other
reserves
£m
Profit and
loss account
£m
Called-up
share
capital
£m
33.1
–
Share
premium
account
£m
177.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
133.9
–
–
–
–
–
1.8
(7.0)
0.2
33.1
–
177.1
–
128.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.4)
(6.7)
2.4
Total
£m
401.6
43.0
3.0
(0.6)
45.4
(45.2)
1.8
(7.0)
1.6
398.2
71.6
(1.4)
(0.5)
69.7
(66.0)
(0.4)
(6.7)
1.8
396.6
57.5
43.0
3.0
(0.6)
45.4
(45.2)
–
–
1.4
59.1
71.6
(1.4)
(0.5)
69.7
(66.0)
–
–
(0.6)
62.2
31 December 2015
33.1
177.1
124.2
Details of dividends paid are set out in note 9 to the consolidated financial statements.
Details of share-based payment transactions are set out in note 28 of the consolidated financial statements.
The other reserves are stated after deducting £9.2m (2014: £7.1m) 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 2015 1,464,515 (2014: 1,212,547) 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 £8.3m (2014: £7.9m).
Included in other reserves is the capital redemption reserve of £129.8m (2014: £129.8m).
126
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Bodycote plc annual report for the year ended 31 December 2015 Company accounting policies
Accounting convention
The financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS
101) and in accordance with applicable accounting standards. The financial statements have been prepared under the historical cost
convention and in accordance with applicable law. 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.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to
share-based payments, financial instruments, capital management, presentation of a cash flow statement, presentation of comparative
information in respect of certain assets, standards not yet effective, impairment of assets, business combinations, discontinued operations
and related party transactions.
Where required, equivalent disclosures are given in the consolidated financial statements.
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, if any.
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
The Company participates in a final salary defined benefit pension scheme in the United Kingdom which is funded by the payment of
contributions to a separately administered trust fund. This is a defined benefit plan which shares the risks between entities under common
control. For further details, see note 11.
There is no contractual arrangement or policy for charging the net benefit cost between the entities who participate in this scheme. The
Company is considered to be the entity that is legally the sponsoring employer of this scheme. As such, the Company recognises the net
defined benefit cost and the retirement benefit obligation as per the requirements of IAS 19 Employee Benefits, as described in further
detail in the accounting policies of the consolidated financial statements on page 88.
For defined contribution schemes, the amount charged to the profit and loss account in respect of pension costs is the contributions
payable in the year.
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.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Company accounting policies continued
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
10% to 20%
Intangible fixed assets
Intangible fixed assets are stated at cost net of amortisation and any provision for impairment. Amortisation is provided on a straight-line
basis over their estimated useful lives, at the following annual rates:
Software
10% to 33%
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.
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 IFRS 2 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.
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 causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year relevant to the
Company financial statements are included within the Group considerations on page 86.
128
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Bodycote plc annual report for the year ended 31 December 2015 Notes to the company financial statements
Year ended 31 December 2015
1. Profit for the year
Bodycote plc reported a profit for the financial year ended 31 December 2015 of £71.6m (2014 restated, see note 13: £43.0m).
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 54 to 73 and form part of these financial
statements.
2.
Intangible fixed assets
Cost
At 1 January 2015
Additions
At 31 December 2015
Amortisation
At 1 January 2015
Charge for the year
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
3. Tangible fixed assets
Cost
At 1 January 2015
Disposals
At 31 December 2015
Depreciation
At 1 January 2015
Charge for the year
Disposals
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
Software
£m
14.6
5.1
19.7
5.1
0.5
5.6
14.1
9.5
Fixtures
and fittings
£m
1.3
(0.5)
0.8
0.9
0.1
(0.5)
0.5
0.3
0.4
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the company financial statements continued
Year ended 31 December 2015
4.
Investments
Cost
At 1 January 2015
Acquisitions
Disposals
At 31 December 2015
Provision for impairment
At 1 January 2015
Provision in the year
Disposals
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
5. Receivables
Amounts falling due within one year:
Amounts owed by subsidiary undertakings
Corporation tax recoverable
Other receivables and prepayments
Amounts falling due after more than one year:
Amounts owed by subsidiary undertakings
Deferred taxation (note 7)
Other receivables
6. Payables
Amounts falling due within one year:
Trade payables
Amounts owed to subsidiary undertakings
Other taxes and social security
Other payables
Accruals and deferred income
Amounts falling due after more than one year:
Amounts owed to subsidiary undertakings
Shares
£m
400.0
2.7
(1.0)
401.7
7.4
0.1
(0.8)
6.7
395.0
392.6
2015
£m
2014
(Restated)
£m
0.6
4.2
6.0
10.8
2.7
0.8
–
3.5
14.3
2015
£m
1.6
0.5
0.5
1.5
3.1
7.2
17.2
0.4
2.1
5.4
7.9
3.1
1.2
0.7
5.0
12.9
2014
£m
0.5
0.8
1.1
2.8
3.9
9.1
7.1
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Bodycote plc annual report for the year ended 31 December 2015
7. Deferred tax asset
The following are the major deferred tax assets recognised by the Company and movements thereon during the current and prior
reporting period.
At 1 January 2014 (restated)
Credit to profit or loss
Charge to other comprehensive income (restated)
At 1 January 2015 (restated)
Charge to profit or loss
Credit to other comprehensive income
At 31 December 2015
Retirement
benefit
obligations
£m
Other timing
differences
£m
1.1
–
(0.9)
0.2
–
0.3
0.5
0.9
0.1
–
1.0
(0.7)
–
0.3
Total
£m
2.0
0.1
(0.9)
1.2
(0.7)
0.3
0.8
Deferred tax assets and liabilities are offset where the Company has a legally enforceable right to do so. The following is the analysis
of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax asset
8. Called-up share capital
Share capital:
Ordinary shares (allotted, called-up and fully paid)
At 1 January 2015
At 31 December 2015
2015
£m
0.8
2014
(Restated)
£m
1.2
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 28 to the consolidated
financial statements.
9. Contingent liabilities
The Company has guaranteed bank overdrafts, loans and letters of credit of certain subsidiary undertakings amounting to £7.8m (2014:
£5.4m).
10. Operating lease arangements - the Company as lessee
Minimum lease payments under operating leases recognised as an expense
2015
£m
0.3
2014
£m
0.4
At the balance sheet date, the Company 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
2015
£m
0.4
0.4
0.8
2014
£m
0.3
0.7
1.0
Operating lease payments represent rentals payable by the Company for its land and buildings and motor vehicles.
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements
Notes to the company financial statements continued
Year ended 31 December 2015
11. Pension commitments
The Company participates in a final salary defined benefit scheme, the details of which are disclosed in note 30 to the consolidated
financial statements. This is a defined benefit plan which shares the risks between entities under common control. There is no
contractual agreement or policy for charging the net benefit cost between entities who participate in this scheme. The Company is
considered to be the entity that is legally the sponsoring employer of this scheme. The net defined benefit cost and the retirement
benefit obligation are recognised as per the requirements of IAS 19 (revised) Employee Benefits. Full disclosures concerning the
scheme as required by IAS 19 (revised) are set out in note 30 to the consolidated financial statements.
The contributions made by the Company over the financial year to the defined contribution scheme amounted to £0.3m (2014: £0.3m).
As at 31 December 2015, contributions of £0.1m (2014: £0.1m) due in respect of the current reporting period had not been paid over to
the scheme.
12. 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.
13. Transition to FRS 101
For all periods up to and including the year ended 31 December 2014, the Company prepared its financial statements in accordance
with previously extant United Kingdom generally accepted accounting practice (UK GAAP). These financial statements, for the year
ended 31 December 2015, are the first the Company has prepared in accordance with FRS 101.
Accordingly, the Company has prepared individual financial statements which comply with FRS 101 applicable for periods beginning on
or after 1 January 2014 and the significant accounting policies meeting those requirements are described in the relevant notes.
In preparing these financial statements, the Company has started from an opening balance sheet as at 1 January 2014, and made
those changes in accounting policies and other restatements required for the first-time adoption of FRS 101. As such, this note explains
the principal adjustments made by the Company in restating its balance sheet as at 1 January 2014 prepared under previously extant
UK GAAP and its previously published UK GAAP financial statements for the year ended 31 December 2014.
On transition to FRS 101, the Company has applied the requirments of paragraph 6-33 of IFRS 1 First time adoption of International
Financial Reporting Standards.
Exemptions applied
IFRS 1 allows first time adopters certain exemptions from the general requirements to apply IFRSs retrospectively. The Company has
taken advantage of the following exemptions:
IFRS 2 Share-based payment has not been applied to any equity instruments that were granted on or before 7 November 2002,
nor has it been applied to equity instruments granted after 7 November 2002 that vested before 1 January 2005. This treatment is
consistent with the transitional provisions taken when the Company adopted FRS 20, the UK equivalent standard.
Cumulative actuarial gains and losses on pensions and other post employment benefits are recognised in full in equity on the date of
transition to IFRS. This is the same treatment as under UK GAAP.
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Bodycote plc annual report for the year ended 31 December 2015 13. Transition to FRS 101 (continued)
Reconciliation of equity as at 1 January 2014
Fixed assets
Intangible fixed assets
Tangible fixed assets
Investments
Receivables
Current assets
Receivables - due within one year
Receivables - due after one year
Current liabilities
Payables
Net current assets
Total assets less current liabilities
Payables: Amounts falling due after more than one year
Retirement benefit obligations
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other reserves
Profit and loss account
Shareholders’ funds
Reconciliation of equity as at 31 December 2014
Fixed assets
Intangible fixed assets
Tangible fixed assets
Investments
Receivables
Current assets
Receivables - due within one year
Receivables - due after one year
Current liabilities
Payables
Net current assets / (liabilities)
Total assets less current liabilities
Payables: Amounts falling due after more than one year
Retirement benefit obligations
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other reserves
Profit and loss account
Shareholders’ funds
Note
UK GAAP
£m
FRS 101
reclassifications /
remeasurements
£m
14
14
14
14
14
14
14
–
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
6.3
(6.3)
–
6.7
6.7
–
(5.6)
(5.6)
–
(5.6)
1.1
–
(4.8)
(3.7)
–
–
–
(3.7)
(3.7)
FRS 101
£m
6.3
0.4
393.2
6.7
406.6
14.9
–
14.9
(14.0)
0.9
407.5
(1.1)
(4.8)
401.6
33.1
177.1
133.9
57.5
401.6
Note
UK GAAP
£m
FRS 101
reclassifications
remeasurements
£m
FRS 101
£m
14
14
14
14
14
14
14
–
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
9.5
(9.5)
–
5.0
5.0
(1.0)
(3.8)
(4.8)
–
(4.8)
0.2
–
(1.0)
(0.8)
–
–
–
(0.8)
(0.8)
9.5
0.4
392.6
5.0
407.5
7.9
–
7.9
(9.1)
(1.2)
406.3
(7.1)
(1.0)
398.2
33.1
177.1
128.9
59.1
398.2
133
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GovernanceAdditional informationwww.bodycote.comStock code: BOYStrategic reportFinancial statements Notes to the company financial statements continued
Year ended 31 December 2015
14. Restatement from UK GAAP to FRS 101
On transition to FRS 101, the net defined benefit cost and retirement benefit obligation relating to the final salary defined benefit
pension scheme is recognised as per the requirements of IAS 19 (revised) Employee Benefits. As such, the Company has recognised a
retirement benefit obligation of £1.0m at 31 December 2014 (1 January 2014: £4.8m) and a corresponding deferred tax asset of £0.2m
at 31 December 2014 (1 January 2014: £1.1m). The net impact of recognising the retirement benefit obligation and corresponding
deferred tax asset is a £0.8m reduction in the profit and loss reserves account at 31 December 2014 (1 January 2014: £3.7m
reduction).
Software assets of £9.5m (1 January 2014: £6.3m) have been reclassified from tangible fixed assets to intangible fixed assets as per
the requirements of IAS 38 Intangible Assets.
Receivables of £4.8m (1 January 2014: £5.6m) have been reclassified from current to fixed assets as per the requirments of IAS 1
Presentation of Financial Statements.
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Bodycote plc annual report for the year ended 31 December 2015 Subsidiary undertakings
Thermal Processing – Heat Treatment and Metal Joining
Company name
Plants
Bodycote Heat Treatments Limited
Birmingham, Cambridge, Chard, Coventry, Derby,
Macclesfield, Rotherham, Skelmersdale, Stillington
and Stockport
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 (France), Haaksbergen,
Hengelo, Tilburg and Venlo
Netherlands
Göteborg, Hudiksvall, Malmö, Mora, Stockholm,
Värnamo, Västerås and Vellinge
Ambazac, Amiens, Beaugency, Billy-Berclau, Cernay,
Chanteloup les Vignes, Chassieu, Condé sur Noireau,
Duttlenheim, Gemenos, Gorgonzola (Italy), 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 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, Wroclaw
and Zabrze
Bodycote Tratamente Termice SRL
Bodycote Hökezelö KFT
Brasov and Cugir
Budapest
Bodycote Istas Isil Islem Sanayi ve Ticaret AS (79.3% owned) Bursa, Gebze and Izmir
Bodycote Thermal Processing, Inc.
Athens AL, Fremont, Huntington Park, Rancho
Dominguez, Sante 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 and Sturtevant WI
Country of
incorporation
England
Germany
Germany
Sweden
France
France
France
Belgium
Finland
Denmark
Italy
Austria
Liechtenstein
Switzerland
Czech Republic
Poland
Romania
Hungary
Turkey
USA
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GovernanceFinancial statementswww.bodycote.comStock code: BOYStrategic reportAdditional information Subsidiary undertakings continued
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
Empalme, Mexico
Bodycote Thermal Processing de Mexico S de RL de CV
Bodycote Wuxi Technology Co., Ltd.
Bodycote (Ningbo) Heat Treatment Co., Ltd.
Bodycote (Jinan) Heat Treatments Technology Co., Ltd.
Silao
Wuxi
Ningbo
Jinan
Bodycote (Kunshan) Heat Treatments Technology Co., Ltd.
Kunshan
Bodycote Ytbehandling AB
Techmeta Engineering SAS
Katrineholm and Västra Frölunda
Metz-Tessy
Thermal Processing — Hot Isostatic Pressing
Company name
Bodycote H.I.P. Limited
Bodycote IMT, Inc.
Bodycote Heiß-Isostatisches Pressen GmbH
Bodycote Hot Isostatic Pressing NV
Bodycote SAS
Bodycote Hot Isostatic Pressing AB
Thermal Processing — Surface Technology
Plants
Chesterfield and Hereford
Princeton KY, Andover MA, London OH and Camas WA
Haag-Winden
Sint-Niklaas
Magny-Cours
Surahammar
Company name
Plants
Bodycote Surface Technology Limited
Bodycote K-Tech, Inc.
Bodycote SAS
Knowsley, Newport, Skelmersdale, Stonehouse,
Wolverhampton and Dubai (UAE)
Hot Springs AR and Houston TX
Ambazac and Serres Castet
Bodycote Singapore Pte Ltd
Singapore
Non-Trading Entities
Company name
Autumnwood 2 Limited
Berstar Properties Limited
Bodycote (Somerset) Limited
Bodycote America Finance Limited
Bodycote America Finance LLC
Bodycote America Treasury Limited
Bodycote Americas Inc
Bodycote Canada Property Inc.
Bodycote de Mexico S. de R.L. de C.V.
Bodycote de SLP, S. de R. L de C.V.
Bodycote Deutschland GmbH
Bodycote Developments Limited
Bodycote European Holdings GmbH
136
Country of
incorporation
Canada
England
Mexico
China
China
China
China
Sweden
France
Country of
incorporation
England
USA
Germany
Belgium
France
Sweden
Country of
incorporation
England
USA
France
Singapore
Country of
incorporation
Jersey
England
England
England
USA
England
USA
Canada
Mexico
Mexico
Germany
England
Germany
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Bodycote plc annual report for the year ended 31 December 2015 Non-Trading Entities (continued)
Company name
Bodycote Finance Limited
Bodycote Finance UK Limited
Bodycote France Holdings SA
Bodycote Heat Treatments Technology (Taicang) Co. Limited
Bodycote HIP Germany Limited
Bodycote International Limited
Bodycote Investments
Bodycote Ireland Treasury Limited
Bodycote Japan K.K.
Bodycote Jersey Holdings Limited
Bodycote K-Tech Limited
Bodycote Luxembourg Finance SARL
Bodycote Lyon SNC
Bodycote Nominees No. 1 Limited
Bodycote Nominees No. 2 Limited
Bodycote Pension Trustees Limited
Bodycote Processing (Skelmersdale) Limited
Bodycote Springwood Limited
Bodycote SSC s.r.o
Bodycote Sweden AB
Bodycote Testing de Mexico S. de R.L. de C.V.
Bodycote Thermal Processing de Mexico Servicios, S. de R.L. de C.V.
Bodycote Thermal Processing Limited
Bodycote Thermotreat AB
Bodycote Treasury Services Limited
Bodycote USA, Inc.
Expert Heat Treatments Limited
HITEC SAS
Newcroft Limited
Taylor & Hartley Fabrics Limited
Techmeta Participations SAS
Thixomat Technologies, LLC (13.9% Investment)
Country of
incorporation
England
England
France
China
England
England
England
Ireland
Japan
Jersey
England
Luxembourg
France
England
England
England
England
England
Czech Republic
Sweden
Mexico
Mexico
England
Sweden
England
USA
England
France
England
England
France
USA
Except where stated, these companies are wholly-owned subsidiaries and have only one class of issued shares.
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 2015, and will not publish their annual financial statements
according to Sec. 325 et seq. German Commercial Code.
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137
GovernanceFinancial statementswww.bodycote.comStock code: BOYStrategic reportAdditional information 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 +44 (0)871 664 0300 (Calls cost 12p per minute plus your phone company’s access charge. Calls
outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 - 17:30, Monday to Friday
excluding public holidays in England and Wales.); 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, tax voucher (issued prior to 5 April 2016) or dividend confirmation.
Share dealing service
For information on the share dealing service offered by Capita Asset Services, telephone +44 (0)371 664 0445 (Calls are charged at the
standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate.
Lines are open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales.). For the online service, Capita’s
commission rates are 1.25%* of the value of the deal (minimum charge £34.50) and for the telephone service, Capita’s commission rates
are 1.50%* of the value of the deal (minimum charge £44.50). 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 +44 (0)871 664 0381 (Calls cost 12p per minute plus your phone company’s
access charge. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30,
Monday to Friday excluding public holidays in England and Wales.). 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 +44
(0)871 664 0385 (Calls cost 12p per minute plus your phone company’s access charge. Calls outside the United Kingdom will be charged at
the applicable international rate. Lines are open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales).
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.
138
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Bodycote plc annual report for the year ended 31 December 2015 Shareholder analysis
Analysis of share register as at 18 February 2016:
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
994
899
223
113
67
Number of
shares
426,709
2,819,829
7,310,647
27,635,413
153,263,574
%
43.3
39.2
9.7
4.9
2.9
%
0.2
1.5
3.8
14.4
80.1
2,296
100.0
191,456,172
100.0
% of
shareholders
% of total
shares
0.2
33.3
66.5
100.0
0.2
97.6
2.2
100.0
As at 18 February 2016 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
Franklin Templeton Fund Management Limited
Mondrian Investments Partners Ltd
Dimensional Fund Advisors, LP
Old Mutual Global Investors (UK) Limited
Baillie Gifford & Co
Schroder Investment Management Ltd
Legal & General Investment Management Ltd
BlackRock Investment Management (UK) Ltd
Company information
Advisers
Auditor
Deloitte LLP
Number of
shares
27,956,363
9,625,000
8,584,147
8,463,302
8,008,224
7,787,502
7,429,651
6,891,446
6,827,527
%
14.6
5.0
4.5
4.4
4.2
4.1
3.9
3.6
3.6
Principal bankers
HSBC Bank plc, Barclays Bank PLC, The Royal Bank of Scotland plc, Svenska Handelsbanken AB, 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 2015
Interim results for 2016
Interim dividend for 2016
Results for 2016
27 May 2016
3 June 2016
July 2016
November 2016
February 2017
Stock code: BOY
www.bodycote.com
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www.bodycote.com
For the online version of this report go to
bodycote.annualreport2015.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
© Bodycote plc 2015
Produced by Jones and Palmer
www.jonesandpalmer.co.uk
24472.04 4 March 2016 10:52 AM PROOF 5