annual report 2019
www.bodycote.com I Stock code: BOY
Contents
Strategic report
01 Understanding Bodycote
Governance
38 Board of Directors
Financial statements
79 Independent auditors’ report
02 Our markets and technologies
40 Corporate governance statement
86 Consolidated income statement
04 Our global network
47 Directors’ report
87 Consolidated balance sheet
06 Financial and operational highlights
49 Report of the Nomination Committee
88 Consolidated cash flow statement
08 Chair’s statement
51 Report of the Audit Committee
89 Consolidated statement of
09 Chief Executive’s review
56 Board report on remuneration
12 Strategy and objectives
78 Directors’ responsibilities statement
13 Our business model
14 Our stakeholders
16 Measuring progress
18 Component journeys
21 The investment case
22 Business review – The ADE Business
23 Business review – The AGI Business
24 Chief Financial Officer’s report
27 Principal risks and uncertainties
32 Corporate responsibility
and sustainability
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changes in equity
90 Group accounting policies
98 Notes to the consolidated
financial statements
136 Five year summary
137 Company statement of
financial position
138 Company statement of changes
in equity
139 Company accounting policies
141 Notes to the company
financial statements
Additional information
145 Subsidiary undertakings
148 Shareholder enquiries
150 Company information
Visit www.bodycote.com/investors
for further information
In preparing this Strategic report, the directors 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.
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Bodycote plc annual report 2019
Additional informationFinancial statementsGovernanceStrategic reportStrategic report Understanding Bodycote
Bodycote is the world’s leading provider of thermal
processing services. As the supplier of choice for many
of the world’s most respected manufacturing companies,
our purpose is to provide a vital link in the manufacturing
process that makes the products our customers
manufacture fit for purpose.
From Classical Heat Treatment to Specialist Technologies,
we create value for our customers across aerospace,
defence, energy, automotive and general industrial markets.
Our unique business model, expertise, and global
infrastructure mean we can adapt to our many
customers’ needs and continue to deliver long-term
success for our shareholders and other stakeholders.
Performance driven by our core values
Honesty and Transparency
We are honest and act with integrity.
This is not something we take for granted.
Bodycote lives by a culture of honest and
transparent behaviour, which is at the core
of all our business relationships.
Respect and Responsibility
We manage our business with respect,
applying an ethical approach to our dealings
with those we interact with. We believe in
taking ownership, 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.
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Understanding Bodycote
Our markets and technologies
We provide expertise across both classical heat treatment
and specialist thermal processes, with a focus on four core markets.
Aerospace
and Defence
Largely focused on civil aerospace,
we primarily treat engine, landing gear
and airframe components to improve
performance. Bodycote operates
an international network of quality
accredited facilities, in support of
prime aerospace manufacturers and
their supply chains.
Energy
Extending the life of products used
in the onshore, offshore and subsea,
oil & gas industry around the world.
Using industry leading thermal
processing we are able to extend the
life of industrial gas turbines, power
generation, and oil & gas
Automotive
Focused on the car and light truck
market, heat treatment delivers
greater strength and durability for
key components.
Our services provide thermal
processing solutions across a
wide range of applications which
include general aviation, commercial,
business and military aircraft.
components by reducing the wear
caused to them through abrasion,
erosion and corrosion thus helping
to reduce downtime.
Bodycote has developed strategic
partnerships with major automotive
original equipment manufacturers
(OEMs) and their supply chains by
offering comprehensive thermal
processing support on a global basis.
General
Industrial
We serve a very broad range of
customers across our general
industrial facilities. These customers
range from industrial machinery to
tooling, construction, electronics
and medical equipment. The general
industrial business serves a cross
section of industry segments.
Our success in this market is due to
the breadth of processes available
within Bodycote and extensive
technical resources on hand, allowing
for the development of cost effective
solutions for our customers.
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Bodycote plc annual report 2019Additional informationFinancial statementsGovernanceStrategic reportStrategic report Bodycote’s purpose is to support our customers in producing superior
components. Our thermal processing services encompass a variety of
techniques and specialist processes which improve the properties of
metals and alloys and extend the life of components. Bodycote addresses
the markets we serve with our superior levels of service and unmatched
ability to satisfy customers’ needs.
Classical Heat Treatment
Specialist Technologies
Classical Heat Treatment is the process of
controlled heating and cooling of metals
in order to obtain the desired mechanical,
chemical and metallurgical properties during
the manufacturing of a product.
A selection of highly differentiated, early-stage
processes with high margins, large market
opportunity and good growth prospects.
Bodycote is either the clear market leader or
one of the top players among few competitors.
Classical Heat Treatment is an
indispensable set of processes
within the manufacturing
chain of most of the products
used in daily life. By providing
wear resistance, strength or
toughness, depending on the
application, the components
we treat last longer and reduce
downtime for the products
our customers manufacture.
Surface hardness can be
controlled by diffusing elements
such as carbon and nitrogen into
the metal during the heating
stages of the process. The heat
treatment of products impacts
lives every day, whether it be
the seat belt buckle to ensure
that it keeps the passenger
safe during an accident or a
turbine blade bringing power
to your neighbourhood.
Product life is extended by
accurately treating products.
Classical Heat Treatment
is carried out in precisely
controlled industrial furnaces
which can heat up to
temperatures above 1000°C
and use quenchants like oil,
water or nitrogen gas to cool
the heated material.
During the process, the
microstructure of the metal
transforms into a different
structure which results in
hardening or softening of the
material depending on the
process. Engineers can design
thinner, lighter but stronger
components with the help
of Classical Heat Treatment.
Hot Isostatic Pressing
(HIP) Services
Improves component integrity
and strength by application of
extreme pressure and heat.
HIP PF inc. Powdermet®
Additive manufacturing of
often complex components
by combining with HIP.
Specialty Stainless Steel
(S3P) Processes
Improves the strength,
hardness and wear
resistance of stainless steels.
Standard heat treatments
negatively impact corrosion
resistance of stainless steel,
but our proprietary S3P
can provide the hardened
properties while maintaining
corrosion resistance.
Surface Technology
Enhances component life using
ceramic and metal coatings.
Low Pressure Carburising
(LPC)
Obtains a hardened surface
and a tough core using a
cleaner process under vacuum.
Providing improved wear
resistance and fatigue life with
less distortion.
Corr-I-Dur® (CiD)
Improves corrosion resistance
and wear properties without the
use of chrome.
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Understanding Bodycote
Our global network
Delivering quality through our international
network of facilities.
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 facilities,
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 more than 185
facilities, with customers able to benefit
from Bodycote’s comprehensive range
of services across 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 facility to meet their requirements.
Moreover, the network allows Bodycote
to specialise in fewer technologies
per location, reducing complexity and
increasing the efficiency of our operations.
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.
>40,000
customers
>185
facilities
5,3731
employees
23
countries
1 at year-end 2019
Revenue
by geography
Western Europe
North America
Emerging markets
Total
387.3
266.1
66.3
£719.7m
Revenue by
market sector
Aerospace and Defence
196.8
Energy
Automotive
General Industrial
Total
61.9
200.9
260.1
£719.7m
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Western Europe
Bodycote operates more than 100 facilities in Western Europe
and is the number one provider of thermal processing services,
with by far the largest network and comprehensive
service offering.
Revenue by market sector – £m
Western Europe
Aerospace and Defence
Energy
Automotive
General Industrial
81.1
35.0
93.1
178.1
£387.3m
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 more than 55 facilities
convenient to customers in all areas where manufacturing and
technical industries are concentrated.
Revenue by market sector – £m
North America
Aerospace and Defence
113.0
Energy
Automotive
General Industrial
26.2
63.7
63.2
£266.1m
Emerging markets
Bodycote has more than 25 facilities in emerging markets covering
Eastern Europe, China and Mexico. Bodycote is the number one
thermal processing provider in Eastern Europe and is the leading
Western provider in China.
Strategic priority:
Investing in emerging markets
Read more about our
Strategic priorities page 12
Revenue by market sector – £m
Emerging markets
Aerospace and Defence
Energy
Automotive
General Industrial
2.7
0.7
44.1
18.8
£66.3m
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Strategic report
Understanding Bodycote
Highlights
Financial highlights
Revenue
£m
600.6
567.2
728.6 719.7
690.2
Dividend per share
pence
19.0
17.4
15.1
15.8
20.0
£719.7m
-1.2%
20.0p
+5.3%
2015 2016
2017
2018 2019
2015 2016
2017
2018 2019
Headline operating profit1
£m
140.7
126.2
104.4 101.9
134.9
£134.9m
-4.1%
Headline earnings per share
pence
55.9
49.2
52.1
39.5
37.0
52.1p
-6.8%
2015 2016
2017
2018 2019
2015 2016
2017
2018 2019
Free cash flow1
£m
111.7
98.0
79.5
133.8
123.1
Return on capital employed1
18.9
17.8
17.7
17.5
15.6
£123.1m
-8.0%
17.7%
-1.2ppts
2015 2016
2017
2018 2019
2015 2016
2017
2018 2019
1 Prior years restated for IFRS 16 Leases
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Bodycote plc annual report 2019Additional informationFinancial statementsGovernanceStrategic reportStrategic report Financial highlights
Revenue
Headline operating profit2
Return on sales2
Headline profit before taxation2
Free cash flow2
Basic headline earnings per share2,3
Ordinary dividend per share
Special dividend per share
Return on capital employed2
Statutory results
Operating profit
Profit before taxation
Basic earnings per share
Operational highlights2
2019
£719.7m
£134.9m
18.7%
£130.2m
£123.1m
52.1p
20.0p
–
17.7%
2019
£128.6m
£123.9m
49.4p
Restated1
2018
£728.6m
£140.7m
19.3%
£136.4m
£133.8m
55.9p
19.0p
20.0p
18.9%
Restated1
2018
£136.5m
£132.2m
54.2p
■■ Resilient margin of 18.7% despite some tough market conditions –
significant action taken to reduce costs
■■ Civil aviation revenues up 17%
■■ Specialist Technologies revenues up 3%, continuing to outperform
Classical Heat Treatment (-4%)
■■ Emerging markets growth of 5%
■■ Healthy free cash flow conversion of 91%
■■ £61m expansionary investment in strategic growth areas in 2019
■■ £154m acquisition of Ellison Surface Technologies strengthens aerospace
business and Specialist Technologies; expected to complete Q1
■■ Full year ordinary dividend 20.0p, up 5%
1 The Group adopted IFRS 16 Leases which is effective from 1st January 2019 using the full retrospective approach. Consequently, prior periods have been restated to reflect IFRS 16
implementation. Further details are disclosed in notes 12 and 31 of the consolidated financial statements
2 The headline performance measures represent the statutory results excluding certain non operational items. These are deemed alternative performance measures under the European
Securities and Markets Authority guidelines. Please refer to note 1 to the financial statements on page 98 for a reconciliation to the IFRS equivalent
3 A detailed EPS reconciliation is provided in note 8 on page 108
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Overview
Bodycote experienced some significant headwinds in a number
of key markets in 2019. I am pleased to report that despite this
demanding backdrop the Group made solid progress throughout
the year, with management continuing to execute on strategy and
at the same time delivering a resilient performance.
Dividend
The Board is proposing a final dividend of 14.0p, an increase of 5%,
which will be paid on 5 June 2020, subject to shareholder approval
at the 2020 Annual General Meeting (AGM). This brings the total
ordinary dividend for 2019 to 20.0p (2018: 19.0p) costing £26.6m
and representing a year-on-year increase of 5.3%. This increase
in dividend underscores the Board’s view of the Group’s future
earnings and cash flow potential.
Board and governance
The Board is mindful of its obligations under the corporate
governance code and, following the changes in 2018, we have
continued to embed the activities required to address these
obligations throughout the year.
One of my key roles as Chair is to ensure that the Board members
possess a range of complementary skills which are relevant to
Bodycote’s business. Having now led the Bodycote Board for two
years, I am confident that we have a well-balanced Board that
is functioning effectively and fulfilling its important governance
mission. By maintaining high standards of corporate governance,
we are able to enhance business performance underpinned by
our strategy and business model. The approach to governance is
set by the Board and implemented by our Executive Committee.
Effective and robust governance remains a strong pillar supporting
the sustainable success of the Group.
People
During the year, together with my Board colleagues, I have
continued to engage with employees in the Group at all levels as
we have toured a number of Bodycote locations. The enthusiasm
and knowledge of Bodycote employees continues to impress, and
is critical to the successful application of the Group’s strategy and,
in turn, the creation of shareholder value.
8
The enthusiasm and
knowledge of Bodycote
employees continues to
impress, and is critical to
the successful application
of the Group’s strategy
and, in turn, the creation
of shareholder value.
A. C. Quinn CBE
Chair
Sustainability
Throughout the year, the Board continued to work with the
operational leaders to ensure Bodycote is acting responsibly.
We review reports on Safety, Health and Environment (SHE), risk,
and employee issues. I am passionate about sustainability and
happy to report the Group’s culture continues to reflect positively
in the areas of environment, social and governance. We are now
reporting more broadly on our ESG actions so as to be transparent
on the impact of our activities on shareholders, employees, the
communities in which our employees work, on the environment
and more particularly on climate change.
Shareholders
Meetings with shareholders also took place throughout the year,
with positive feedback. I look forward to continuing to engage with
you during the coming year and to seeing many of you at this year’s
AGM in May 2020.
Summary
2019 has been a challenging year in some ways, with a number
of the Group’s key market sectors experiencing tough conditions.
Nonetheless, the resilient Group performance has served to
validate the strategy and reinforce the business model.
The acquisition of Ellison Surface Technologies offers an exciting
acceleration to the Group’s growing aerospace business.
A.C. Quinn CBE
Chair
12 March 2020
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Chief Executive’s review
I am pleased to report that
Bodycote, once again,
demonstrated the ability
to withstand adverse market
conditions and deliver a
resilient performance. We
achieved notable revenue
growth across all of our key
strategic priority areas.
S. C. Harris
Group Chief Executive
Overview
I am pleased to report that Bodycote, once again, demonstrated
the ability to withstand adverse market conditions and deliver a
resilient performance. This is testament to the success of the
reshaping of the Group that has occurred over the years and the
significant effort of our leadership teams and our employees.
Bodycote revenues declined 1.2% to £719.7m in 2019 compared
with 2018, or 2.0% at constant currency.
Automotive revenues declined 8% to £201m. Our largest
automotive market is currently in Western Europe, where revenues
declined 12%. While this was partly due to strong comparatives as
European manufacturers accelerated deliveries in late 2018 ahead
of the introduction of the Worldwide Harmonised Light Vehicles
Test Procedure (WLTP) regulations, it also reflects the multi-year
declines in output of the automotive OEMs in Western Europe.
Car and light truck production in Germany, for example, declined by
8% in 2019 following a 9% decline in 2018.
Notwithstanding this decline, return on sales reduced only slightly
to 18.7% (2018: 19.3%). This resilient margin performance was
achieved in spite of challenging market conditions and inflationary
pressures in labour and utility costs. These pressures were mitigated
through good cost control while at the same time maintaining
or improving our levels of customer service. Headline operating
profit decreased 4% to £134.9m (2018: £140.7m), while statutory
operating profit fell 6% to £128.6m.
General Industrial revenues declined 7% to £260m, including
disposals and closures. On a like-for-like basis the decline was 4%,
which is very much in line with the weakening trend we have seen
since Q4 2018. This decline was broad based and not concentrated
in any one sub sector or geography. It is apparent that customers
have been delaying capital investments and have been destocking,
which is in keeping with the global uncertainty surrounding
macroeconomic growth and trade tensions that prevailed in 2019.
The following commentary reflects constant currency growth rates
unless stated otherwise.
Market sectors
Investment in Civil Aerospace secular growth has been a strategic
priority for the Group for nearly a decade. The Aerospace &
Defence revenues of £197m represent a 14% growth on the
prior year. This growth is well above the background secular
growth of the aerospace and defence markets which is driven
both by new platform introductions (offset to some degree by
retirements), as well as the growing size of the global aircraft
fleet and the replacement parts streams that result. Bodycote not
only processes the original equipment parts but also those same
parts in the replacement part market. The strong growth that the
business is enjoying derives from a large percentage of the OEM
replacement part market as well as the revenue boost from the
stronger content that Bodycote has on a number of the new engine
platforms, particularly LEAP. A further factor is the market share
gains that are being won as the primes shake out the supply chains
after overbuilding them in the initial ramp up of production of the
new platforms. The superior growth of the Aerospace and Defence
business has increased its proportion of total Group revenues
to 28% in the second half, overtaking the size of the automotive
revenue weighting.
The Energy sector now only represents some 9% of Bodycote’s
business. Within this oil & gas revenues grew strongly in the
subsea segment. However, this was offset by weakness in North
American onshore oil & gas business (which is primarily driven by
Permian Basin activity). The issues relating to lost market share
referred to in the first half announcement no longer featured
strongly in the second half comparatives. Industrial Gas Turbine
(IGT) revenues continued to decline so that, in aggregate, Energy
revenues were 2% lower for the year at £62m.
Specialist Technologies
Bodycote has for many years invested in “Specialist Technologies”
across its divisions (a description of these can be found on
page 3). In 2019 the revenues from these Specialist Technologies
grew 3%, some 7% ahead of the Classical Heat Treatment
technologies. This growth differential has been similar or higher
for a number of years. We believe that this level of differential
growth is sustainable and a more appropriate way to assess the
performance of our Specialist Technologies business in challenging
market conditions. As and when market conditions improve we
remain confident that Specialist Technologies growth is capable
of stepping up again in absolute terms. HIP Services performed
well in civil aerospace, while Powdermet® grew solidly in subsea
applications. Exciting prospects for Powdermet® in aerospace
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started to contribute to revenue growth in the second half and our
Surface Technology aerospace business achieved good growth.
LPC was adversely affected by the cancellation of an automotive
programme in Western Europe that had been destined for the
Chinese market. In addition, a major S3P contract came to an end
due to a product change by a significant customer. The rest of the
S3P business continues to grow well.
Emerging markets
Investment in Emerging Markets is another of our strategic
priorities. Our growing presence in emerging markets is
concentrated in the automotive sector, with plants in Eastern
Europe, China and Mexico. It is notable, and probably unsurprising,
that most incoming requests for proposal for electric vehicles are
for future production in these territories. This reflects not only the
growing importance of EVs in China but also the realisation by
Western OEMs that the new technology supply chains need to be
in low-cost countries if they are to compete. Emerging Markets
revenues grew 5% during the period, a lower growth than achieved
in previous years. The lower growth mainly reflects Eastern Europe
weakness where German manufacturers favoured their domestic
production facilities which are less easily flexed. Mexico revenues
also eased, as the GM strike in the US in September impacted on
our business there. China recovered its growth pace after a more
subdued first half, recording second half revenue growth of 15%.
Investment in growth
In 2019 we increased the pace of our investment to support
future growth, spending a total of £61m (including acquired lease
liabilities). We invested £29m in acquiring two bolt-on businesses,
one in Scandinavia focused on mining, the other expanding
Bodycote’s emerging markets presence into Slovakia. Both fit well
into our network of existing facilities.
The £32m balance of our investment in growth was partly on
greenfield facilities, and partly on adding additional capacity to the
established network where the demand is strong.
Our new facility in the Czech Republic went into operation in the
first half and the new facility in Hungary will become operational in
2020. We are also well advanced with the new facilities in Illinois
and upstate New York (USA).
Additional HIP capacity in Europe came on stream during the
year and additional HIP capacity in North America will become
operational during 2020.
Profits and earnings
We continued to experience input cost inflation in a number of
markets, with pressure coming from wage increases, as well
as higher utility costs. Price increases and active management
of costs once again enabled us to cover the impact of the
cost increases.
Overall volumes declined, while the performance across our
served markets was mixed. Significant increases in certain sectors,
such as aerospace, were more than offset by declines in other
sectors, including the Western European automotive market and
general industrial revenues in developed markets, in particular.
Nonetheless, the 18.7% return on sales achieved in the period
represents a resilient performance in light of the challenges
that the business has faced, assisted by lower variable pay
compensation in the year. The ability to quickly adapt and adjust
its cost base as business conditions change remains critical to
protecting the Group’s margins.
At 23.8%, the Group’s headline tax rate is in line with guidance
given to the market during the year, but higher than last year’s
rate (2018: 21.7%). As a result, basic headline earnings per share
were 52.1p (2018: 55.9p). Basic earnings per share were 49.4p
(2018: 54.2p).
Strategic progress
Bodycote’s strategy is to focus investment to drive long-term
profitable growth. The priorities are markets with long-term
structural growth such as civil aerospace, capability and
capacity enhancement in Specialist Technologies, expansion
of the Group’s footprint in rapid growth Emerging Markets and
targeted acquisitions.
The Group has a minimum 20% (pre tax) hurdle rate return when
appraising investments.
A further element of Bodycote’s strategy is the drive for
operational efficiency and a focus on business that can achieve
strong return on sales and good return on capital employed.
In overall terms 2019 was a challenging year, with revenues,
margin and return on capital all easing slightly, the latter reducing
to 17.7% from 18.9% in 2018.
Nonetheless, we achieved notable revenue growth across all of our
key strategic priority areas, 17% in civil aerospace, 5% in emerging
markets, and 3% in Specialist Technologies. Our investment
programme for the future continued unabated.
In late December we signed an agreement to acquire Ellison
Surface Technologies, a significant enhancement to the Group’s
existing Surface Technology business, creating one of the world’s
largest providers of thermal spray and engineered coating surface
technology services to the aerospace industry.
Together with the £61m of investment described above, this brings
total investment committed during the year to over £200m, roughly
equivalent to the total spent on acquisitions and expansionary
capital expenditure over the prior four years together.
This investment reflects the excitement we have for growth
prospects in the selected segments of our business.
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Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Restructuring
The macroeconomic uncertainties that held back some of our
market sectors in 2019 still persist as we enter 2020. Moreover,
while it is clear that we are at a weaker point in the business
cycle, it has become evident that there are also some long term
structural changes underway in the car & light truck markets.
This is particularly the case in Western Europe. We believe that
it is unlikely that the Western European car & light truck supply
chains will recover to the same position and profile as before.
The combination of the macroeconomic uncertainties and
longer term structural shifts will require some consolidation of
Bodycote’s facilities.
As a result, we will be implementing a restructuring plan through
2020. The principal focus of the plan is on our Classical Heat
Treatment activities in Western Europe, with particular emphasis
on reducing exposure to the internal combustion engine. At the
same time, we will continue to increase our exposure to the
new car and light truck supply chains that are being set up in the
Emerging Markets with a focus on supporting electric vehicle
production. We anticipate a P&L charge for this restructuring of
c.£30m, approximately half which will be cash cost. The payback
on the cash cost is expected to be c.2.5 years.
Organisation and people
Bodycote is a service business, and our first-class service
is delivered by committed individuals, who understand their
customers’ needs and meet their demanding and changing
requirements on a continual basis. Our people are the cornerstone
of the business and it is through their efforts, day in and day out,
that we create value and deliver on our objectives.
Summary and Outlook
Bodycote delivered a robust performance in 2019, achieving a
resilient operating margin despite challenging market conditions.
2020 has started with a number of challenges, notably Covid-19,
and ongoing international trade tensions.
The potential impact of the Covid-19 health crisis is difficult to
assess at this time. However, Bodycote has a proven track record
of margin enhancement through cost management and improving
the mix of business and we will continue to manage the cost
base in response to market conditions whilst investing in our
strategic growth areas of Aerospace, Specialist Technologies and
Emerging Markets.
S.C. Harris
Group Chief Executive
12 March 2020
1
Return on capital employed here excludes the impact on headline operating profit and
capital employed from IFRS 16: Leases
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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 with the
minimal environmental impact.
Strategic priorities
Objectives
Safety and
Environment
At the foundation of our business is the provision
of a safe working environment for our employees,
and to operate with minimal environmental impact.
Driving operational
improvement
Continuous improvement of business
processes and systems which make
us more efficient and responsive.
Capitalising on and
investing in our Specialist
Technologies
Delivering unique solutions that provide customers
with innovative, high value-added products to meet
the changing needs within component manufacturing.
Investing in
emerging markets
Expanding with our customers in rapid growth
countries with an emphasis on Eastern Europe,
Mexico and China.
Investing in structural
growth opportunities
We invest in markets with long-term structural
opportunities such as the civil aerospace market.
Acquisitions
Adding bolt-on acquisitions to improve our plant
network in Classical Heat Treatment, and investing in
larger acquisitions and adjacent technologies to grow
Specialist Technologies.
In addition to the strategic
icons above we also link our
markets and values via the
following icons throughout
the report.
Core markets
Aerospace
and Defence
Core values
Energy
Automotive
General
Industrial
Honesty and Transparency,
Respect and Responsibility,
Creating Value
12
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Our business model
Our business model is built around the priorities: being the supplier
of choice and delivering operational excellence to our customers.
By continuing to meet our customers’ needs and investing in our global network, we are strategically placed to deliver
successful solutions.
Provider of essential services to our customers
Bodycote’s global network of engineers and metallurgists supports our customers to determine a suitable thermal processing solution for their designs
and products. By working together with the customer in the early planning phases of their product development, we can help designers specify cleaner
thermal processing technologies that improve product development through enhanced life expectancy, reduced downtime, and waste.
To deliver on our purpose and priorities, it is vital that we collaborate with our customers to solve their complex challenges and help improve their
product performance and enhance their operational efficiencies. Our services simplify the production for our customers by expertly addressing their
Classical Heat Treatment needs or providing unmatched support and know-how from one of our Specialist Technologies.
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.
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 global leader
Global network
■■ Bodycote’s global network of more than
185 market-focused facilities (see pages
4 and 5) in 23 countries brings economies
of scale, particularly by using logistics to
improve equipment utilisation. This makes
Bodycote’s processing inherently more
efficient than customers’ in-house operations
(see page 35) and competitors, thereby
enhancing our competitive position in the
subcontract market.
■■ Bodycote’s local networks of facilities allow
specialisation of one or a few technologies
per location, reducing complexity and,
thereby increasing efficiency
■■ 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 backup for
our customers.
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.
Quality
■■ Bodycote’s quality management systems,
Expertise
■■ Bodycote’s extensive facilities and
validated by major engineering OEMs, have
been developed to meet the requirements
of international and national accrediting
bodies. Bodycote facilities hold industry
and customer approvals appropriate to
the services they offer and the markets
they serve.
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 have led to
Bodycote offering a range of proprietary
processes which far outperform their
standard counterparts.
Creating value
For customers
■■ Value-adding services
For Bodycote
■■ Mutually beneficial customer relationships
For investors
■■ Financially stable and sustainable business
■■ Global supplier which can meet multiple
■■ Wide customer base means Bodycote is not
■■ Good growth drivers
processing needs
reliant on any one customer
■■ Access to entire Bodycote knowledge base
■■ Ideally positioned to promote growth in
and expertise
emerging markets and selected technologies
■■ Superior return on investment
■■ Strong margins and cash flows
■■ Cost and environmental benefits versus in-
■■ Clearly focused strategy
house operations
13
Financial statementsAdditional informationGovernanceAdditional informationGovernanceFinancial statementswww.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Our stakeholders
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, customers and society/communities.
Investors
Capital is rewarded
through dividends and
share price increases.
Capital
funds
Return on
investment
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
Focal
impact
Future
talent
Society/
Communities
We are committed
to building positive
relationships with
communities where
we operate.
Employees
5,373 employees’
knowledge, expertise,
and skill are a major part
of the Group’s intangible
value. £281m was paid
out as remuneration.
Productivity
Remuneration
14
Service
Sales
Customers
Our services are
provided to the
aerospace, defence,
energy, automotive,
and general industrial
markets.
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Compliance with Directors’ duties
We set out in the table below our main stakeholder groups,
how and why we have engaged with them, and their key interests.
Each stakeholder group requires a tailored engagement approach
to foster effective and mutually beneficial relationships.
By understanding our stakeholders, we can factor into
boardroom discussions the potential impact of our decisions on
each stakeholder group and consider their needs and concerns.
Interests of our stakeholders are considered by the Board through
a combination of the following: the Group Chief Executive reports
on safety, health and environmental (SHE), people matters, and
customers at Board meetings. The NED responsible for employee
engagement provides feedback to the Board regularly throughout
the year. Investor feedback is received by the Board at least twice
a year from our brokers and corporate PR adviser. An annual
presentation on SHE matters as well as updates on modern
slavery and climate change/sustainability developments are
provided. The Board takes into account environmental and social
factors when deciding on acquisitions. An annual strategy review
which considers the purpose and strategy supported by a budget
for the following year and a three-year financial plan is undertaken.
Investors
Employees
Engagement undertaken
■■ Annual report and accounts/AGM
■■ Corporate website, including investor
relations section
■■ Results presentation and regular engagement with
top shareholders
■■ Meetings throughout the year with existing and
prospective shareholders, including investor
roadshows in Europe and North America
■■ Press releases (incl. LSE announcements)
■■ Addressing regular analysts’ enquiries
■■ Capital markets day
Reason for engagement
Continued access to capital is important to the
long-term performance of our business. We work to
ensure that our investors and analysts have a good
understanding of our strategy and performance.
Stakeholders’ key interests
■■ Financial performance and economic impact
■■ Governance and transparency
■■ Sustainability of performance
Engagement undertaken
■■ Annual individual performance reviews
■■ Employee engagement groups
■■ Internal intranet and communications
■■ Annual report and accounts
■■ SHE briefings and toolbox talks
■■ Twitter and LinkedIn communications
Reason for engagement
Employee engagement is vital for our success. We work
to create a diverse and inclusive workplace where every
employee can reach their full potential. We engage
with our people to ensure we are delivering to their
expectations and making the right business decisions.
This ensures we can retain and develop the best talent.
Stakeholders’ key interests
■■ Reputation
■■ Employee development/engagement
■■ Talent retention/career opportunities
■■ SHE performance
■■ Diversity and inclusion
Customers
Society/Communities
Engagement undertaken
■■ Management of ongoing customer relationships
Engagement undertaken
■■ Individual employee volunteering
■■ Participation in industry forums/events
■■ Corporate website
■■ Bodycote plc website ‘www.bodycote.com’ including
the Annual and Interim Reports
Reason for engagement
Engaging with our customers helps us to understand
their needs and identify opportunities and challenges.
We collaborate with our customers to improve our
customers’ product characteristics and to develop
a project pipeline.
Stakeholders’ key interests
■■ Customer satisfaction
■■ Service performance, efficiency and quality
■■ Sustainable performance
Reason for engagement
We are committed to building positive relationships
with the communities where we operate.
Stakeholders’ key interests
■■ Future talent pipeline
■■ Local operational impact
■■ Safety, health and environmental performance
15
Financial statementsAdditional informationGovernanceAdditional informationGovernanceFinancial statementswww.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Measuring progress
Return on capital employed
(%)
18.9
17.8
17.7
17.5
15.6
Performance
Return on capital employed declined by 1.2 percentage points during the year, down
from 18.9% to 17.7%.
Definition
Headline operating profit as a percentage of the average of the opening and closing
capital employed.
Capital employed is defined as net assets adjusted for net cash/(debt).
2015
2016
2017
20181
2019
Headline earnings per share
(pence)
Performance
Headline earnings per share decreased by 3.8p (7%) from 55.9p to 52.1p.
55.9
52.1
49.2
Definition
Headline earnings per share is defined in note 1 to the financial statements.
39.5
37.0
2015
2016
2017
20181
2019
Return on sales
(%)
18.0
18.0
16.6
19.3
18.7
Performance
Return on sales declined by 0.6 percentage points during the year, from 19.3% to
18.7%. Headline operating profit decreased by 4% from £140.7m to £134.9m, while
revenue decreased by 1.2% from £728.6m to £719.7m.
Definition
Headline operating profit as a percentage of revenue.
2015
2016
2017
20181
2019
Free cash flow1
(£m)
133.8
123.1
111.7
98.0
79.5
Performance
Free cash flow for the Group was £123.1m (20181: £133.8m). This was 115% of headline
operating profit (20181: 118%).
Definition
Free cash flow is defined in note 1 to the financial statements.
2015
2016
2017
2018
2019
1 Prior years restated for IFRS 16 Leases
16
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Total reportable case rate (TRC)
(number)
2.7
2.7
2.8
2.6
2.8
Performance
Bodycote works tirelessly to improve safety and reduce workplace incidents and is
committed to providing a safe environment for everyone who works at or visits our
locations. The TRC rate increased to 2.8 this year (2018: 2.6). Further details are included
in the Corporate Responsibility and Sustainability section on page 35.
Definition
TRC is defined as the number of lost time incidents, restricted work cases and medical
treatment cases x200,000 hours (approximately 100 man years), divided by the total
number of employee hours worked.
2015
2016
2017
2018
2019
Carbon footprint
(tonne CO2e/£m sales normalised1)
477.2
472.2
471.3
449.0
441.2
2015
2016
2017
2018
2019
Performance
On a normalised basis, the carbon footprint decreased by 1.7% from 449.0 tonnes per
£m sales to 441.2 tonnes per £m sales. Further details are included in the Corporate
Responsibility and Sustainability section on page 36.
Definition
Carbon footprint is defined as tonnes of CO2 equivalent emissions divided by £m
revenue. CO2 equivalent emissions are calculated by taking electricity and gas usage in
kilowatt hours and multiplying by country specific conversion factors provided by the
International Energy Agency (IEA). Normalised emissions statistics restate prior year
figures using current year country specific conversion (IEA) factors and current year
average exchange rates.
1 Normalised statistics restate prior-year figures using current year IEA carbon conversion factors and current year average exchange rates
17
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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 component is then
removed from its build
plate by electrical discharge
machining (EDM) to prepare
for HIP and heat treatment.
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
using lasers.
The part is stress relieved
in a vacuum furnace to
minimise any distortion.
Various testing methods
are used to check
that the part meets
specification – these
may include radiography,
tensile testing,
and metallography.
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 part next undergoes heat
treatment to achieve full material
properties and improve the
microstructural characteristics
of the component if needed.
The component will undergo
any necessary finish machining
and dimensional inspection.
End application:
various
3D printing is creating components in a
range of industries including aerospace,
medical, and power generation.
The Bodycote ‘B’ next to a component journey stage shows where Bodycote’s vital services have been applied.
18
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report The power to deliver
Aircraft turbine blades and vanes
Aircraft turbine blades and vanes must withstand extreme
temperatures in operation.
These materials frequently operate at temperatures approaching their melting
point – heat treatment, HIP and the use of surface technology allow these blades
to operate reliably at these high temperatures for extended periods of time.
The cast blades are HIPed
to remove porosity and
increase their creep and
fatigue resistant properties.
The turbine blades begin life
as nickel-based superalloy
ingots or billets. This superalloy
gives superior strength at high
working temperatures.
The billets are investment
cast to form the blade shape
and then fettled to remove
casting material.
A thermally sprayed coating
is applied to improve
temperature resistance.
Honeycomb for abradable
seals is vacuum brazed onto
the vanes’ main sections.
The blades are
precipitation hardened
to increase their strength
at high temperatures.
Finally, the blades are
machined prior to their
assembly as part
of an engine.
End application:
aircraft engine
The Bodycote ‘B’ next to a component journey stage shows where Bodycote’s vital services have been applied.
19
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Aircraft landing gear
Safety critical landing gear must perform without fault every time
the aircraft flies. A combination of thermal processing techniques
is used to ensure the steel’s material properties are optimised
and to protect it during its working life.
Traditionally, landing gear has been surface treated using hard chrome plate,
but this is now being superseded by more environmentally friendly thermal
spray processes, which provide extreme wear and corrosion resistance.
The part is heat treated
to harden and temper
the steel.
The component is
surface machined using
diamond tools due to the
extreme hardness
of the surface finish.
A thermally sprayed surface
treatment is applied to
replace hard chrome plate
for improved wear and
corrosion resistance.
Alloy steel billet
is forged to shape.
End application:
aircraft
The Bodycote ‘B’ next to a component journey stage shows where Bodycote’s vital services have been applied.
20
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report The investment case
Building on our strengths to create value for our shareholders
Bodycote is the leading provider of Classical Heat Treatment and Specialist
Technologies, significantly advancing the performance of our customers’
components. The focus of the management team is to deliver on the
Group’s strategy and promote operational excellence.
Bodycote is uniquely placed via our global network,
servicing more than 40,000 customers across multiple
market sectors, enabling us to reduce business volatility.
With a wealth of experience, Bodycote’s longevity, expertise
and market leadership in key areas are recognised and valued
by our customers, allowing us to develop strong long-term
partnerships and deliver consistently healthy margins and returns.
Our strategy encompasses the following goals:
Investment in structural end-market growth opportunities
across the Group i.e civil aerospace.
Aggressive growth of Specialist Technologies, benefiting
from their superior margins and higher growth potential.
Investment in growth and localisation opportunities in
emerging/high-growth markets with an emphasis on
Eastern Europe, Mexico and China.
Investment in acquisitions/Greenfields and
expanding existing facilities to support sustainable
and profitable growth.
This strategy can successfully accommodate a wide variety
of different market outcomes as a result of the operational
focus on mix improvement and flexibility of the cost base,
including the work force, thereby continually improving the
quality of Bodycote’s business.
As a result of the pursuit of the strategy, Bodycote delivers
consistently healthy margins (2019 return on sales: 18.7%)
and excellent free cash flow (2019 free cash flow: £123.1m).
For shareholders, this resulted in more than £300m cash
return via dividends over the past five years. In the past five
years, we have also committed almost £400m of expansionary
capital expenditure, much of which is still in the process of
maturing and is not yet fully contributing to Group profitability
and cash generation.
Bodycote’s long-term strategy and core values bolster
value creation.
Strategic priority:
Creating value
21
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Bodycote has more than 185
facilities around the world which are
organised into two customer-focused
businesses: the ADE business and
the AGI business.
The ADE Business
Our ADE business focuses on aerospace, defence and energy
customers, who tend to think and operate globally. Our AGI
business focuses on automotive and general industrial customers.
These include many multinational companies which tend to operate
on a regionally-focused basis, as well as numerous medium-
sized and smaller businesses, and all of which are important
to Bodycote. Much of the AGI business is locally oriented.
Strategically we have focused on building customer relationships
to enable our participation in long-term programmes, in particular
in the civil aviation market. Not only do we have a competitive
advantage as a result of our scale and capabilities, but our global
reach allows customers to work with us on multiple projects
simultaneously, making us a valued business partner.
ADE revenue by market
sector and geography
£m
A large number of Bodycote’s global
customers fall within our ADE business and
Bodycote intends to continue to leverage its
unique market position to increase revenues
in the aerospace, defence and energy sectors.
Within ADE, we have more than 60 facilities around the world,
including Hot Isostatic Pressing (HIP) and Surface Technology
facilities, alongside our Classical Heat Treatment plants.
The following review reflects constant currency growth rates
unless stated otherwise.
Revenue in 2019 was £301.4m, an increase of 3% (5% at actual
rates). Civil aerospace revenues registered good growth, driven
by growth in Bodycote’s after-market business. This was partially
offset by lower energy revenues and lower general industrial
revenues in the ADE business (while the focus of the ADE
business is on aerospace, defence and energy customers, 19%
of ADE revenues are derived from general industrial customers,
where the market had been weak in 2019).
Headline operating profit was £75.8m (20181: £69.4m), an increase
of 7% (9% at actual rates). Consequently, return on sales improved
to 25.1% (20181: 24.1%). Statutory operating profit grew to £73.4m
(20181: £68.5m).
We spent £8.8m on expansionary capital expenditure, including
investment in new HIP capacity in North America and Europe.
Return on capital employed increased to 24.2% (20181: 22.3%),
with improved profitability and continued careful management of
the balance sheet.
Market sector
Aerospace and Defence
183.6
Energy
Automotive
General Industrial
Total
Geography
Western Europe
North America
Emerging markets
Total
51.0
10.5
56.3
301.4
141.3
158.7
1.4
301.4
1 Restated 2018 for IFRS 16 Leases
This review reflects constant currency growth rates unless stated otherwise.
22
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report
The AGI Business
AGI revenue by market
sector and geography
£m
Market sector
Aerospace and Defence
Energy
Automotive
General Industrial
Total
Geography
Western Europe
North America
Emerging markets
Total
13.2
10.9
190.4
203.8
418.3
246.0
107.4
64.9
418.3
Our extensive network of more than
120 AGI facilities enables the business to
offer the broadest range of capability and
security of supply. Bodycote has a long
and successful history of servicing its
wide-ranging customer base.
Each of our AGI facilities works with their customers to respond
with the expertise and appropriate service level required, no matter
the size of the customer’s demand.
The following review reflects constant currency growth rates
unless stated otherwise.
Revenue was £418.3m, a decline of 5% on the prior year (5% at
actual rates). In automotive, again, the developed markets were
weak, particularly in Western Europe. The significant majority
of the Group’s emerging markets business is in AGI and this
registered growth, with a particularly pleasing 10% growth in
revenues in China.
Headline operating profit was £65.9.m (2018: £83.9m),
representing a decline of 21% against the prior period (21% at
actual rates). Return on sales correspondingly declined to 15.9%
(2018: 19.0%), with the most significant drop in Western Europe
where the revenue development was weakest. Statutory operating
profit declined to £62.0m (2018¹: £80.6m).
We spent £45.4m on acquisitions and expansionary capital
expenditure. The two acquired plants were in Slovakia and
Sweden, and fit well with our existing business. We opened a
new plant in the Czech Republic and are investing in a new plant in
Hungary and two new plants in North America, all of which should
become operational in 2020.
Return on capital employed decreased to 13.8% (20181: 18.6%),
reflecting the lower profitability, as well as the continued
investment behind acquisitions and expansionary investment
projects described above, which typically take a number of years
to reach full financial maturity and contribute fully to returns.
1 Restated 2018 for IFRS 16 Leases
23
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Chief Financial Officer’s report
Headline operating cash
conversion was 115% as
the Group continues its
track record of converting
profit into cash.
D. Yates
Chief Financial Officer
Financial overview
Revenue
Headline operating profit
Amortisation of acquired intangible assets
Acquisition costs
Operating profit
Net finance charges
Profit before taxation
Taxation
Profit for the year
2019
£m
719.7
134.9
(4.6)
(1.7)
128.6
(4.7)
123.9
(29.9)
94.0
Restated
2018
£m
728.6
140.7
(3.7)
(0.5)
136.5
(4.3)
132.2
(28.6)
103.6
Group revenue was £719.7m, representing a decline of 1.2% at actual exchange rates, and 2.0% at constant currency.
Headline operating profit for the year declined by 4% to £134.9m (2018: £140.7m), and return on sales was a healthy 18.7%
(2018: 19.3%). Statutory operating profit declined 6% to £128.6m (2018: £136.5m).
24
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Finance charge
The net finance charge was £4.7m in the year compared with
£4.3m in 2018, analysed in the table below. The reader will note
the inclusion of a finance charge associated with right-of-use
assets, which appears for the first time following the introduction
of IFRS 16, and which has increased the Group’s finance charge.
Earnings per Share
Headline earnings per share fell 7% to 52.1p (2018: 55.9p) as
a result of the lower headline operating profit and the higher
headline tax rate. Basic earnings per share for the year fell to
49.4p (2018: 54.2p).
Interest received on bank overdrafts and loans
Loan interest payable
Interest on lease liabilities
Financing and bank charges
Pension finance charge
Total finance charge
Net finance charge
2019
£m
0.2
0.3
2.4
1.9
0.3
4.9
4.7
Restated
2018
£m
0.2
0.1
2.4
1.8
0.2
4.5
4.3
As at 31 December 2019, the Group’s £230m Revolving Credit
Facility was totally undrawn and has a remaining life of 2.3 years.
Profit before Taxation
Headline profit before taxation
Amortisation of intangibles
Acquisition costs
Profit before taxation
2019
£m
130.2
(4.6)
(1.7)
123.9
Restated
2018
£m
136.4
(3.7)
(0.5)
132.2
Statutory profit before tax decreased to £123.9m (2018: £132.2m),
while headline profit before tax decreased 5% to £130.2m
(2018: £136.4m). Acquisition costs increased as we completed
two acquisitions in the first half and worked on the successful
offer for Ellison Surface Technologies, which we expect to
complete soon.
Tax
The headline tax rate for the Group was 23.8%, in line with
guidance given to the market during the year. The increase
compared with the 2018 rate of 21.7% results mainly from
the restriction from 2019 onwards of certain benefits that we
historically enjoyed on our financing arrangements into the US.
The effective statutory tax rate also increased to 24.1% from
21.7% in 2018. The Group’s effective statutory tax rate is impacted
by a certain level of tax risk related to jurisdictions in which the
Group operates. Provisions of £15.3m are carried in respect of
potential future additional tax assessments related to ‘open’
historic tax years. Reference is made in note 6 to the financial
statements for more information.
During the year, the European Commission reached a decision that
certain tax exemptions offered by the UK authorities constituted
State Aid and, as such, will need to be recovered. The UK
government has subsequently appealed against this decision.
In the meantime, the UK tax authorities have indicated that they
will be raising assessments on affected UK companies in line
with the current judgement. To date, Bodycote has not had to
make any payments, nor have we made any provision against this
contingent liability. More details can be found in note 30 to the
financial statements.
Profit before taxation
Taxation
Profit for the year
Basic headline EPS
Basic EPS
2019
£m
123.9
(29.9)
94.0
52.1
49.4
Restated
2018
£m
132.2
(28.6)
103.6
55.9
54.2
Return on Capital Employed
The introduction of IFRS 16 has resulted in changes to the balance sheet.
The key impact on the return on capital employed calculation is
that leased assets now appear on the balance sheet as right-of-use
assets, increasing capital employed. Taking these into account,
return on capital employed (including right-of-use assets) fell in
the year to 17.7% from 18.9% in 2018. The decline in the return
reflects the reduction in profitability, as well as the continued
investment behind acquisitions and expansionary investment
projects, which typically take a number of years to reach full
financial maturity and contribute fully to Group returns.
For completeness, we have also performed the calculations
consistent with previous years, excluding the impact of IFRS 16 on the
profit and loss account and balance sheet. This measure of return on
capital employed fell in the year to 19.2% from 20.5% in 2018.
Cash Flow
2019
2018
79.6
–
(0.2)
–
(4.4)
209.9
Headline operating profit
Depreciation and amortisation
Impairment of PPE
Income from associates
Loss on disposal of business
Profit on disposal of PPE
Headline EBITDA
Net maintenance capital
(50.2)
expenditure
Net working capital movement
(4.2)
Headline operating cash flow 155.5
(3.2)
Restructuring
(4.5)
Financing costs
(24.7)
Tax
123.1
Free cash flow
(32.2)
Expansionary capital expenditure
(36.8)
Ordinary dividend
(29.0)
Acquisition spend
Special dividend
(38.1)
Own shares purchased less SBP
and others
Reduction in net cash
Opening net (debt)/cash
Foreign exchange movements
Closing net (debt)/cash
(4.9)
(17.9)
(44.1)
3.5
(58.5)
Post
IFRS 16
£m
Pre
IFRS 16
£m
134.9 132.6
65.1
–
(0.2)
–
(4.4)
193.1
Post
IFRS 16
£m
Pre
IFRS 16
£m
140.7 138.3
62.0
1.8
–
0.6
(1.8)
217.8 200.9
76.4
1.8
–
0.6
(1.7)
(39.1)
(4.2)
149.8
(3.2)
(2.1)
(24.7)
119.8
(32.2)
(36.8)
(22.9)
(38.1)
(4.9)
(15.1)
36.2
(0.2)
20.9
(48.7)
(3.7)
165.4
(2.8)
(4.3)
(24.5)
133.8
(44.1)
(34.3)
(8.8)
(47.5)
(6.7)
(7.6)
(34.8)
(1.7)
(44.1)
(29.8)
(3.7)
167.4
(2.8)
(1.9)
(24.5)
138.2
(44.1)
(34.3)
(8.8)
(47.5)
(6.6)
(3.1)
39.6
(0.3)
36.2
25
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The introduction of IFRS 16 has resulted in some changes to
the management of cash flow. The key impact of IFRS 16 is that
depreciation increases, thereby increasing EBITDA, whilst, in order
to be able to reconcile the cash flows to the relevant net cash/debt
movements, we have treated lease additions and extensions as a
form of capital expenditure outlay.
For ease of reference, we have shown both the pre and post IFRS
16 cash flows for both years in the table on page 25.
We have also taken the opportunity to make some other changes
to the presentation of the cashflow statement. The key change is
to distinguish maintenance (stay in business) capital expenditure,
which is required for the operations to continue to run smoothly,
from expansionary capital expenditure, which is discretionary in
nature. Expansionary capital expenditure is, therefore, no longer
deducted from free cash flow. We have also taken the logical steps
of combining acquisition costs with the acquisition consideration
and combining the share-based payments add back with the cash
outlay to purchase our own shares (given that we settle share-
based payments by buying shares in the market).
The Group’s headline operating cash flow fell 6% to £155.5m from
£165.4 m, reflecting the lower headline operating profit, as well as
a higher level of expenditure on maintenance capital expenditure.
Headline operating cash conversion was 115% as the Group
continues its track record of converting profit into cash. Free cash
flow correspondingly fell to £123.1m (2018: £133.8m), with free
cash flow conversion at 91% (2018: 95%).
Expansionary capital expenditure and
acquisitions
In 2019, the Group continued to invest. Accordingly, £32m of
capital expenditure was expended on expansionary projects, while
£23m was expended on two acquisitions mid-year (excluding £6m
of lease liabilities acquired). Taken together with the Ellison Surface
Technologies acquisition, which should complete in the coming
days, the Group committed over £200m of investment during the
year for future profitable growth.
Dividend and Dividend Policy
The Group aims to pay ordinary dividends so that dividend
cover will be at or above 2.0 times earnings. 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.
In line with this policy, the Board has recommended a final ordinary
dividend of 14.0p (2018: 13.3p), bringing the total ordinary dividend
to 20.0p (2018: 19.0p). In light of the imminent acquisition of Ellison
Surface Technologies, the Board is not recommending a special
dividend this year (2018: 20.0p). If approved by shareholders, the
final ordinary dividend will be paid on 5 June 2019 to shareholders
on the register at the close of business on 24 April 2020.
Borrowing facilities
The Group is financed by a mix of cash flows from operations,
short-term borrowings, and 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 2019 was £230.0m (2018: £230m).
At 31 December 2019, the facility was undrawn.
Facility
£230m Revolving
Credit
Expiry
date
3 April
2022
Facility
£m
Facility
utilisation
£m
Facility
headroom
£m
230.0
–
230.0
Post balance sheet events
Bodycote announced the agreement to purchase Ellison Surface
Technologies (‘Ellison’) in December 2019 for gross consideration
of £154m, to be settled through the Group’s existing committed
funding facilities. Refer to note 25 on page 125 for further details.
Alternative performance measures
Bodycote uses alternative performance measures such as headline
operating profit, headline earnings per share, headline profit before
taxation, headline operating cash flow, headline operating cash
conversion and free cash flow, together with current measures
restated at constant currency. These assist users of the financial
statements to gain a clearer understanding of the underlying
performance of the business, allowing the impact of restructuring
and reorganisation activities, and acquisition costs to be identified
separately. These alternative performance measures can be found
in Note 1 to the accounts.
Going concern
In determining the basis of preparation for the Annual Report and
the Group’s viability statement, 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 2019 were as follows:
■■ £230m Revolving Credit Facility maturing 3 April 2022
The December 2019 weighted average life of the committed
facilities was 2.3 years.
The Group’s forecasts and projections, taking account of
reasonable potential changes in trading performance, show that
the Group should be able to operate within the level of its current
committed facilities.
The Directors have reviewed forecasts and projections for the
Group’s markets and services, assessing the committed facility
and financial covenant headroom, central liquidity and the Group’s
ability to access further funding. The Directors also reviewed
downside sensitivity analysis over the forecast period, thereby
taking into account the uncertainties arising from the current
economic environment. Following this review, the Directors
have formed a judgement, at the time of approving the financial
statements, that there is a reasonable expectation that the Group
has adequate resources to continue in operational existence for the
foreseeable future. For this reason, the Directors continue to adopt
the going concern basis in preparing the financial statements.
D. Yates
Chief Financial Officer
12 March 2020
26
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Principal risks and uncertainties
The Board is responsible for the Group’s risk management and determining the Group’s risk appetite. The review of financial risk has
been delegated to the Audit Committee. The Group’s risk framework, using a variety of top down and bottom up approaches, is used to
identify, monitor and report risks. Risk registers are maintained throughout the business and the content of these are discussed at regular
meetings with senior management. Risks 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 including that
of internal audit.
The Group Head of Risk is supported by the Risk and SHE Committee, which met three times during 2019, attended by a Vice President
from each of the operating divisions, the Group Head of SHE and the Group General Counsel. The Risk and SHE Committee assists the
Group Head of Risk in identifying critical risks, embedding risk management and facilitating the implementation of risk management
measures throughout the Group. The Group Head of Risk provides an update to the Executive and Audit Committees on the Group’s risk
activities at every meeting and a comprehensive review of the Group’s business critical and emerging risks is presented to the Board in
June and in December. The Board concluded that an ongoing process of identifying, evaluating and managing the Group’s significant and
emerging risks has been in place throughout 2019, and up to the date of the approval of the annual report ,and that a robust assessment
of the principal and emerging risks had been undertaken.
The table below highlights the major risks that may affect Bodycote’s ability to deliver the strategy, as laid out on page 12. The risks to
the business have been reviewed throughout the year and remain unchanged from the previous year.
Per the criteria that the Board has agreed to assess potential risks, they may be classified as principal risks by virtue of their potential
financial impact on the Group in the foreseeable future, in combination with the likelihood of this impact occurring and taking into account
the appropriate mitigating controls.
The Board continues to review the potential risks relating to Brexit. The Board maintains the view that Brexit will not have a material
impact on Bodycote as customers are served locally and therefore cross-border trading is not material.
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 17 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.
The Board recognises that 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.
Emerging risk
In 2019 Bodycote implemented an emerging risk identification process based around horizon scanning. This process was aligned with
the Group’s existing risk management processes but was performed and reported separately.
The emerging risks identified have been reported against two time periods: 0 to 3 years and 3 years and longer. Each risk was assessed
as to its potential impact on the Group: high, medium or low. Any risk in the 0 to 3 years having a high potential was also included in the
principal risk review – the only risk in this category is ‘markets risk’. The emerging risk process identified a number of potential risks to the
Group posed by the wider effects of climate change on Bodycote’s business. The Board concluded that the effects of climate change do
not currently qualify as a principal risk for the Group but this will be regularly monitored as part of the emerging risk process.
Risk description
Market and customer risks
Impact
Mitigation and control
Relevance
to strategy
Markets
Increasing
The high proportion of short-term
fixed costs in the business means
that a drop in sales will have a
significant impact on profitability.
Bodycote operates in 23 countries and
the Group’s revenues are closely linked
to general macroeconomic trends and the
economic environment. While there are
uncertainties as a result of Brexit these are
not expected to have a material transactional
impact as customers are typically served
locally and cross-border trading is not material.
The economic environment can also be
impacted by global issues such as pandemics
including coronavirus (COVID-19) which
developed in early 2020. While the duration
and impact of COVID-19 are both uncertain
supply chains are being disrupted inside and
outside of China.In the short term the impact
on the Group is not significant although the
flow of goods to our Chinese plants is being
disrupted. However, a wider or prolonged
disruption to world-wide supply chains leading
to an economic slow-down could materially
impact upon the Group’s revenues.
■■ Bodycote’s presence in 23
countries servicing more than
40,000 customers across a wide
variety of end-markets acts as
a natural hedge to neutralise
localised economic volatility
and component life cycles.
■■ There is some short-term
flexibility in the cost base
(e.g. by ensuring that a proportion
of the workforce is employed
on temporary contracts) and
changes in customer demand
are responded to quickly.
■■ It should be noted that revenues
for the UK represent only 9%
of Group revenues, with the
significant majority of its business
coming from UK customers.
■■ China only represents around
2.5% of Group turnover.
27
Additional informationGovernanceAdditional informationGovernanceFinancial statementswww.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report
Principal risks and uncertainties continued
Risk description
Market and customer risks
Loss of key customers
Impact
Stable
Mitigation and control
Relevance
to strategy
Although the Group does not
rely on any individual major
customers, 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.
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. A number of customers, mainly in
North America, are being impacted by the
temporary halt in production of the Boeing
737 Max. While the production halt is not
significantly impacting upon the Group’s
turnover there is a risk the production halt
could result in a number of customers
failing, and the longer the production halt,
the greater this risk. At the same time,
sustained disruption is also likely to provide
opportunities for longer-term gain.
Competitor action
Stable
The entry of competitors into one or more
of the Group’s Specialist Technologies.
The erosion of market share
resulting in loss of revenue
and profit.
Corporate and community risks
Safety and health
Stable
The nature of Bodycote’s activities
presents safety and health risks.
Bodycote is committed to
providing a safe work environment
for its employees but Bodycote’s
operations, if not properly
managed, could have a significant
impact on individual employees.
Furthermore, poor safety and
health practices could lead to
disruption of business, financial
penalties and loss of reputation.
■■ The Group has more than 40,000
customers and there is no
significant customer dependency,
with the Group’s top ten
customers accounting for less
than 16% of revenues.
■■ There is an ongoing focus on
customer service and quality
processes to maintain excellent
relationships with customers.
Key account management is in
place where this is required to
deliver good customer service.
■■ The close control of
proprietary knowledge.
■■ Rapid increase in the scale of
the Group’s offerings to maintain
the position as supplier of choice.
■■ A focus on customer service to
ensure that satisfied customers
have no cause to seek
alternative suppliers.
■■ 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.
■■ 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
Risk and SHE Committee.
28
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Risk description
Corporate and community risks continued
Environment
Impact
Stable
Actual or potential environmental
contamination could lead to health risks,
disruption of business, financial costs and
loss of reputation. There is increasing focus
by regulators and activists on climate change
and while the Group does not currently
consider this to be a principal risk this is
being closely monitored as part of the
Group’s emerging risk process.
Bodycote is committed to
providing the highest level of
protection to the environment.
Environmental regulators in many
jurisdictions in which Bodycote
operates can impose obligations on
Bodycote to investigate potential
contamination and remediate
where required.
Operational risks
Service quality
The Bodycote brand is reliant on the
repeatable delivery of parts to agreed
specification to an agreed time.
Stable
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.
Customers are tending to demand
higher liabilities in respect of
any quality defects or delays on
Bodycote’s part.
Major disruption at a facility
Stable
Any significant incident at a site
could result in the service to
Bodycote’s customers from the
affected site being disrupted.
Bodycote’s facilities are subject to man-made
and natural hazards that could lead to the
closure of a facility. A number of business
processes are inherently risky and there is
a possibility that a major incident, such as a
fire or utility outage, could occur. In addition
a number of sites are exposed to natural
hazards, such as earthquakes, flooding
and storms. Similarly, facilities can also be
impacted by industrial action of employees.
None of the Group’s facilities suffered any
significant disruption during 2019.
Mitigation and control
Relevance
to strategy
■■ Environmental procedures and
measures in place conforming
to ISO 14001.
■■ Environmental due diligence of
businesses for acquisition.
■■ Remediation of contaminated
sites or additional emission
abatement as required by
local legislation.
■■ Close monitoring of climate
change risks and opportunities.
■■ 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
IATF 16949.
■■ All plants subjected to internal
and external quality audits and
inspections at least once a year.
■■ Bodycote carefully negotiates
terms and conditions associated
with the supply of services to its
customers, carefully managing
potential liabilities.
■■ Bodycote has a global network
of more than 185 facilities.
These facilities create a
framework to provide backup
capability for affected facilities.
■■ Business continuity plans are
in place for all plants. These are
updated and tested annually.
■■ The Group’s property and
business interruption loss
reduction programme is focused
on high risk processes.
■■ Independent insurer inspections
to assess hazard and business
interruption risks.
■■ Insurance cover, including
business interruption cover.
■■ Scheduled equipment
maintenance and inspections.
29
Financial statementsAdditional informationGovernanceAdditional informationGovernanceFinancial statementswww.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Principal risks and uncertainties continued
Risk description
Operational risks continued
Capital projects
Impact
Stable
The Group invests capital in developing
existing plants as well as into Greenfield
developments and acquisitions. This risk
was reviewed by the Board during 2018 and
additional controls have been implemented
during 2019. As a result this risk has moved
from increasing to stable.
The Group is undertaking a
higher number of capital projects.
This may cause projects to be
delivered late or at a higher cost
than forecast. Market conditions
may also change making a
project less profitable than
initially projected.
Information Technology projects
Increasing
Mitigation and control
Relevance
to strategy
■■ There is a well-established
capital investment approval
process that applies to all major
capital projects.
■■ Financial controls have been
enhanced to improve both
the reporting and monitoring
of projects.
■■ Technical Services departments
are being established, one of
whose responsibilities is to
improve the management and
oversight of key capital projects.
■■ All major projects are subject to
post implementation reviews.
The Group relies upon its IT systems
including a range of ERP solutions
to manage its operations. There are
increasing global threats faced by these
systems from sophisticated cyber-
attacks, including ransomware and
phishing. These attacks could result in
systems becoming unavailable for periods
of time with customer, financial and
reputational impacts.
A significant failure of IT systems
as a result of external factors,
such as a cyber-attack, could
disrupt service to our customers,
and result in reputational loss
and financial loss.
■■ The Group has robust governance
processes to ensure that IT
projects are properly reviewed
and approved to ensure that they
are consistent with the Group’s
IT strategy.
■■ Increased focus on IT security
management processes
including the use of antivirus
and malware software, firewalls
and the provision of IT security
awareness training.
■■ Well protected data centres with
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.
■■ An ‘Open Door Line’ whistle-
blower facility, managed by a
third party, for employees and
temporary workers to report any
concerns they may have in their
own language. The effectiveness
of this process was reviewed and
reported to the Audit Committee
in 2019.
■■ Engagement of local specialists
to support Bodycote at local,
divisional and Group level.
■■ Regular audit of the effectiveness
of implemented procedures.
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 modern slavery, anti-bribery
and anti-competition legislation, taxation
legislation, employment law and import
and export controls.
Stable
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.
30
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report 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 2019 financial year. This longer-term assessment process supports the Board’s statements on both viability, as set out
below, and going concern (on page 26). The Directors have determined that a three-year period is an appropriate period over which the
business could be restructured in the event that any material changes to demand for the Group’s services transpired. This period is also
consistent with that used for the Group’s planning process. As a result, the Board determined that a period of longer than three years
would not be meaningful for the purpose of concluding on longer-term viability.
The forecast used considers metrics which enable the 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.
As part of the forecast, we have also considered the impact of the pending Ellison Surface Technologies acquisition on these key
performance indicators.
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 1 to 37).
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 no order backlog. The Directors’ viability assessment included
a review of the sensitivity analysis performed on the three-year plan, whereby the principal risks were applied to the plan in a number of
diverging scenarios. The developed scenarios were designed to be plausible, yet severe. Examples of the scenarios reviewed were:
■■ A decrease in forecast group revenue of 10%
■■ An increase of 10 days in forecast debtor days
■■ A 10% strengthening of sterling against other currencies
The combined effect of those elements was also reviewed, to reflect the effects of an economic downturn.
In making this viability statement the Directors considered the mitigating actions that are 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 2019, with
net cash of £20.9m, 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 2022.
31
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Total Recordable Case rate (TRC)¹
2.7
2.7
2.8
2.8
2.6
2015
2016
2017
2018
2019
Carbon footprint2
(tonne CO2e/£m sales normalised3)
477.2
472.1
471.3
458.6
456.4
2015
2016
2017
2018
2019
Water consumption
(thousand m3/£m sales normalised3)
1.27
1.39
1.33
1.31
1.29
2015
2016
2017
2018
2019
Chlorinated solvents
(kg/£m sales normalised3)
101.2
100.7
92.7
82.0
96.1
2015
2016
2017
2018
2019
ISO 14001 accredited facilities
(%)
91
89
87
90
90
2015
2016
2017
2018
2019
1 Total reportable case rate is the number of lost time injuries, medical treatment
cases and restricted work cases X 200,000 hours, divided by the total number
of employee hours worked
2 CO2e is carbon dioxide equivalent, which represents the CO2 release due to
our energy usage
3 Normalised statistics restate prior year figures using current year IEA carbon
conversion factors and current year average exchange rates
32
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.
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, customers, and society/communities.
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. We aim 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. The Group is committed to providing
the appropriate skills and training which will allow its employees
to operate effectively and safely in their roles and deliver results.
Regular internal customer satisfaction surveys are undertaken
that provide feedback to the Shared Services Centres and IT.
Overall satisfaction levels are good.
A tool to develop further understanding and skill in the area of
performance management is in place and is being used globally
through our management population. Through communication
of clear messages coupled with skills development, the
organisation aims to raise the capability of its management 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 during 2019 was 43%
(2018: 43%) and at manager level it is 25% (2018: 26%).
Females represent 19% (2018: 19%) of our total workforce.
Total Male Female
Directors
Managers
Other staff
Male Female
3
19
1003
1025
4
57
4287
4348
7
76
5340
5373
Total
57% 43% 100%
75% 25% 100%
81% 19% 100%
81% 19% 100%
The overall UK gender pay gap figures are published on our
website www.bodycote.com. The UK mean gender pay gap is 4%
in favour of women.
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report
Diversity and inclusion
The Group is committed to being an inclusive and respectful
employer that welcomes diversity and promotes equality.
We regularly review our recruitment and working practises
to identify how we can continue to attract and retain a diverse
workforce. We recognise that diversity enriches our solutions
and adds value for our stakeholders. In accordance with our
HR policy that includes equal opportunities, we give full and
fair consideration to all employment applicants. Recruitment,
training, reward and career progression are based purely on merit.
Wherever possible, we also accommodate part-time, agile and
flexible working requests.
Health and well-being
We recognise that individuals work best and can achieve
sustainable high-performance over time when they are healthy
and feeling valued. This is supported by our culture, leadership
and how we manage our people.
Culture and Values
It is not just important what we do but how we do it and how
we behave in our Company. How we operate as a Group and
the behaviours that we expect from all our employees are
expressed in our Core Values. Our values represent Bodycote
and its people and our commitment to the Company and
the business.
Our Core Values are straightforward and are 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 we interact with. 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.
The Modern Slavery Act
Bodycote plc has conducted a risk assessment on our supply
chain using the UK Government’s published guidance entitled
‘Transparency in Supply Chains’. Suppliers in those countries
identified in Walk Free Foundation’s 2016 Global Slavery Index
as being the most vulnerable to human rights issues in the supply
chain have been identified for further review and audit. All relevant
employees undergo Anti-Slavery training.
We have a Code of Conduct which sets out our policy on
compliance with legislation, child labour, anti-slavery and human
trafficking, and conditions of employment, health and safety and
the environment.
The Anti-Slavery and Human Trafficking statement was reviewed
by our Board of directors in June 2019 and was published on our
website. The statement will be reviewed on an annual basis.
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. Our operations are international but our strength lies
in the local nature of our plants that are close to our customers.
We encourage fundraising activities championed by our plants
and their employees locally.
33
Financial statementsAdditional informationGovernanceAdditional informationGovernanceFinancial statementswww.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Corporate responsibility and sustainability continued
Responsible business ethics
The Group has a robust governance structure in place to
support business ethics and a series of policies which details
its commitments and standards in this area. We recognise that
rules alone are not sufficient to ensure wrongdoing is avoided
– a combination of rules and values is needed to help embed
a healthy business culture. The Group’s approach is to set the
tone of an ethical business culture from the top, demonstrating
commitment to the right values and behaviours of all employees.
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, the share dealing code.
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 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 confidentially, verbally or in writing, to an
independent third party provider, ensuring anonymity.
Responding when wrongdoing is reported
When incidents are reported, whether through internal or
external mechanisms, they are passed to the Group Head of
Risk for investigation and determination of the appropriate
steps to be taken for the matter to be addressed.
Supporting employees who speak up
When our employees do the right thing by speaking up against
instances of wrongdoing, we believe it is crucial that the
Group also does the right thing and ensures that there are
no repercussions for their actions.
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.
Operational SHE performance
Bodycote is committed to continuous improvement in our safety,
health and environmental performance (SHE). We are committed
to complying with all local legislative requirements as a minimum
and establishing consistent and robust best practices at all of our
sites, enabling the delivery of 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 uses a global incident reporting and SHE management
tool at every site and this enables more consistent and thorough
reporting of workplace injuries, near misses and unsafe conditions.
A key element in the Bodycote SHE strategy is the development
of a strong SHE culture that supports and values the identification
and reporting of near misses, unsafe acts or conditions,
and suggestions for improvement – collectively known as
‘opportunities for improvement’ (OFIs). In 2019 the number of
OFIs reported by employees continued to increase across the
Group by a further 8% from 2018. This improvement demonstrates
stronger engagement of employees in proactively raising and
rectifying safety issues. Accidents, though regrettable and
unacceptable, represent learning opportunities, and for this reason
accurate reporting is an essential part of building a robust safety
management system.
The most frequent cause of recordable cases relates to manual
handling of parts and lifting operations. This area has a number of
underlying causes and therefore continues to be a focus for risk
reduction activities over the next few years.
In 2019, Group SHE capital investment continued in the areas of
pedestrian safety and ergonomics/manual handling improvements
to reduce accident frequency and address the severity of risk in
these areas. In addition, new risk areas were added for Group SHE
capital investment including: slips, trips and falls; material handling;
and fire and explosion.
All reportable cases and lost time injuries are reviewed during
Executive Committee meetings and by the Board. In addition,
the Executive Committee reviews incidents which do not result in
injury but are considered to have been serious or to have had a high
potential impact. All serious incidents and high potential incidents
are reviewed by the Group SHE Committee and cascaded as
appropriate within the business to ensure that preventive actions
are taken.
In 2019, the Total Reportable Case (TRC) rate increased to
2.8 (2018: 2.6), and the Lost Time Injury (LTI) rate decreased
to 1.4 (2018: 1.7).
34
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Total Recordable Case rate (TRC)
Total Reportable Cases (TRC) include:
■■ Any lost time incident (>1 day or shift, not including the day
of the accident)
■■ Any restricted work case (where the injured person cannot
do their usual work)
■■ Any medical treatment case (specialist medical treatment,
not first aid)
In 2019, the TRC rate was 2.8.
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 reuse heat energy. In order to lessen
the impact on the environment, Bodycote seeks to gain ISO 14001
accreditation at all of our operational facilities.
At every stage where Bodycote is involved in the manufacturing
cycle, our operational aim is to reduce the overall impact on the
environment, not just in our own operations, but also those of
our customers. Bodycote operates modern, efficient equipment,
which is operated around the clock so as to optimise 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, improving
metallurgical properties and 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. The treated parts often last
up to twenty times longer than the original.
While thermal processing is an energy-intensive business, it is
a vital part of the manufacturing supply chain and its use saves
the energy it consumes many times over. Moreover, by effectively
consolidating the heat treatment requirements of our many
thousands of customers, Bodycote significantly reduces the overall
required energy consumed compared with the energy that would
be consumed if each customer treated their own products. In this
regard, Bodycote should be viewed as an enabler to the goal of
a reduction in emissions.
Greenhouse gas emissions
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 Group collects electricity and natural gas usage information
from each facility on a monthly basis. The Group then applies the
DEFRA and International Energy Agency (IEA) published national
carbon conversion factors to calculate the total tonnage of CO2e
produced, which along with the geographical sales for the year
provides the tCO2e per £m of sales, normalised.
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.
2019
2018
2018 (normalised)
CO2e
emissions
(ktCO2e)
142.6
174.4
316.9
Intensity
ratio
(tCO2e/£m)
198.1
242.3
440.4
CO2e
emissions
(ktCO2e)
145.0
192.0
336.9
Intensity
ratio
(tCO2e/£m)
199.0
263.5
462.5
CO2e
emissions
(ktCO2e)
145.0
185.4
330.4
Intensity
ratio
(tCO2e/£m)
197.0
252.0
449.0
Scope 1
Scope 2
Statutory total1
1 Statutory carbon reporting disclosures required by Companies Act 2006
35
Financial statementsAdditional informationGovernanceAdditional informationGovernanceFinancial statementswww.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Corporate responsibility and sustainability continued
Total Energy Consumption
2019
Group
Energy
consumption
kWh
UK Energy
consumption
kWh
Proportion
of energy
consumed in
the UK
Total Energy
Consumption kWh 1,342,804,654
103,680,543
7.7%
In 2019 the aggregate of the annual quantity of energy from
activities for which the company is responsible worldwide and the
annual quantity of energy consumed resulting from the purchase of
electricity, heat, steam or cooling by the company for its own use
was 1,342,804,654 kWh; the proportion of that figure that relates
to energy consumed in the UK is 7.7%.
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 sites. At the end of 2019, 90% (159 of our
operating facilities) had achieved or maintained ISO 14001:2015
accreditation (2018: 90%). The remaining 10% of operational plants
are working towards accreditation. The accreditation rates for 2019
have remained at 90% due to the gain and loss of businesses
throughout the year.
Carbon footprint and water consumption
The absolute energy usage in 2019 decreased by 3.7% and per £m
sales (at constant exchange rates) decreased by 1.7%.
The total CO2e emissions per £m sales in 2019 were 440.4 Te
(2018: normalised1 449.0 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.
Bodycote aims to reduce water consumption wherever possible,
however, as part of some of our processes, water is used for either
cooling operational equipment, or for washing customer parts.
Any water discharge resulting from these operations is controlled,
for example at some facilities, interception tanks capture water
discharged allowing it to be checked for any contaminant levels,
and ensuring it is of an acceptable level prior to final discharge.
In addition to this, at many facilities there is a requirement to have
backflow protectors in place protecting water supplies in the local
area. All such control measures are verified by both internal and
external auditing in line with ISO 14001:2015 to ensure compliance
with legal obligations.
On a normalised1 basis, water usage per £m sales in 2019
decreased by 1.0%. On a non-normalised basis, water usage per
£m showed a decrease of 2.0%.
The Energy Efficiency Directive 2012/27/EU is transposed into
local legislation and requires sites to monitor energy usage and
assess energy reduction opportunities additionally to ongoing
energy-saving activities. One mechanism for ensuring compliance
is for sites to become certified to ISO 50001 (Energy Management
Systems standard). This enables the consistent measurement of
energy usage and targets the most effective ways of reducing
energy usage. All Bodycote sites in Austria, Denmark and the
Netherlands are certified and 62% of our sites in Germany are
certified. The UK is compliant to the Energy Efficiency Directive
2012/27/EU under the Energy Savings Opportunity Scheme
(ESOS).
Examples of energy improvement projects undertaken across
Bodycote sites in 2019 are discussed below.
The continued replacement of traditional lighting with LED for
environmental and improved safety has resulted in further CO2
reductions. Specifically, our sites at Marchtrenk and Nürnberg will
benefit from projected total savings of 14.6 Te CO2 annually.
Improvements to cooling systems at the Tilburg and Lüdenscheid
plants are projected to save a projected 9.2 TeCO2 annually.
Modifications to improve furnace efficiency at Remscheid,
Tilburg and Lüdenscheid will result in a projected saving of 544.1
TeCO2 annually.
Bodycote submits data on CO2 usage to the Carbon Disclosure
Project, one of the leading carbon reporting and verification bodies.
In 2019 the Company maintained its “C” rating.
Chlorinated solvent use
Cleaning and degreasing of components is a necessary step in
virtually all thermal processing work. For many years Bodycote
has been moving customers to change their specifications from
Trichloroethylene (TCE) to the more benign Perchloroethylene
(PCE), or, where possible, away from chlorinated solvent cleaning
altogether. For reference, PCE is the chemical of choice in the
garment dry cleaning industry. Our use of TCE has now been
virtually eliminated with only residual work being carried out on
customer components where the customer insists that changing
the specification would endanger the viability of their product.
Bodycote’s use of PCE has remained relatively stable over the
last five years, varying around a relatively low level, according to
the mix of customer components processed and absolute volume
of sales.
Waste
As we provide a service to our customers, customer goods
generally arrive in customers’ containers and leave the plant in
customers’ containers. Direct waste is therefore not a significant
environmental impact for our business as it is principally limited
to office materials, packaging and containers from maintenance
supplies plus chemical and oil waste from maintenance activities.
All waste is segregated into waste streams and disposed of in
accordance with local legislation. Waste transfer arrangements are
validated via internal and external audit mechanisms.
Cautionary statement
The Strategic report (pages 1 to 37) has been prepared solely to
provide information to shareholders to assess how the Directors
have performed their duty to promote the success of the Group.
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
12 March 2020
1 Normalised statistics restate prior year emissions using current year IEA carbon
conversion factors and current year average exchange rates
36
Bodycote plc annual report 2019Strategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report Non-financial information statement
Relevant to
UN Sustainable
Development
Goals
Standards, policies
and actions which
govern our approach
Where to
find further
information
Key
metrics
Internal processes
to monitor
performance
Environmental
For further information
pages: 32 to 36
Visit bodycote.com
Progress on reductions
in carbon footprint,
water consumption,
chlorinated solvents
Energy and Greenhouse
gas management is
tracked per facility
monthly.
Social
For further information
pages: 32 to 34
Visit bodycote.com/
investors/governance
% of female
representation in total
workforce and on
Executive Committee
and Board of Directors
Lost work case
incident rate
Recordable incident rate
UK Gender Pay Gap
Report
Executive committee
monitors SHE
performance on a
monthly basis.
Executive committee
monitors employee
turnover rate
performance on
a monthly basis.
Regular Open Door
incident update to the
Board and Executive
committee.
Business Governance
For further information
pages: 32 to 34
% of relevant employees
trained on our policies
Visit bodycote.com/
investors/governance
# of breaches
The implementation
and effectiveness of
the training is overseen
by the Group General
Counsel and Group
Company Secretary.
■■ Safety, Health, &
Environment (SHE) Policy
■■ Carbon Footprint & Water
consumption statements
■■ Reduction of greenhouse
gas emissions
■■ Graduate
& Apprenticeship
Programme
■■ Performance Goal
Management System
■■ Safety, Health, &
Environment (SHE) Policy
■■ Succession
Planning Process
■■ Equal Opportunities Policy
■■ Data Protection Policy
■■ Open Door Policy
■■ Dignity at Work Policy
■■ Core Values
■■ Code of Conduct
■■ Ethics Policy
■■ Anti-Slavery & Human
Trafficking statement
■■ Human Rights policy
■■ Anti-Bribery &
Corruption policy
■■ Competition &
Anti-Trust Policy
■■ Control &
Compliance Statement
■■ Tax Strategy
37
Financial statementsAdditional informationGovernanceAdditional informationGovernanceFinancial statementswww.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportStrategic report
Board of Directors
Executive Directors
Non-Executive Directors
Stephen Harris
GROUP CHIEF EXECUTIVE
Dominique Yates
CHIEF FINANCIAL OFFICER
Anne Quinn CBE
CHAIR
Ian Duncan
SENIOR INDEPENDENT DIRECTOR
Eva Lindqvist
Patrick Larmon
Lili Chahbazi1
Ute Ball
NON-EXECUTIVE DIRECTOR
NON-EXECUTIVE DIRECTOR
NON-EXECUTIVE DIRECTOR
GROUP COMPANY SECRETARY
APPOINTED:
November 2008, and Chief
Executive from January 2009.
E
External roles
Senior Independent Director for
Mondi plc
Past roles
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.
APPOINTED:
November 2016
E
APPOINTED:
January 2018
N
APPOINTED:
November 2014
A R N
APPOINTED:
June 2012
R A N
APPOINTED:
September 2016
A R N
APPOINTED:
January 2018
A R N
External roles
None.
External roles
None.
Past roles
Held various senior positions
in Imperial Tobacco Group plc
followed by Chief Financial
Officer positions at Symrise
AG, LM Windpower and most
recently at Regus plc from 2011
to 2015.
Past roles
Worked in various roles for NZ
Forest Products Ltd, followed
by management consultancy
with Resource Planning
Associates, a management
position with Standard Oil and
various senior management
roles with BP plc from 1987
to 2007. Managing Director of
Riverstone Holdings LLC from
2008 to 2009. Non-Executive
Director of BOC Group plc from
2004 to 2006, Non-Executive
Director and Remuneration
Committee Chair as well as
Senior Independent Director of
Mondi plc from 2007 to 2017
and Non-Executive Director and
Remuneration Committee Chair
of Smiths Group plc from 2009
to 2018.
External roles
Non-Executive Director and
Chairman of the audit committee
of Babcock International Group
plc since 2010 and a Non-
Executive Director and Chairman
of the audit committee of SIG plc
from 2017.
Past roles
Worked on a variety of audits
with Deloitte & Touche, followed
by four years with Dresdner
Kleinwort Wasserstein.
From 1990 to 1992 he worked
for Lloyds Bank plc and then
switched to British Nuclear Fuels
plc from 1993 to 2006. In 2006
he took on the role of Group
Finance Director with Royal Mail
Holdings plc leaving in 2010.
He was Non-Executive Director
of Fiberweb plc during 2013,
Mouchel Group from 2013 to
2015 and WANdisco plc from
2012 to 2016.
Qualifications
Chartered Engineer, graduated
from Cambridge University,
Master’s degree in business
administration from the
University of Chicago, Booth
School of Business.
Qualifications
Chartered Accountant, graduated
from Bristol University in
Economics and Accounting.
Qualifications
B.Com University of Auckland
and MSc Management Sciences,
Massachusetts Institute
of Technology.
Qualifications
Chartered Accountant, qualified
with Deloitte & Touche after
graduating from University
of Oxford.
Skills and experience
■■ Management
■■ Leadership
■■ Mergers and acquisitions
■■ International operations
■■ Emerging markets
■■ Engineering
■■ Service industry
■■ Capital intensive industry
Skills and experience
■■ Leadership
■■ International operations
■■ Mergers and acquisitions
■■ Emerging markets
■■ Current financial experience
■■ Service industry
Skills and experience
■■ International operations
■■ Emerging markets
■■ Mergers and acquisitions
■■ Management
■■ Leadership
■■ Manufacturing
■■ Capital intensive industry
■■ Managing Director
Skills and experience
■■ International operations
■■ Current financial experience
■■ Supply chain and logistics
■■ Mergers and acquisitions
■■ Service industry
38
External roles
External roles
External roles
Non-Executive Director of
Non-Executive Director of
Sweco AB since 2013, Tele 2 AB
Huttig Building Products Inc.,
from 2014 and Keller Group plc
a NASDAQ listed international
Strategy consultant and
since 2008 a global partner
in the London office of Bain
since 2017.
distributor of construction
products since 2015.
& Company.
Past roles
Lili began her career as an
actuary before joining Bain
& Company.
Past roles
Past roles
Began her career in various
positions with Ericsson working
in Continental Europe, North
America and Asia from 1981 to
1990 followed by director roles
Executive Vice President and
owner of Packaging Products
Corporation until 1990 when
the company was acquired by
Bunzl plc. Held various senior
with Ericsson from 1993 to 1999.
management positions for
Joined Teliasonera in 2000 as
over 13 years before becoming
Senior Vice President moving to
President of Bunzl’s North
Xelerated initially as Chairperson
America business in 2003, then
and later as Chief Executive from
Chief Executive Officer, North
2007 to 2011. Non-Executive
America, of Bunzl plc in 2004,
Director of Transmode Holdings
joining the Bunzl plc board in
AB from 2007 to 2013, Blekinge
2005. Retired from Bunzl plc on
31 December 2018.
Registered office
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
Tel: +44 1625 505300
Fax: +44 1625 505313
Registered Number 519057
England and Wales.
Institute of Technology from
2010 to 2013, Tieto Corporation
from 2010 to 2016, Assa Abloy
from 2008 to 2018, Caverion
Oy from 2013 to 2018, Alimak
Holding from 2015 to 2018,
Micronic Mydata AB from 2013
to 2016, and Mr Green & Co AB
from 2016 to February 2019.
of Technology, Diploma in
Marketing from IHM Business
School and MBA Financial
Analysis from University
of Melbourne.
Skills and experience
■■ International operations
■■ Manufacturing
■■ Engineering
■■ Technology
■■ Mergers and acquisitions
■■ Service industry
■■ Sales and marketing
■■ Sustainability
Qualifications
Qualifications
Qualifications
Engineer, graduated with a
Graduated from Illinois
Masters from Linköping Institute
Benedictine University (major
Economics & Business
Economics) followed by
achieving Certified Public
Accountant, followed by an
MBA from Loyola University
of Chicago and a Masters of
International Business from
St. Louis University.
Skills and experience
■■ International operations
■■ Mergers and acquisitions
■■ Service industry
■■ Manufacturing
■■ Distribution
■■ Sales and marketing
■■ Chief Executive Officer
Graduated with a BSc in
Mathematics from Concordia
University, Montreal followed
by an MBA from INSEAD,
Fontainebleau. Associate of
the Society of Actuaries.
Skills and experience
■■ Strategy and consultancy
■■ International operations
■■ Mergers and acquisitions
■■ Oil & gas industry
■■ Business services industry
■■ Oilfield services and engineering
services industries
■■ Transport industry
Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance KEY TO COMMITTEES:
E Executive
N Nomination
R Renumeration
A Audit
Committee Chair
Stephen Harris
Dominique Yates
Anne Quinn CBE
Ian Duncan
GROUP CHIEF EXECUTIVE
CHIEF FINANCIAL OFFICER
CHAIR
SENIOR INDEPENDENT DIRECTOR
Eva Lindqvist
NON-EXECUTIVE DIRECTOR
Patrick Larmon
NON-EXECUTIVE DIRECTOR
Lili Chahbazi1
NON-EXECUTIVE DIRECTOR
Ute Ball
GROUP COMPANY SECRETARY
APPOINTED:
November 2016
E
APPOINTED:
January 2018
N
APPOINTED:
November 2014
A R N
APPOINTED:
June 2012
R A N
APPOINTED:
September 2016
A R N
APPOINTED:
January 2018
A R N
Registered office
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
Tel: +44 1625 505300
Fax: +44 1625 505313
Registered Number 519057
England and Wales.
External roles
Non-Executive Director of
Sweco AB since 2013, Tele 2 AB
from 2014 and Keller Group plc
since 2017.
External roles
Non-Executive Director of
Huttig Building Products Inc.,
a NASDAQ listed international
distributor of construction
products since 2015.
External roles
Strategy consultant and
since 2008 a global partner
in the London office of Bain
& Company.
Past roles
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 Chairperson
and later as Chief Executive from
2007 to 2011. Non-Executive
Director of Transmode Holdings
AB from 2007 to 2013, Blekinge
Institute of Technology from
2010 to 2013, Tieto Corporation
from 2010 to 2016, Assa Abloy
from 2008 to 2018, Caverion
Oy from 2013 to 2018, Alimak
Holding from 2015 to 2018,
Micronic Mydata AB from 2013
to 2016, and Mr Green & Co AB
from 2016 to February 2019.
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.
Skills and experience
■■ International operations
■■ Manufacturing
■■ Engineering
■■ Technology
■■ Mergers and acquisitions
■■ Service industry
■■ Sales and marketing
■■ Sustainability
Past roles
Lili began her career as an
actuary before joining Bain
& Company.
Past roles
Executive Vice President and
owner of Packaging Products
Corporation until 1990 when
the company was acquired by
Bunzl plc. Held various senior
management positions for
over 13 years before becoming
President of Bunzl’s North
America business in 2003, then
Chief Executive Officer, North
America, of Bunzl plc in 2004,
joining the Bunzl plc board in
2005. Retired from Bunzl plc on
31 December 2018.
Qualifications
Graduated from Illinois
Benedictine University (major
Economics & Business
Economics) followed by
achieving Certified Public
Accountant, followed by an
MBA from Loyola University
of Chicago and a Masters of
International Business from
St. Louis University.
Skills and experience
■■ International operations
■■ Mergers and acquisitions
■■ Service industry
■■ Manufacturing
■■ Distribution
■■ Sales and marketing
■■ Chief Executive Officer
Qualifications
Graduated with a BSc in
Mathematics from Concordia
University, Montreal followed
by an MBA from INSEAD,
Fontainebleau. Associate of
the Society of Actuaries.
Skills and experience
■■ Strategy and consultancy
■■ International operations
■■ Mergers and acquisitions
■■ Oil & gas industry
■■ Business services industry
■■ Oilfield services and engineering
services industries
■■ Transport industry
1
Lili considers herself a person of colour due
to her part Iranian/Middle East background
39
APPOINTED:
November 2008, and Chief
Executive from January 2009.
E
External roles
External roles
Senior Independent Director for
None.
Mondi plc
External roles
None.
External roles
Non-Executive Director and
Chairman of the audit committee
of Babcock International Group
plc since 2010 and a Non-
Executive Director and Chairman
of the audit committee of SIG plc
from 2017.
Past roles
Past roles
Past roles
Past roles
Spent his early career in
engineering with Courtaulds
Held various senior positions
in Imperial Tobacco Group plc
plc and then moved to the USA
followed by Chief Financial
Worked in various roles for NZ
Forest Products Ltd, followed
by management consultancy
to join APV Inc from 1984 until
Officer positions at Symrise
with Resource Planning
Worked on a variety of audits
with Deloitte & Touche, followed
by four years with Dresdner
Kleinwort Wasserstein.
AG, LM Windpower and most
Associates, a management
From 1990 to 1992 he worked
recently at Regus plc from 2011
position with Standard Oil and
for Lloyds Bank plc and then
to 2015.
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.
various senior management
roles with BP plc from 1987
to 2007. Managing Director of
Riverstone Holdings LLC from
2008 to 2009. Non-Executive
switched 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.
Director of BOC Group plc from
He was Non-Executive Director
2004 to 2006, Non-Executive
Director and Remuneration
Committee Chair as well as
of Fiberweb plc during 2013,
Mouchel Group from 2013 to
2015 and WANdisco plc from
Senior Independent Director of
2012 to 2016.
Mondi plc from 2007 to 2017
and Non-Executive Director and
Remuneration Committee Chair
of Smiths Group plc from 2009
to 2018.
Qualifications
Qualifications
Qualifications
Qualifications
Chartered Engineer, graduated
Chartered Accountant, graduated
B.Com University of Auckland
Chartered Accountant, qualified
from Bristol University in
Economics and Accounting.
and MSc Management Sciences,
with Deloitte & Touche after
Massachusetts Institute
graduating from University
of Technology.
of Oxford.
from Cambridge University,
Master’s degree in business
administration from the
University of Chicago, Booth
School of Business.
Skills and experience
Skills and experience
■■ Management
■■ Leadership
■■ Mergers and acquisitions
■■ International operations
■■ Emerging markets
■■ Engineering
■■ Service industry
■■ Capital intensive industry
■■ Leadership
■■ International operations
■■ Mergers and acquisitions
■■ Emerging markets
■■ Current financial experience
■■ Service industry
Skills and experience
■■ International operations
■■ Emerging markets
■■ Mergers and acquisitions
■■ Management
■■ Leadership
■■ Manufacturing
■■ Capital intensive industry
■■ Managing Director
Skills and experience
■■ International operations
■■ Current financial experience
■■ Supply chain and logistics
■■ Mergers and acquisitions
■■ Service industry
www.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportAdditional informationFinancial statementsGovernance Corporate governance statement
Chair’s message
Dear Shareholders
On behalf of the Board, I am pleased to present Bodycote’s Corporate Governance Statement for 2019.
The Board understands that good corporate governance is an important element in helping to build a successful business in a sustainable
manner. During the year we have discussed how the various changes in regulation and societal expectations are most appropriately taken
into account in how we as a Board, and Bodycote as an organisation, operate. We are committed to reporting on corporate governance as
part of broader statements of our Environmental, Societal and Governance (ESG) impacts.
The 2018 Corporate Governance Code highlights the importance of effective engagement with shareholders and stakeholders.
The Group’s key stakeholders and their differing perspectives are identified and taken into account, not only as part of the Board’s annual
strategy and corporate planning discussions but also in our project assessments and in our other Board conversations. These discussions,
assessments and conversations focus not only on delivering increased value for shareholders, but also address the impacts of our
decisions and strategies on the Group’s wider stakeholders. The Board recognises the importance of regular, open and constructive
dialogue with shareholders and other stakeholders, and the interests of our stakeholders have been a key aspect of our culture and factor
in our decision making.
In line with the Director’s Duties, the Board’s engagement with employees, shareholders, customers, and communities in 2019 is
explained in our stakeholder section on pages 14 to 15. The Directors receive regular reports on Safety, Health and Environment to
support their decisions. Further information on Board activities can be found on pages 41 to 46. Ensuring high standards of business
conduct is critical for the success of the Group.
Employee Engagement Groups led by the designated Non-Executive Director, Patrick Larmon, were introduced during 2018 and several
meetings have taken place since. A variety of topics have been raised by employees at the meetings and, in turn, these have been
presented directly to the Board. A number of these have been addressed and further topics are work in progress.
Succession planning is a regular topic for discussion, although the outcome of these discussions is only visible from time to time
when new appointments are made. For each appointment we are looking to appoint an outstanding candidate, with a diverse range
of experience, to maximise Board effectiveness. When we think about diversity, we recognise that diversity can take many forms
including diversity of gender, social, and ethnic backgrounds, and of cognitive and personal strength, and that diversity at Board level
and throughout the Company is a valuable strength.
My ambitions for the composition of the Board are to maintain and, where applicable, broaden the range of expertise, experience,
and diversity. The Board continues to ensure that effective succession plans are in place.
I encourage all shareholders to attend the Annual General Meeting, which will be held at the Sofitel, T5 Heathrow on 28 May 2020.
This event provides an excellent opportunity to meet the executive and independent Non-Executive Directors.
A.C. Quinn
Chair
Compliance Statement
In respect of the financial year 2019, 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 July 2018 (‘the Code’).
In respect of the year ended 31 December 2019, Bodycote has complied with the provisions of the Code with the exception of Provision
36, a formal policy for post-employment shareholding requirements, and Provision 23, progress on achieving objectives on diversity
and inclusion. Concerning Provision 36, whilst the Board has not put a formal policy for post-employment shareholding requirements in
place, a two-year holding period for share scheme awards as of the date of the approval of the remuneration committee policy in May
2019, as well as bonus deferral, are in place to provide a partial post-employment holding policy. Concerning Provision 23, the Board is
strong on diversity and inclusion with female representation at 43%, 5 different nationalities including a member who meets the Parker
Committee definition of a person of colour. At the senior management level, there is broad international representation, and growing
female representation. The Board and the management are committed to the principles of diversity and inclusion. A review of workforce
policies is in progress and a culture survey has been undertaken and information provided to the Board. Executive Directors’ pensions and
their alignment to the wider workforce in the respective countries of residence have been discussed.
Taken together with the Report of the Audit Committee, the Report of the Nomination Committee and the Board report on remuneration
presented on pages 56 to 77, this statement explains how Bodycote has applied the principles of good corporate governance as set out in
the Code.
40
Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance Leadership and engagement
Role and responsibilities of the Board and its principal committees
The Board is responsible to shareholders for good corporate governance, setting the Group’s strategic objectives, values and standards,
and ensuring the necessary resources are in place to achieve the objectives.
The Board met on nine occasions during 2019, including a specific meeting to review the Group’s long-term strategy. The Board of
directors comprises seven members, of whom five are Non-Executive Directors and two are Executive Directors, led by the Group’s
part-time Non-Executive Chair, A.C. Quinn, who also chairs the Nomination Committee. The Group Chief Executive is S.C. Harris and
the Senior Independent Non-Executive Director is I.B. Duncan, who also chairs the Audit Committee. E. Lindqvist is Chair of the
Remuneration Committee and P. Larmon is the Chair of the Employee Engagement Groups. L. Chahbazi is a Non-Executive Director.
Brief biographical details of all directors are given on pages 38 to 39. During the year the Board visited a number of overseas facilities,
including sites in Mexico and the USA. Such events involved meeting with local management and the workforce to understand more
clearly technical and operational performance in countries where Bodycote has a significant presence.
Chair
Group Chief Executive
Chief Financial Officer
■■ overall responsibility and leadership
■■ maintains strong financial
■■ leadership and governance
of the Board and chairs the
Nomination Committee
■■ Board effectiveness
■■ ensures members receive accurate,
timely and clear information on
Board issues
■■ ensures, together with the
Group Company Secretary, a
comprehensive induction of
new directors
■■ sets Board agenda, style and tone of
Board discussions
of Group performance
■■ stewardship of Group assets
■■ plans and executes objectives
and strategies
■■ maintains a close working
relationship with the Chair, ensuring
effective dialogue with investors
and stakeholders
■■ ensures leadership and development
frameworks are developed to
generate a positive pipeline for future
opportunities for the Group
■■ ensures effective communication
■■ has overall responsibility for the
with shareholders
■■ ensures progress on ESG impact
tracking and reporting
Group’s sustainability performance,
communicates the vision and values
of the Group
■■ manages the senior
management team
management and implements
effective financial controls
■■ provides financial and commercial
decision leadership, vision
and support
■■ ensures the appropriateness of risk
management systems
■■ oversees all aspects of accounting/
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
■■ provide constructive challenge
■■ secretary to the Board and
the Chair
■■ 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 Chair and
convenes a meeting of the Non-
Executive Directors to discuss
the same
■■ 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
its 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
41
www.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportAdditional informationFinancial statementsGovernance Corporate governance statement continued
Shareholders
■■ Effective running of the Board
■■ Monitors progress of strategy and objectives
■■ Guidance to Executive Directors
■■ Safeguards the interests of shareholders
The Chair – key responsibilities
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
assesses
financial risks
Nomination
Committee
Ensures an
effective Board
that consists of
individuals with
the right 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, to
authorise capital
expenditure
and other
financial activities
Employee
Engagement
Groups
Assist the Board
as a workforce
engagement
mechanism and
in understanding
the views
of employees
Chief
Executive
Responsible
for running
the Group’s
business, interfaces
with shareholders
and analysts, and
oversees health and
safety as well as
environmental
matters
Executive Committee
Focuses on the development and implementation of the Group’s strategy, financial structure,
organisational development and policies as well as review financial performance
The SHE and Risk Committee reports to the Executive Committee.
Finance Committee
In order that necessary actions can be taken promptly, a finance sub-committee, comprising the Chair, the Senior Independent Director,
the Group Chief Executive and the Chief Financial Officer is authorised to make decisions, within limits defined by the Board, in respect
of certain finance, treasury, tax or investment matters.
The Employee Engagement Groups
We have two Groups run in parallel, a European and an American Committee. Each Group meets bi-annually. The Groups are led by
Patrick Larmon, the designated non-executive Board director. Representatives from across the business are the members of the Groups.
Participation of the Groups is rotated at certain intervals to allow a variety of opinions and voices to be heard.
Main activities of the Employee Engagement Groups
At each meeting the participants communicate the views, motivations, and conditions of their fellow employees. The minutes of the
meetings are part of the next set of Board meeting papers and are presented by the designated non-executive Board Director to the
Board. As a result of feedback received from employees a communication improvement plan is being implemented.
In addition, both the Board and the Executive Committee take every opportunity to meet with local employees when visiting different
business locations. During 2019 the Board and the Executive Committee met with employees in Mexico. The Board also met with
employees in Detroit, USA and the Executive Committee met with employees in the Netherlands.
42
Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance Board and Board Committees meeting attendance
Attendance of directors at regular scheduled meetings of the Board and its Committees is shown in the table below:
Meetings held during the year
9
Board
Audit
Committee
4
Nomination
Committee
Remuneration
Committee
3
4
Executive Directors
Meetings attended
Meetings attended
Meetings attended
Meetings attended
Stephen Harris
Dominique Yates
n/a
n/a
n/a
n/a
n/a
n/a
Non-Executive Directors
Meetings attended
Meetings attended
Meetings attended
Meetings attended
Anne C. Quinn
Eva Lindqvist
Ian Duncan
Patrick Larmon
Lili Chahbazi
n/a
n/a
All directors attended the maximum number of Board, Audit and Nomination Committee meetings that they were scheduled to attend.
Non-members A.C. Quinn, S.C. Harris, D. Yates attended by invitation some parts of the meetings of the Audit, Nomination and
Remuneration Committees. Note that the Employee Engagement Groups are led by P. Larmon and supported by the company secretary.
There were 4 Employee Engagement meetings in 2019.
Diversity and length of service
Bodycote is a global business with operations in 23 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. The Nominations Committee also considers capability and capacity to commit
the necessary time to the role in its recommendation to the Board. The intention is to appoint the most suitable qualified candidate to
complement and balance the current skills, knowledge and experience of the Board and who will be best able to help lead the Company
in its long-term strategy. The Nomination Committee is advised by international search companies, who have been briefed on our diversity
policy and are required to reflect the policy in the long list submitted to the Committee.
In 2019 female representation on our Board was 43% (2018: 43%). At manager level it is 25% (2018: 26%). Females represent 19%
(2018: 19%) of our total workforce. Whilst we are above the 33% by 2020 voluntary target for female representation on Boards
recommended by the Hampton-Alexander review, we continue to believe it is difficult to set targets or timescales for increasing the
proportion of women, or any other minority group, on our Board and do not propose to do so. We will increase female and/or other
minority representation on the Board if appropriate candidates are available when Board vacancies arise. Lili Chahbazi considers herself
a person of colour due to her Iranian/Middle East background.
The Corporate responsibility and sustainability report contains further details regarding the male and female representation within the
Group, including Board representation.
Tenure in years
7
Board diversity
4
5
Male
57%
Female 43%
2
2
Anne Quinn
Lili Chahbazi
Patrick Larmon
Eva Lindqvist
Ian Duncan
43
www.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportAdditional informationFinancial statementsGovernance
Corporate governance statement continued
Board activities and stakeholder engagement
Strategic Leadership
Governance and Risk
■■ Regularly discussing strategy at Board meetings during the year
■■ Reviewing the three-year forecast and other factors to support
■■ Receiving presentations from operational management on
the Viability Statement
performance against the strategy
■■ Reviewing Board and Committee effectiveness and directors’
■■ Considering potential acquisition opportunities and other
conflicts of interest
strategic initiatives
■■ Reviewing terms of reference of all Committees
■■ Considering the proposal to open new Specialist Technologies
■■ Reviewing Safety, Health and Environmental updates at
facilities in the United States
each meeting
■■ Considering and approving strategic opportunities e.g.
■■ Reviewing principal financial and non-financial risks (supported by
the restructuring plan in Western Europe
the Audit Committee)
■■ Approving the Group’s strategy and budget
■■ Reviewing new corporate governance code and related legislation
■■ Approving the Group’s tax and dividend strategy
■■ Determining and maintaining the Group’s values and ensuring
that these are reflected in the business practice
People and Succession
Performance Monitoring
■■ Considering proposals on succession planning, when required,
■■ Recommending the 2019 final dividend and the 2019
for the Board
interim dividend
■■ Reviewing proposals on senior executive succession planning
■■ Reviewing and approving the Group’s interim results and
■■ Considering the talent management programme and the need
Annual Report
to develop the managers and executives for the future
■■ Considering whether the Annual Report and Accounts are fair,
■■ Reviewing the structure, size, composition and diversity
of both the Board and its Committees (supported by the
Nomination Committee)
balanced and understandable
■■ Considering monthly operational reports from the Group Chief
Executive and Chief Financial Officer
■■ Approving further terms as Non-Executive Directors for
■■ Reviewing reports from the Chairs of the Audit, Nomination,
Ian Duncan and Eva Lindqvist
Remuneration and Finance Committees
■■ Tailored induction of Non-Executive Directors, when required
■■ Approving capital expenditure proposals in excess of £4m
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 Chairs 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 subdivision, 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.
Complementing the regular briefings from operational and
functional management about Group-specific matters (such as a
report at each Board meeting from the CEO on health and safety),
the Board also has a program of briefings from the Group’s external
advisers on a range of topics. This enables current and future plans
to be set in the wider context of the broader environment.
44
Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance Board visits are an important way in which Board members can
engage both with our employees and our customers. During 2019
the Board visited plants in Mexico and USA.
The Group Chief Executive and Chief Financial Officer 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 and operating
performance. 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 enroll 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 Chief Financial
Officer. The Chair and SID are available to discuss any issues not
resolved by the Group Chief Executive and Chief Financial Officer.
On specific issues, such as the review of remuneration packages,
the Group has sought, and will continue to seek, the views of
leading investors.
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 election. All directors stand for yearly re-election.
Non-Executive Directors, including the Chair, 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 78. The Board also operates
four committees. These are the Nomination Committee, the
Remuneration Committee, the Audit Committee and the Finance
Committee. All Non-Executive Directors (excluding the Chair)
serve on each Board Committee.
The Board considers that P. Larmon, E. Lindqvist, I.B. Duncan and
L. Chahbazi are all independent for the purposes of the Code.
The Chair was also considered independent upon appointment.
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.
The Board’s areas of focus in 2020 are expected to include:
■■ The Group’s culture
■■ Execution of strategic priorities
■■ Continued monitoring of financial and operational performance
■■ Continued strong focus on safety improvements
■■ Principal risks review
■■ Increased emphasis on sustainability
Effectiveness
Board evaluation
Following the external Board Evaluation in 2018, the Board agreed
to undertake an internal evaluation in 2019. To ensure that all
aspects of good governance are covered by the review, the Group
Company Secretary distributed a tailored questionnaire to each
member of the Board. Questions were framed under the following
seven topics:
■■ Remit and objectives;
■■ Composition, training and resources;
■■ Corporate governance/risk management;
■■ Stakeholder engagement;
■■ Board meetings and visits;
■■ Board procedures and administration; and
■■ Evaluation and effectiveness.
At a meeting of the Nomination Committee in September 2019,
the directors assessed the conclusions reached and are in
the process of implementing a number of recommendations.
Additional emphasis will be placed on risk management,
strategy and operational matters. The Board evaluation covered
the activities of the main Board and each of its Committees.
Arising from the exercise, the Board 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. The Executive
Committee is strongly challenged by the Board when appropriate.
As in previous years, the Chair 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
S.C. Harris and D. Yates will be appraised in March 2020.
Led by the Senior Independent Non-Executive Director, the
directors carried out an evaluation of the Chair’s performance
in September 2019. The Board was satisfied with the Chair’s
commitment and performance.
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.C. Quinn,
S.C. Harris, E. Lindqvist, P. Larmon, I.B. Duncan, D. Yates and
L. Chahbazi will stand for re-election at the AGM in May 2020.
The Board recommends to shareholders that they re-elect all the
directors. If re-elected, 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.
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Accountability
Internal control and risk management
In accordance with the FRC ‘Guidance on Risk Management,
Internal Control and Related Financial Business Reporting’ the
Board recognises that it is responsible for the Group’s system
of internal control and risk management. The system has been
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 embedded 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’s monitoring covers all significant strategic, financial,
operational and compliance risks. It is based principally on
reviewing reports from management and from Internal Audit (IA)
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.
To meet updated guidance from the FRC a new process was
implemented in 2019 to identify emerging risks. These risks are
characterised by their high level of uncertainty both in terms of
likelihood and potential impact and are therefore more difficult to
manage or mitigate. The process, based around horizon scanning,
has explored what the future might look like and seeks to identify
early warning signals. Risks that have been considered by the
Board have included climate change, new technologies, and
cyber risks.
The Board is satisfied that the Group maintains an effective system
of internal controls and that there are no significant deficiencies
in the system. The system was in operation throughout 2019 and
continues to operate up to the date of the approval of this report.
The key elements of the Group’s system of internal control that is
monitored by the Board includes:
■■ A comprehensive financial planning, accounting and
reporting framework
■■ A Group authority matrix that clearly defines the authority limits
for those with delegated responsibility and specifies what can
only be decided with central approval.
■■ Effective from the 1st January 2020 IA is co-sourced with BDO
(previously Ernst & Young) to monitor the Group’s internal control
system. IA reviews are conducted on the basis of a risk-based
plan approved annually by the Audit Committee. This includes
risk-based visits to each division, shared service centres, and
a sample of facilities. The findings and recommendations
from IA are reported on a regular basis to the Executive and
Audit Committees.
■■ An annual internal control self-assessment, with management
certification, is undertaken by every Bodycote facility.
The assessment covers the effectiveness of key financial,
compliance and selected operational controls. The results are
validated by IA through spot checks and are reported to the
Executive and Audit Committees.
■■ Group Core Values and Group Policies (including the Code
of Conduct, Group Authority Matrix and Finance Policies) are
documented and are available to all employees via the Group’s
intranet system.
■■ The Chief Financial Officer, Group Financial Controller, President
and Vice President of Finance for each division sign a letter
of representation annually. This is to confirm the adequacy of
their systems of internal controls, their compliance with Group
Core Values and Group Policies, relevant laws and regulations,
and that they have reported any control weaknesses and
actual, or attempted, frauds or thefts through the Group’s
assurance processes.
■■ A Group-wide risk register and assurance map is maintained
throughout the year to identify the Group’s key strategic and
operational risks. Any changes to these risks during the year are
promptly reported to the Executive Committee and the Board.
During 2019, in compliance with provision 29 of the Code,
management performed an assessment of its risk management
processes 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,
operational and emerging risks. The review was based on work
performed by the Group Head of Risk and the Group’s Risk
and SHE Committee (by means of workshops, interviews,
investigations, and by reviewing departmental or divisional risk
registers). These risks have been reviewed throughout the year
and no new risks have been added in 2019. Further information
regarding the ways in which the principal business risks and
uncertainties affecting the Group are managed is shown on
pages 27 to 30.
By order of the Board:
U.S. Ball
Group Company Secretary
12 March 2020
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
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Directors’ report
The directors are pleased to submit their report and the audited
financial statements for the year ended 31 December 2019.
The Chair’s statement, the Chief Executive’s review, the Chief
Financial Officer’s report and all the information contained on
pages 8 to 26 together comprise the Directors’ report for the
year ended 31 December 2019.
Strategic report
The Strategic report is provided on pages 1 to 37 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 2019, key performance indicators and a description
of the principal risks and uncertainties facing the Group.
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 dividend of 14.0p
(2018: 13.3p) bringing the total ordinary dividend to 20.0p per share
(2018: 19.0p). If approved by shareholders, the final dividend of
14.0p per share will be paid on 5 June 2020 to all shareholders on
the register at the close of business on 24 April 2020.
During the year, the Group became aware of an issue concerning
technical compliance with the Companies Act 2006 in respect
of the declaration and payment of the 2018 interim dividend and
2018 special dividend. Although the Group had such distributable
reserves at the time of declaration and payment, the Group had
not lodged interim accounts with Companies House to show that
each of the dividends were supported by sufficient distributable
reserves. The Group’s historical reported trading results and
financial condition are entirely unaffected, but the Group proposes
to put a resolution to shareholders at the Company’s annual
general meeting to rectify the position.
Share capital
The Company’s issued ordinary share capital as at 31 December
2019 was £33.1m. No shares were issued during the year. At the
AGM on 24 May 2019, 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
28 May 2020, at which time a further authority will be sought
from shareholders.
Capital structure
Details of the issued share capital are shown in note 22.
The Company has one class of ordinary shares, which carries
no right to fixed income. Each share carries the right to one
vote at general meetings of the Company. There are no specific
restrictions on the size of a holding nor on the transfer of shares,
both of which are governed by the general provisions of the
Articles of Association and prevailing legislation. The directors are
not aware of any agreements between holders of the Company’s
shares that may result in restrictions on the transfer of securities or
on voting rights. Details of employee share schemes are set out in
note 27 and shares held by the Bodycote Employee Benefit Trust
abstain from voting and waive dividend rights. No person has any
special rights of control over the Company’s share capital and all
issued shares are fully paid. The appointment and replacement of
directors is governed by the Company’s Articles of Association,
the UK Corporate Governance Code, the Companies Act and
related legislation. The Articles of Association may be amended by
a special resolution of shareholders. The powers of the directors
are described in the Corporate governance statement on page 40.
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 38 to 39 and all served throughout the year. In line with the
UK Corporate Governance Code, all directors retired at the AGM in
2019 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 2020 AGM are A.C. Quinn,
S.C. Harris, D. Yates, I.B. Duncan, E. Lindqvist, P. Larmon and
L. Chahbazi. The service agreements for Messrs S.C. Harris and
D. Yates 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.
47
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For details refer to pages 14 and 15.
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 2018 or 2019.
Shareholders
An analysis of the Company’s shareholders and the shares in issue
at 3 March 2020 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 149.
Auditor
In accordance with the provisions of section 489 of the
Companies Act 2006, a resolution for the re-appointment of
PricewaterhouseCoopers LLP (PwC) 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 himself 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 2020 Annual General Meeting will be held on 28 May 2020
in accordance with the notice being sent to shareholders with
this report.
By order of the Board:
U.S. Ball
Group Company Secretary
12 March 2020
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
Directors’ report continued
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 56 to 77. No director has had any dealings in any
shares or options in the Company since 31 December 2019.
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 2019 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 interest 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 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 up
until September 2020 and permitted each affected director to
attend and vote at Bodycote directors’ meetings, on the basis
that each such director continued to keep Bodycote’s information
confidential, and provided overall that such authorisation remained
appropriate and in the interests of shareholders. Where such
authorisation becomes inappropriate or not in the interests of
Bodycote shareholders, the Chair 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 through the efforts of its 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. Employees are
able to voice any concerns through the Group’s anonymous
and confidential Open Door Line, a phone line accessed 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.
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Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance Report of the Nomination Committee
No. of meetings
2019: 3
Attendance
Committee
membership
Director
A.C. Quinn
I.B. Duncan
E. Lindqvist
P. Larmon
L. Chahbazi
Dear Shareholders
Main committee responsibilities
■■ 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 2019. Board composition is a key focus for the Nomination Committee,
ensuring that the Board has the right skills and experience to direct the company in the successful execution of its strategy.
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.C. Quinn
Chair 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 Chair,
and any changes are then referred to the Board for approval. No changes were made to the terms of reference during the year.
Key Activities
Board composition/succession planning
■■ Reviewed and updated succession plans for the Board and
Non-Executive Directors
■■ Reviewed continued independence of the Non-
senior management
Executive Directors
Diversity
■■ Reviewed the Group’s diversity policy on governance
and evaluation
■■ Reviewed the Non-Executive Director time commitments
and overboarding
Governance and evaluation
■■ Reviewed the Committee’s Terms of Reference
■■ Evaluated the Committee’s effectiveness
■■ Reviewed the performance of Executive Directors
Succession
Planning
Board
composition
■■ Vacancy for a director is identified when one of the existing
directors confirms his/her intention to resign or retire
■■ The need for specific knowledge, skills and role behaviours is
identified during discussions at Nomination Committee meetings
■■ External international search consultancies are appointed to assist
Recruitment
with the search
Selection
Interview
■■ A sub-committee examines the long list of candidates against
the role specifications and a shortlist of candidates is identified
■■ Candidates are initially interviewed by the Chair and the Group
Chief Executive for a Non-Executive Director role. The final
candidates then meet with all other directors
■■ In order to maximise the effectiveness of the Board, candidates
Balance
of skills
are carefully considered ensuring that the Board has the right skills
and experiences
Appointment
■■ New director is announced as joining the Board
Induction
■■ The Committee and the Group Company Secretary play an
active part in an induction programme that is tailored to the
needs, skills and experiences of the new director
Composition of the
Nomination Committee
As recommended by the Code, the Chair of the
Board acts as the Chair of the Committee whose
members also comprise the directors listed above.
The Chair cannot chair the Committee when it is
dealing with either the succession to the Chairship
of the Group or the review of his or her 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.
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.
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Report of the Nomination Committee continued
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, determines the qualities and experience
they seek and then prepares a detailed description of the role with a view to appointing the most appropriate candidate. The Committee
uses open advertising or the services of independent external advisers to facilitate the search.
A long list of candidates is drawn up, from which an appropriate number will be selected for interview. Upon completion the Committee
recommends to the Board the appointment of the preferred candidate.
Board succession planning
There were no changes to the Board structure during the year.
As in previous years the Committee spent time during 2019 considering the important topic of succession planning across the business.
The Committee received papers on Executive Director and senior management succession (this includes members of the Executive
Committee and all senior management roles in the business). The plan identifies immediate successors for these roles and identifies
candidates as potential successors to roles in the longer term. The Committee was satisfied that plans remain sufficiently robust to
enable vacancies to be filled on a short to medium term basis while taking account of the continuing need to consider gender diversity.
The Committee acknowledges that in a business the size of Bodycote, it is not always possible to identify internal successors for all roles.
The Committee is confident that it has carried out its role effectively during the year and its work will help to ensure that a strong pipeline
of talented individuals is available to support the Group and meet its future business objectives and fulfil its strategic goals.
Board composition
and succession planning
Performance of Chair and
Group Chief Executive
Governance and
reporting
Independence and
re-election
25%
35%
30%
10%
Main activities of the Nomination Committee
In 2019 the Committee formally met four times and reviewed the composition and skills of the Board, with a view to considering the
current and future skills and experience that the Board might require.
The Committee discussed 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 has
sought to ensure that appointments are of the best candidates to promote the success of the Company and are based on merit, with due
regard for the benefits of diversity on the Board. Further information concerning Board diversity can be found on page 43 as part of the
Corporate governance statement. We are pleased to report that as of 1 January 2018 the female representation on the Board had reached
43%, and continued at 43% throughout 2019.
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 Chair to review and agree with the Group Chief Executive his personal objectives for the
forthcoming year.
Following the external Board evaluation in 2018, the Board agreed to undertake an internal evaluation during 2019. Further details of
the review can be found in the Corporate Governance section of the Annual Report. Recommendations arising from the 2018 Board
evaluation have been addressed.
In December 2019 the Nomination Committee reviewed the Board’s size and composition, the frequency of the process for Board and
Committee meetings, and best practice for dealing with Board issues including drawing up a training and/or induction 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 38 and 39.
The Committee, having reviewed their independence and contribution to Board matters, confirms that the performance of each of the
directors standing for re-election at this year’s 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 all current directors of the Company be proposed for re-election at the forthcoming AGM.
As Chair of the Committee, I will be available at the AGM in May 2020 to answer questions relating to the work of the Committee.
On behalf of the Nomination Committee:
A.C. Quinn CBE
Chair of the Nomination Committee
12 March 2020
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Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance Report of the Audit Committee
No. of meetings
2019: 4
Attendance
Committee
membership
Director
I.B. Duncan
E. Lindqvist
P. Larmon
L. Chahbazi
Main committee responsibilities
■■ 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.
■■ 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 Group’s position and performance,
business model and strategy.
■■ Monitor and review the adequacy and effectiveness of the Group’s internal financial
control and risk management systems including the robust assessment of both
emerging and principal risks.
■■ Oversee the relationship and transition with the new external auditor including
consideration of fees, audit scope, terms of engagement, ensuring compliance with
policy for the provision of non-audit services and to make recommendations to the
Board, subject to the approval by shareholders, on the appointment, reappointment
or removal of the external auditor.
■■ Monitor and review the effectiveness of the Group’s internal audit function and its
key findings and trends arising, and the resolution of these matters.
■■ Review the adequacy and security of the Group’s arrangements for its employees
to raise concerns, in confidence, about possible wrongdoing in financial reporting or
other matters.
The full terms of reference for the Committee can be found on the Group’s website.
Introduction
I am pleased to present the 2019 report of the Audit Committee which describes how the Committee has carried out its responsibilities
during the year. We have had a number of key topics to consider in 2019, most significantly:
■■ The implementation and adoption of IFRS 16
■■ Adoption of the 2018 UK Corporate Governance Code
■■ PricewaterhouseCoopers LLP appointment as the Group’s new auditor following the audit tender in 2018
■■ Implementation of an emerging risk identification process
Objective
The Committee continues 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 its activities under review as the regulatory
environment changes. Its objective is to provide effective governance over the Group’s 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 as well as the appointment and evaluation of the external auditors.
Committee membership and meetings
The members of the Audit Committee are all independent Non-Executive Directors. Their biographical details are shown on pages 38 and
39, and their remuneration on page 61. The Group Company Secretary is the secretary to the Audit Committee.
I.B. Duncan is Chairman of the Audit Committee. He is a Chartered Accountant with strong experience in senior finance roles including
Chairman of several other listed company audit committees. The Board considers that I.B. Duncan has recent and relevant financial,
accounting and sector experience required to Chair the Committee.
All members of the Committee have significant and widespread experience in both executive and non-executive capacities of
multinational industrial companies and are considered to have competencies relevant to their duties.
The Audit Committee met four times during 2019 and in March 2020 and all members attended all the meetings. The Committee
Chairman also invited the Board Chair, Group Chief Executive, Group Chief Financial Officer, Group Financial Controller and Group
Head of Risk (who is responsible for internal audit) to attend all regular meetings. Other senior management from the Group were
also invited, as appropriate, to attend meetings to provide a deeper level of insight into key issues. The Committee Chairman also
invited the 2018 outgoing external auditor, Deloitte LLP (“Deloitte”) to attend the March 2019 meeting and the 2019 external auditor
PricewaterhouseCoopers LLP (“PwC”) to attend every meeting. 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.
I.B. Duncan also held preparatory meetings separately with the external auditor, the Group Chief Financial Officer, the Group Financial
Controller and the Group Head of Risk prior to Committee meetings to review their reports and discuss issues in detail. Deloitte and PwC,
the Group Head of Risk and the internal auditors (Ernst & Young LLP) met with the Audit Committee without the executives present.
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Report of the Audit Committee continued
Main activities of the Committee during the year
The Committee is responsible for reviewing the Interim results and the annual report and financial statements before recommending
them to the Board for approval.
At its meetings, the Committee focused on the following main areas:
Financial reporting
The primary recurring role of the Committee in relation to financial reporting has been to review, with management and the external auditor,
the appropriateness and integrity of the interim and annual report and financial statements concentrating on, amongst other matters:
■■ the quality and acceptability of accounting policies and practices including interpretation of reporting standards and the adoption of policies;
■■ the application and impact of significant judgements, accounting estimates and matters where there was significant discussion with the
external auditor;
■■ the clarity of disclosures and compliance with International Financial Reporting Standards;
■■ the key points of disclosure and presentation to ensure the adequacy, clarity and completeness in the annual report and financial statements;
■■ 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;
■■ reviewing with both management and the external auditor to ensure audit scoping was appropriate and that the external auditor had
applied the necessary level of professional scepticism in performing their work; and
■■ reviewing various materials to support the statements on risk management and internal control and related disclosures made in
the annual report and financial statements on this matter.
Reports from management were reviewed on significant matters, including litigation, accounting, treasury and tax matters and also
reports from the external auditor on the outcome of their work. A summary of the areas of focus considered by the Committee in
respect of the 2019 consolidated financial statements is set out in the table below.
Fair, balanced and understandable
The Committee has reviewed the form and content of the interim and annual report and financial statements and a paper prepared
by management setting out the approach taken in its preparation. The review included the processes for preparing the annual report,
ensuring it contains complete and accurate information, and the reviews performed to ensure feedback was appropriately reflected
(including internal and external reviews) to be able to confirm that the annual report is fair, balanced and understandable.
Based on the activities described above and on robust discussion with both management and the external auditor, the Committee
was satisfied with the work performed and advised the Board that the annual report, taken as a whole, presents a fair, balanced
and understandable view of the business and its performance for the year under review and that it provides the information necessary
for shareholders to assess the Group’s strategy, business model, position and performance.
In addition to these matters, the Committee considered the following significant topics impacting the financial statements:
52
Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance Area of Focus
Actions
Leases
The Group has adopted IFRS 16 “Leases”. The impact
on the accounting policies and on the financial
statements are discussed in more detail in our accounting
policies and note 12 to the financial statements.
Impairment of assets
As set out in the accounting policies, the Group reviews
the carrying amounts of tangible and intangible assets at
least annually. Refer to note 9 of the financial statements.
Restructuring, reorganisation and
environmental provisions
Assumptions and judgement are exercised in the
development of restructuring, reorganisation and
environmental provisions.
Going concern and viability statement
Taxation
The Group operates in a number of countries and is
subject to reviews by different tax authorities in the
ordinary course of business. A number of judgements
are involved in calculating tax provisions and the level
of deferred tax assets to be recognised.
The Group is regularly subject to routine tax audits
and provisions are made based on the tax laws in the
relevant country and the expected outcomes of any
negotiations or settlements.
Recognition of deferred tax assets, relating to future
utilisation of accumulated tax losses is dependent
on future profitability and performance of the
underlying business.
Refer to notes 6 and 19 of the financial statements.
Retirement benefits schemes
There will often be a range of reasonable assumptions
and judgements involved in determining pension
liabilities in relation to the Group’s defined
benefit schemes.
The Committee has considered a report from management in relation to the
restated financial information and the updated accounting policy.
The Committee also reviewed reports from management explaining the
implementation and how leases are accounted for and disclosed in the
financial statements and agreed the judgements and estimates to adopt IFRS
16. It also reviewed the disclosures and the restated information and satisfied
itself that the restated financial information was appropriate.
The Committee considered the report from management describing potential
impairment indicators of tangible and intangible assets and the outcomes of
related impairment tests.
The Committee reviewed and challenged the future forecasts underlying the
value in use calculation, and 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 assets.
The Committee considered the adequacy of the disclosures provided.
Details of sensitivity analysis applied to key assumptions used in the
impairment review as well as conclusions are set out in note 9 to the
Financial Statements.
The Committee was satisfied with the carrying value of assets and goodwill
and the related disclosures.
The Committee received reports from management and reviewed the basis
and the completeness of the assumptions used to calculate the provisions and
the appropriateness of disclosures in the Report, and concluded that the basis
of preparation was appropriate. The Committee discussed with management
the key judgements behind provisions, taking note of the range of possible
outcomes, and agreed with their recommendation.
The Committee reviewed and challenged the validity of the going concern
assumption and viability statement 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 key
variables. The Committee also examined potential impacts that Brexit may have on
the above considerations and concluded that no material impact is expected.
The Committee receives regular reports from management about new
legislative developments that may impact the Group’s tax positions.
The Committee has focused on reviewing, understanding and challenging
the Group’s critical tax risks and management’s assessment and valuation
of these risks. The Committee has supported enhanced transparency over
the Group’s tax risks and strategy in external reporting. Key risks notably in
the European Commission’s State Aid decision, resolving Brexit implications
and internal cross border funding arrangements have been reviewed and
challenged including management’s forecast of the future taxable profits of
the relevant businesses. The Committee was satisfied with the Group’s tax
approach and with the accounting treatment and disclosure in respect of
tax exposures.
Management took external professional advice in determining pension
liabilities. The Committee reviewed and agreed the methods, assumptions
used, and benchmarks, particularly in respect of inflation, the discount rate,
life expectancy and the application of IFRIC 14 to the UK pension scheme,
considering current norms and the sensitivity of the reported liability to
changes in the assumptions.
The Committee agreed the treatment and the corresponding disclosures on
these matters. See note 29 of the financial statements.
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External audit
The Committee is responsible for managing the relationship with the Group’s external auditor on behalf of the Board.
The Committee continues to review and make recommendations with regard to the reappointment of the external auditor each year.
In making these recommendations the Committee considers auditor effectiveness and independence, partner rotation and any other
factors which may impact the external auditor’s reappointment.
The Group last undertook a tender for external audit services during 2018 which led to the appointment of PwC at the May 2019 Annual
General Meeting with Mr. Simon Morley as the lead audit partner.
The Group will continue the practice of requiring the lead partner to change every five years in order to protect independence and
objectivity and provide a fresh challenge to the Group.
During the year, significant time has been spent on transition activities and the Committee is confident that the transition is complete.
Transition activities included:
■■ Shadowing Deloitte through the 2018 year-end process;
■■ Planning workshops held with the Group;
■■ Review of Deloitte’s working papers; and
■■ Detailed walkthrough tests of key processes and controls.
At the May meeting, PwC presented their audit plans for the interim review and year-end audit. During the October meeting, PwC
provided an updated plan for their year-end audit. The Committee considered, challenged and agreed the scope and materiality to be
applied to the Group audit and its components. The Committee considered carefully the scope in respect of smaller and more remote
locations as well as emerging market locations and noted that the majority of local audits are to be undertaken by PwC. 2019 audit fees
were agreed at £1.1m.
Key audit matters and the audit approach to these matters are discussed in the Independent Auditor’s Report (pages 79 to 85), which also
highlights the other significant matters that PwC drew to the Committee’s attention.
Assessment of effectiveness
The Committee has adopted a formal framework for the review of the effectiveness of the external audit process and audit quality which
includes the following aspects:
■■ assessment of the engagement partner, other partners and the audit team;
■■ audit approach and scope, including identification of risk areas;
■■ execution of the audit;
■■ interaction with management;
■■ communication with, and support to; the Audit Committee;
■■ insights, management letter points, added value and reports; and
■■ independence, objectivity and scepticism.
An assessment questionnaire is completed by each member of the Committee, the Group Chief Executive, the Group Chief Financial
Officer, and other senior finance executives. The feedback from the process is considered by the Audit Committee and provided to the
external auditor and management. Having assessed the previous external auditor, Deloitte, in 2019, the Committee will assess PwC
in 2020 following completion of the year-end audit. 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 report on PwC dated July 2019. 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. During 2019, the Group complied with The Statutory Audit Services for Large
Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) order 2014.
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.
In order to safeguard the auditor’s independence and objectivity, and in accordance with the FRC’s Ethical Standard, the Group does not
engage PwC for any non-audit services except where it is work that they must, or are clearly best- suited and are permitted to perform.
Non-audit services cannot be awarded to the external auditor without prior approval from the Committee Chairman. Non-audit fees paid to
the auditor are shown in note 3 and amounted to 9% (Deloitte: 2018 11%) of the audit fee.
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The independence of the external auditor has been confirmed by PwC at half year and was last confirmed again in March 2020.
The Committee considered PwC’s presentation and confirmed that it considered the auditor to be independent.
Internal audit
The internal audit plan for 2019 was presented to the Committee in October 2018. The plan takes account of the Group’s strategic
objectives and risks and provides the degree of coverage deemed appropriate by the Committee. The Committee reviewed and
accepted the plan following discussions and challenge as to the scope and areas of focus. At each regular meeting the Group Head of
Risk presented a report to the Committee on the status of the internal audit plan, 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.
The Group Head of Risk provides independent assurance over the key financial processes and controls in operation across the Group.
The Group engaged Ernst & Young LLP (”EY”) to provide internal audit services.
Additional assurance has been obtained through a control self-assessment. Internal auditors have received self-certification from every
plant that internal controls have been complied with and noting any non-compliance. A summary of the results was 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 EY engagement partner.
Audit quality is assured through a detailed review of each report being carried out by the Group Head of Risk, and a summary of each
report’s findings being reviewed by the Audit Committee. The review confirmed that the internal audit function was independent and
objective and remained an effective element of the Group’s corporate governance framework.
Internal Audit services have been provided by EY since 2012. While this arrangement has worked satisfactorily for the last 7 years the
Group decided to review the provision of this service. A tender exercise has been conducted which a number of firms, including EY,
participated. All the invited firms presented their proposals to a senior management panel led by the Group Head of Risk. The panel
recommended to the Audit Committee that BDO LLP should be appointed to provide Internal Audit Service for a three year period
commencing January 2020.
Risk management
The Committee reviewed the effectiveness of the Group’s risk management and internal control systems through updates at
each meeting from the Group Head of Risk who has responsibility for developing the Group’s risk management and internal
controls framework.
The Committee reviewed changes to the principal risks and mitigating actions identified by management and also implemented an
emerging risk identification process which, although aligned with the Group’s existing risk process, was performed and reported
separately to the Committee. Refer to the Principal Risks and Uncertainties report on pages 27 to 30. The Committee also received
regular 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. During 2019 there were
16 Open Door cases, all of which were investigated and closed during the year, with appropriate action taken where necessary.
Internal control
At each meeting the Committee considered and challenged reports from the internal auditors on the effectiveness of internal controls
and noted no significant weaknesses. 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).
Committee evaluation
The Committee’s activities formed part of an internal review of Board effectiveness which was undertaken in August 2019 and approved
by the Board in October 2019. There were no material deficiencies noted in the review and directors indicated a high level of satisfaction
with the work of the Committee. 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
12 March 2020
55
www.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportAdditional informationFinancial statementsGovernance Board report on remuneration
No. of meetings
2019: 4
Attendance
Committee
membership
Director
E. Lindqvist
I.B. Duncan
P. Larmon
L. Chahbazi
Main committee responsibilities
■■ Responsibility for setting the remuneration policy for all executive directors, senior
management and the Company’s Chair.
■■ Recommend and monitor the level and structure of remuneration for
senior management.
■■ Review workforce remuneration and related policies and the alignments of
incentives and rewards with culture, taking these into account when setting the
policy for executive director remuneration.
■■ Review the ongoing appropriateness and relevance of the remuneration policy.
■■ Appoint 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.
Chair’s letter
As Chair of the Remuneration Committee (‘the Committee’) and on behalf of the Board of Directors, I am pleased to present our Board
report on remuneration for the 2019 financial year, in line with the requirements of the Large and Medium sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013.
Structure of report
The structure of our report is as follows:
■■ Section A: This describes how the existing policy, approved at the 2019 Annual General Meetings, was applied in 2019; and
■■ Section B: This sets out our remuneration policy. It is also available on our website at
www.bodycote.com/en/investors/reports-and-results/2019.aspx
The UK Corporate Governance Code
The revised UK Corporate Governance Code represents some of the most significant changes to the work of the Committee to occur
in recent years. The Committee fully endorses the requirements and underlying intent of the Code and we will continue to ensure we
operate in compliance with its requirements. Focusing on simplicity and strategic alignment is fundamental to our thinking, alongside
a desire to create long-term alignment between management and the shareholder experience. We also recognise the importance of
considering wider stakeholders – including our employees – in our decision making processes. The Committee is working together with
the Company’s human resources team to ensure the Committee can best support the Board in its new overarching responsibility to
ensure workforce policies and practices are in line with culture and strategy, and will report on our approach in due course.
In developing the revised Policy we considered the provisions prescribed by the revised Code around Clarity, Simplicity, Risk,
Predictability, Proportionality and Alignment to culture. We believe that our new policy fully and appropriately addresses each of
these areas.
Key remuneration element of the code
Five-year period between the grant and realisation for share award
Phased release of share awards
Discretion to override formulaic outcomes
Pension Alignment
Extended Malus and Clawback
Post-termination holding requirement
Company position
The 2020 BIP meets this requirement.
The BIP ensures the phased release of share awards through
annual grants.
The remuneration policy and the scheme rules contain the ability to
apply discretion for the bonus/DBP and the BIP.
New Executive Directors will be brought in at a pension
contribution equivalent to the wider workforce in their country of
residence. Provisions for Executive Directors will be brought in line
with the wider workforce in their country of residence over the
next three years.
The current malus and clawback provisions are in line with the
suggested best practice included in the new code.
A post-termination policy is not in place, but a partial policy based
on the two-year holding period under the BIP and the three-year
deferral under the DBP is in place.
Business performance and incentive outcomes for 2019
Bodycote has delivered a robust performance in 2019 despite challenging markets. Strong performance in civil aerospace and emerging
markets did not fully offset the impact of declines elsewhere. Nonetheless, the return on sales, at 18.7%, demonstrates the ability of the
Group to adapt effectively to changes in business conditions.
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Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance
We believe that the incentive payouts we have made to our Executive Directors reflect this robust performance in a difficult year and are
aligned to the overall performance of the Company. As such, the Committee determined that no discretionary adjustments (either upward
or downward) would be required from the formulaic outcomes.
Annual bonus
The Group’s headline operating profit declined 5% at constant currency rates to £134.3m. The definition of headline operating cashflow
has changed in 2019, as referred to in the Chief Financial Officer’s report on pages 25 to 26 and in note 1 to the financial statements on
page 99. In 2019, the Executive Director’s annual bonus was measured against the previous definition of headline operating cash flow,
which at constant currency rates has increased by 3% to £132.1m, supporting our ability to return cash to our shareholders. As these
measures are our core internal financial metrics they form the core annual bonus metrics. The annual bonus also contains a personal
element (weighted to 13% of the total) that primarily reflects how our Executive Directors have delivered on our strategic goals, and in
particular our investments in growth. Given the strength of our strategic implementation and the extent to which this has been reflected
in financial performance, the outcome under the personal measure of 66% of maximum for the CEO and 60% of maximum for the CFO
are appropriate in the context of the overall performance of the Business.
The annual bonus therefore paid out at 50.4% of maximum for the CEO and 49.6% of maximum for the CFO, of which 35% will be
deferred into shares for three years, in line with our approved policy for bonus deferral.
Long-term incentive
The Company’s principal long-term incentive, the Bodycote Incentive Plan (BIP) is based on performance against return on capital
employed (ROCE) and earnings per share (EPS) targets over a three-year period. Our ongoing focus on operating efficiency, margins, and
targeted investments in rapid growth markets has supported earnings development over the three-year period despite the challenging
environment, resulting in an outcome of 100% of maximum under this measure. Strong returns have also been delivered, helped by the
focus on capital investment in specialist markets, and ROCE performance was 68.8% of maximum.
Application of policy for 2020
We set out below a brief overview of our intended application of policy for 2020.
■■ Base salaries: The CEO lives and works in Prague, Czech Republic, which is the centre for European operations. The CFO lives and works
in Nyon, Switzerland in our regional management office. The CEO and CFO received salary increases of 7.0% and 2.3% respectively, in
line with the average increases awarded to the Czech Republic and Swiss employee populations. This is to reflect pay practices and salary
inflation in the countries in which the Executive Directors reside. A 7% salary increase for the CEO, in part, seeks to ensure his salary
is appropriately positioned within the market competitive range for FTSE companies of a similar size and complexity, and reflects his
significant experience in the role.
■■ Benefits: There will be no changes to benefits provided to our Executive Directors.
■■ Pension: Contributions for the Executive Directors will reduce from 25.0% to 24.5% as of 2020. Contributions will then be reduced over
the next two years so they are aligned with the company pension contributions of the wider workforce in the country that they live and
work. The wider workforce in the Czech Republic receives company contributions of 23.5% of salary. In Switzerland the wider workforce
receives company contributions of 23.5% from age 55. The Committee considers it appropriate to align the Executive Directors’ pension
provision with such levels, in order to reflect practices in the countries in which the Executive Directors reside. The Remuneration Policy
Table on page 69 has been updated so that it is consistent with these changes.
■■ Annual bonus: The maximum bonus opportunity remains 200% of salary for the CEO and 150% of salary for the CFO, with 35% of any
bonus paid being deferred in shares for three years. The measures and weightings used have been reviewed and we believe a bonus
consisting of 77% headline operating profit, 10% headline operating cash flow and 13% personal objectives continues to enable the
annual bonus to be aligned to the Company’s strategy and ensures our executives are focused on delivery of improved profitability and
control on working capital.
■■ Bodycote Incentive Plan (BIP): Award levels will remain 175% of salary for Executive Directors. Similarly, measures and weightings have
been reviewed and we believe the equal focus on returns and earnings is strongly aligned with our strategic priorities. The growth of our
business and our ability to deliver strong and sustainable returns to investors is based on delivery of an effective deployment of capital in
rapid growth areas and on acquisitions, which ROCE and EPS continue to create alignment to.
I trust the information presented in this report enables our shareholders to understand both how we have operated our remuneration
policy over the year and the rationale for our decision making. We remain fully committed to continuing an open and transparent dialogue
with our shareholders. I would welcome your views on our policy, the content of this report or any other items you would like to discuss
and I look forward to meeting you and answering any questions you may have at the AGM.
E. Lindqvist
Chair of the Remuneration Committee
12 March 2020
This report has been structured to support the reader in quickly and easily accessing relevant information.
Main body
Section A: At a Glance
Section A: Implementation of Policy
Section A: Annual Report on Remuneration
Section B: Remuneration Policy
Page
58
60
61
68
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Section A
Remuneration at a glance
This introduction provides a high-level overview of the remuneration received by our Executive Directors. Full details can be found in the
Annual Report on Remuneration.
Salary
and fees
Key features
■■ Base salaries are
reviewed in January
every year
■■ Salary reviews are based
on role, experience,
performance, internal
increases and the
external market
Benefits
■■ A range of cash benefits
and benefits in kind
Pension
■■ Contribution to the
company’s defined
contribution scheme,
or cash equivalent
Annual Bonus
■■ Maximum bonus
opportunity of 200%
and 150% of base salary
for the CEO and CFO,
respectively
■■ 35% of any bonus
earned is deferred
into shares for 3
years, conditional on
continued employment
■■ Annual grants at
175% of base salary,
subject to a three-year
performance period
■■ Beginning with the 2019
grant, awards will also
be subject to a two-year
holding period
■■ Executive Directors are
required to build up a
holding of 200% of base
salary over five years.
Shares awarded but not
vested will not count.
Bodycote
Incentive Plan
(BIP)
Shareholding
requirement
58
Purpose and link
to strategy
Outcomes
for 2019
Implementation
for 2020
■■ To award competitive
salaries to attract
and retain the talent
required to execute the
strategy while ensuring
the Group pays no
more than necessary
■■ S.C. Harris received a
salary of £558,181, an
increase of 3%
■■ S.C. Harris will receive
a salary of £597,254, an
increase of 7.0%
■■ D. Yates received a
salary of £402,751,
an increase of 3%
■■ The average salary
increase for all UK
employees was 3%
■■ D. Yates will receive a
salary of £412,014, an
increase of 2.3%
■■ Non-Executive Director
fees will next be
reviewed at the March
2020 meeting and
the outcome will be
disclosed in the following
year’s report
■■ Provides market-
■■ Benefits consist of
■■ No changes proposed
competitive benefits
at an appropriate cost
company car, private
medical insurance, life
assurance and sick pay
■■ Provides a market-
■■ Legacy company
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
■■ 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
■■ To incentivise delivery
of long-term strategic
goals and shareholder
value and aid retention
of senior management
■■ To provide alignment
of interest between
participants
and shareholders
■■ Phased reduction to
23.5% of salary by
1 January 2022
■■ No changes proposed
■■ No changes proposed
contribution (or cash
equivalent) of 25% of
base salary for current
Executive Directors
■■ Pension contributions for
new Executive Directors
are to be aligned to
those applicable to
other employees and
will be set at the time
of appointment
■■ The 2019 annual bonus
was based on three
elements, group headline
operating profit (77%),
group headline operating
cash flow (10%) and
personal scorecard (13%)
■■ S.C. Harris and
D. Yates received annual
bonuses, as a percentage
of max of 50.4% and
49.6%, respectively
■■ The BIP granted in 2017
and vesting in 2020 was
based on ROCE (50%)
and headline EPS (50%)
resulting in 84.4% of
maximum vesting
■■ Both Executive
■■ No changes proposed
Directors exceed the
minimum shareholding
requirement, see
page 65
Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance Bodycote
Incentive Plan
(BIP)
The targets for the 2020 BIP awards are disclosed below. ROCE targets reflect the impact of IFRS 16 (leases).
Performance metric
Weighting (% of total award)
Performance period
Threshold performance
Vesting level
Maximum performance
Vesting level
EPS underpin
BIP targets for 2020 award
Headline EPS
50%
3 years
44.0p
0%
62.0p
ROCE1
50%
3 years
14.0%
0%
19.5%
Full vesting
Full vesting
37.4p
1 For the purposes of the BIP scheme, pre-tax ROCE is calculated using actual exchange rates.
Capital Employed includes the goodwill existing as at the start of the performance period (1 January 2017) only
During the year, the Committee reviewed the BIP structure and measures in the context of our strategic priorities
over the coming three years. The Committee determined that the current framework continues to appropriately
support delivery of our strategic plan.
Vesting of awards under the BIP is based on EPS and ROCE. These have been reviewed during the year and we
continue to believe that the focus on earnings and returns is strongly aligned with our strategic priorities. The growth
of our business and our ability to deliver strong and sustainable returns to investors is based on delivery of and
effective deployment of capital in rapid growth areas and on acquisitions, which ROCE and EPS continue to create
alignment to. This is referenced in more detail on page 25 of this Annual Report.
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Board report on remuneration continued
Illustration of application of remuneration policy for 2020
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. This is reviewed on
an annual basis. The chart below sets out illustrations of the impact of share price appreciation on the composition and value of each
Executive Director’s remuneration package, should they achieve minimum, at-target or maximum performance. This disclosure is in line
with The Companies (Miscellaneous Reporting) Regulations 2018.
Fixed pay
Annual Bonus
Long Term Incentive
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
£788,074
£2,027,376
26%
35%
£3,550,373
44%
£3,027,776
35%
£1,881,439
£2,241,951
48%
39%
34%
£1,273,718
38%
28%
29%
£542,394
33%
28%
500,000
0
100%
39%
26%
22%
100%
43%
29%
24%
Minimum
On-Target
Maximum
Maximum
with 50%
share price
increase
Minimum
On-Target
Maximum
Maximum
with 50%
share price
increase
Group Chief Executive – Stephen Harris
Chief Financial Officer – Dominique Yates
For the purposes of the above 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 2020.
– Benefits reflect benefits received in 2019 (including pension).
■■ For on-target performance, an assumption of 60% of annual bonus is applied and vesting of 50% of the maximum for the BIP.
■■ For the minimum, on-target and maximum basis bars no share price increase has been assumed or dividend reinvestment.
■■ Annual variable element is the annual bonus both cash and deferred shares.
■■ Long-term variable element is the BIP award and dividend equivalents.
60
Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance
Annual report on remuneration
This section provides details of remuneration outcomes for Executive Directors who served during the financial year ended 31 December
2019. This section of the report is audited and subject to an advisory vote by shareholders at the 2020 AGM.
Auditable section
Total single figure table
Financial
year
Total
salary/
fees
(£000)
Total
pension
(£000)
Total other
benefits1
(£000)
Annual
bonus5
(£000)
Total BIP
(£000)
Share price
gain on
vesting
of BIP
between
grant and
vest date
(£000)
BIP value
at grant
price
(£000)
Total CIP4
(£000)
Total
(£000)
Incumbent
Executive Directors
S.C. Harris
D. Yates
Non-Executive Directors
A. C. Quinn
P. Larmon
E. Lindqvist
I.B. Duncan
L. Chahbazi
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
558
542
403
391
232
225
65
56
67
65
77
74
58
56
140
135
101
98
–
–
–
–
–
42
22
27
17
1
1
2
3
–
1
–
1
–
563
742
300
394
8532
1,2333
6342
–
716
782
532
–
45
340
33
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
54
–
–
–
–
–
–
–
–
–
–
–
–
2,156
2,728
1,465
900
233
225
66
58
70
65
78
74
59
56
Notes accompanying the total single figure table
1 Other benefits consist of company car (or allowance), family level private medical insurance, life assurance cover and sick pay. Certain other expenses incurred in pursuit of bona fide business
activities are, under UK tax regulations, treated as a taxable benefit in kind, and the directors have received grossed up compensation for this in order to leave him/her in a neutral position
2 The 2019 figures relate to BIP awards made in 2017 with performance periods ending on 31 December 2019. Shares vested as the targets were achieved at 147.7% out of 175%.
This includes dividend equivalents. For 2019 dividend equivalents for S.C. Harris were £92,469 and for D. Yates were £68,721. An estimated market price at vesting was used of £8.08
calculated as the three months’ average from 1 October to 31 December 2019
3 This included dividend equivalents. An estimated share price of £7.68 calculated as the three months’ average from 1 October to 31 December 2018 was used to estimate the value in
the 2018 Annual Report. This has now been updated with the share price of £8.26 at the close of markets on the vesting date of 11 March 2019
4 The last CIP award was made in 2015 and vested in 2018. No further awards have been made
5 35% of the annual bonus will be deferred in shares
The base salaries of the Executive Directors are reviewed in January every year. As noted in the Chair’s letter on page 56, the CEO and
CFO received salary increases in line with the average increases awarded to the Czech Republic and Swiss wider workforce respectively.
This is to reflect pay practices and salary inflation in the countries in which the Executive Directors reside. A 7% salary increase for the
CEO, in part, seeks to ensure his salary is appropriately positioned within the market competitive range for FTSE companies of a similar
size and complexity and reflects his significant experience in the role. The table below sets out the base salary figures for 2020 along with
comparative figures for 2019.
Name
S.C. Harris
D. Yates
Position
Group Chief Executive
Chief Financial Officer
Salary from
1 January 2019
£558,181
£402,751
Salary from
1 January 2020
£597,254
£412,014
Salary increase
7.0%
2.3%
Pension
S.C. Harris and D. Yates are 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.
As noted in the Chair’s letter on page 56, pension provision will reduce by 0.5% to 24.5% as of 2020. Contributions will then be reduced over the
next two years so they are aligned with the company pension contributions of the wider workforce in the country that the Executive Directors live.
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. Yates
Car/car allowance
£24,238
£12,000
Fuel
£2,400
£1,200
Healthcare
£14,868
£14,176
Other taxable
benefits6
–
–
6 Certain other expenses incurred in pursuit of bona fide business activities are, under UK tax regulations, treated as a taxable benefit in kind, and the director has received grossed up
compensation for this in order to leave him/her in a neutral position
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Incentive outcomes for 2019
Annual performance related bonus
The table below provides the details of the annual bonus awards received in respect of the Group and individual performances in the 2019
financial year.
The annual bonus potential for the period to 31 December 2019 for Executive Directors was split 77% in respect of Group headline
operating profit, 10% on Group headline operating cash flow and 13% 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.
Stretching targets were set in the context of the challenging market conditions we faced and the investments that were planned in the
year. Following strong performance in 2019, the bonus paid out at 50.4% for the CEO and 49.6% for the CFO, 35% of the award will be
deferred in shares, for both the CEO and the CFO. The performance targets and actual performance are set out below.
Group headline
operating profit
Group headline
operating cash flow
Personal scorecard
% of
award Threshold
Target Maximum
Actual
performance
achieved1
S.C. Harris
% of
max
% of
salary
D. Yates
% of
max
% of
salary
Outcome
77% £129.0m £143.0m £150.0m
£134.3m
41.4%
63.7%
41.4%
47.8%
10% £105.0m £116.0m £116.0m
13%
20.0% 100.0%
£132.1m 100.0%
60.0%
17.2%
66.0%
49.6%
50.4% 100.9%
Total
15.0%
11.7%
74.5%
1 Figures quoted are at constant currency rates
Link to
strategy
Personal Scorecard
Executive Director
Overview
Key achievements
in the year
Rating
Executive Director
Overview
Key achievements
in the year
Stephen Harris
For 2019 Stephen’s objectives were: drive growth in emerging markets, drive growth in Specialist
Technologies, progress Group strategy, organisation development and leadership including SHE,
ERP design requirements completed and decision on ERP system made.
■■ As reflected in performance under our core EPS measure, the Group delivered a credible
performance in 2019 in spite of significant headwinds in some of the Group’s core markets
sectors. The targets the Committee had agreed with the CEO were achieved.
■■ Specific focus areas for the CEO were the achievement of year-on-year growth in Specialist
Technologies and emerging market revenues. In 2019 Specialist Technologies sales grew by
3% at constant currency rates on 2018 and emerging markets grew by 5% at constant currency
rates. In both cases outperforming the objectives.
■■ Progress of Group strategy was achieved as the organic improvement of operations
continued notwithstanding a tough macro environment. Two bolt-on acquisitions were
undertaken during the year and one large Specialist Technologies acquisition was announced.
Organisational development and leadership including SHE is clearly a critical part of the CEO’s
role and the Committee determined that he had effectively fulfilled this objective in the year.
■■ The Group is reviewing its Enterprise Resource Planning (ERP) programme that will ensure
our IT systems support the effective and efficient operation of our business into the future.
Progress required in 2019 was met.
The Committee assessed achievement for all objectives with an overall rating of 66%
Dominique Yates
For 2019 Dominique’s objectives were: drive and implement the transition plan for the Group
Finance Team, define and deliver a design of the ERP solution for the Group, deliver the
completed IR strategy and bed in the new auditors.
■■ The CFO was tasked with defining and implementing a new Group Investor Relations strategy in
the year. This objective was achieved, and we believe that through this IR strategy the Group will
maintain strong relationships and continue a productive two-way dialogue with our shareholders
■■ Succession planning features in the personal objectives for both our CEO and CFO, and as part
of this the CFO was tasked with filling a number of key vacant finance roles across the business.
Most roles were filled within the required timeframe and so this objective was mainly achieved.
■■ The CFO shared an objective with the CEO around the review of the Enterprise Resource
Planning (ERP) programme. Progress required in 2019 was met.
■■ PwC LLP were appointed as auditors as of 1 January 2019 and have successfully taken over
from Deloitte LLP.
Rating
The Committee assessed achievement for all objectives with an overall rating of 60%.
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Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance Bodycote Incentive Plan (BIP)
BIP awards made in 2017 had a three-year performance period ending on 31 December 2019, with 50% of the award subject to
satisfaction of a ROCE target and 50% subject to the headline earnings per share (EPS) target.
Over this period our share price has increased by 47.8%, demonstrating the strength of the returns we have made to shareholders.
The threshold and maximum targets along with the vesting schedule are set out in the tables below.
Threshold performance
Maximum performance
Performance achieved
ROCE
Headline EPS
Performance target
(pre IFRS16)
15.5%
23.0%
19.4%1
Vesting of element
(% of maximum)
0%
100%
69%
Performance
target
31.7p
52.0p
52.1p
Vesting of element
(% of maximum)
0%
100%
100%
1
For the purposes of the BIP scheme, pre-tax ROCE is calculated using actual exchange rates. Capital Employed includes the goodwill existing as at the start of the performance
period (1 January 2017) only
If headline EPS at the end of the performance period was below 27p, then no awards would vest.
The table below sets out the 2017 BIP outcome for S.C Harris and D. Yates.
2017 BIP outcome
S.C. Harris
D. Yates
84.4% of maximum opportunity
84.4% of maximum opportunity
The table below sets out a summary of shares vesting for BIP awards made in 2017 for S.C. Harris and D. Yates.
18 May
S.C. Harris
D. Yates
Award type
2017 BIP
2017 BIP
Grant date
18 May 2017
18 May 2017
Number of
shares
granted
111,569
82,916
End of
performance
period
31 Dec 19
31 Dec 19
% award
vesting
84.4%
84.4%
Number
of shares
vesting
94,164
69,981
Vesting date
16 Mar 20
16 Mar 20
Scheme interests awarded in the financial year
CIP awards granted during the year
No awards were made under the CIP – the final award was made in 2015 with vesting occurring in May 2018. This plan no longer features
in the Company’s policy.
BIP awards granted during the year
Awards consisting of conditional shares were granted to both Executive Directors, equivalent in value to 175% of their base salaries
on 26 March 2019, and will vest after three years in March 2022. The performance period will end on 31 December 2021. Details of
the awards are set out below. Awards are subject to continued employment and the achievement of ROCE and headline EPS growth
performance targets, as summarised in the table below.
The Committee has reviewed the performance targets and these have been revised appropriately to ensure that they remain stretching
targets which underpin the Group’s objectives. Our long-term targets reflect the continued challenges in the wider commercial
environment but the improved growth we expect to see following our emphasis on operational efficiency and the expansion of our
footprint in rapid growth territories.
Threshold performance
Maximum performance
ROCE (pre IFRS16)
Headline EPS
Performance target
15%
23%
Vesting of element
(% of maximum)
0%
100%
Performance target
56p
64p
Vesting of element
(% of maximum)
0%
100%
If headline EPS at the end of the performance period is below 47.6p, then no awards will vest. The Committee has decided that the
ROCE figure of 23% is a robust aspiration for the Group in view of our expected programme of investments, recognising the potential for
unintended consequences in terms of short-term capital underinvestment for the business. Dividend equivalents are payable in respect of
those shares that vest.
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The number of shares that were awarded, at a grant price of £8.23, to the Executive Directors during the year is set out below.
Executive
S.C. Harris
D. Yates
Award type
2019 BIP
2019 BIP
Grant date
26 March 2019
26 March 2019
Number of shares
115,232
83,144
Market price at
date of award
£8.23
£8.23
Face value at
date of award
£948,359
£684,275
Chair and Non-Executive Directors’ fees
Chair of the Board and other Non-Executive Directors fees were as follows:
Individual
Eva Lindqvist
Roles
■■ Non-Executive Director
■■ Chair of Remuneration Committee
Fee for
2019
£67,137
Fee for
2018
£65,182
% increase in
NED role fees
3%
Ian Duncan
■■ Member of Audit, Remuneration and Nomination Committees
■■ Non-Executive Director
£76,647
£74,415
3%
■■ Chairman of Audit Committee
■■ Member of Audit, Remuneration and Nomination Committees
Patrick Larmon
■■ Senior Independent Director
■■ Non-Executive Director
Lili Chahbazi
Anne C. Quinn
■■ Chair of Employee Engagement Groups
■■ Member of Audit, Remuneration and Nomination Committees
■■ Non-Executive Director
■■ Member of Audit, Remuneration and Nomination Committees
■■ Non-Executive Chair
■■ Chair of Nomination Committee
■■ Member of Nomination Committee
£64,760
£55,949
16%1
£57,627
£55,949
£231,750
£225,000
3%
3%
1 As Patrick Larmon is chairing the Employee Engagement Groups his fee was increased during 2019 to reflect the additional time commitment
Non-Executive Director fees were increased for 2019 based on market benchmarking against Non-Executive Director fees in the FTSE 250 and other companies of similar size and
complexity in line with the Policy approved at the 2019 AGM
At 31 December 2019 the aggregate annual fee for all Non-Executive Directors, including the Chair, was £497,921, which is below the maximum aggregate fee allowed by the
Company’s Articles of Association of £1,000,000 p.a
Board changes in 2019
Payments for loss of office
No payments for loss of office were made in the year.
Payments to past directors
No payments to past directors were made during the year.
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Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance
Directors’ shareholdings
As described in Section B: 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. For the
purposes of this requirement, only beneficially-owned shares and the net of tax value of deferred shares under the annual bonus (as they
are not subject to further performance conditions) will be counted.
The shareholding requirement for the CEO is 200% of salary and for the CFO is 200% of salary (increased from 150% under our previous
approved policy).
The interests in ordinary shares of directors and their connected persons as at 31 December 2019, including any interests awarded under
the annual bonus or BIP, are presented below along with whether Executive Directors have met the shareholding guidelines. We note that
shares under the annual bonus and the BIP are conditional on continued employment until vesting.
Counted towards the
shareholding requirement
Beneficially
owned
Deferred
shares granted
under the
annual bonus3
Outstanding scheme
interests (not counted
towards shareholding
requirement)
Shares
subject to
performance
conditions BIP1
Shareholding
requirement
met2
290,706
230,000
69,139
29,716
323,712
235,984
20,000
12,200
–
5,000
–
–
–
–
–
–
–
–
–
–
–
Yes
Yes
n/a
n/a
n/a
n/a
n/a
Executive Directors
S.C. Harris (200% minimum holding requirement)
D. Yates (200% minimum holding requirement)
Non-Executive Directors
(No holding requirement)
A.C. Quinn (appointed 1/1/18)
E. Lindqvist
I.B. Duncan
P. Larmon
L. Chahbazi (appointed 1/1/18)
1 Figures relate to unvested awards under the BIP
2 As at 31 December 2019
3
Table shows 2018 and 2019 deferred shares. The number of deferred shares under the 2020 bonus plan can only be granted after the year-end closed period and will be shown in the
2020 Annual Report. GBP value of the 2020 deferred shares is £196,997 for S.C. Harris and £104,957 for D. Yates
Summary of outstanding share awards, including share awards granted during the year – Executive Directors
The interests of the Executive Directors in the Company’s share schemes as at 31 December 2019 are as follows. Note that no CIP award
has been made since the last award has been granted in 2015.
Bodycote
Incentive Plan (BIP)
Deferred bonus
shares
S.C. Harris
D. Yates
S.C. Harris
D. Yates
Interests
as at
1 January
2019
360,247
152,840
39,560
14,013
Awarded
in year
115,232
83,144
29,579
15,703
Vested
in year
135,467
–
–
–
Lapsed
in year
16,300
–
–
–
At 31
December
2019
323,712
235,984
69,139
29,716
Market
price at
award date
£8.23
£8.23
–
–
Market
value at
date of
vesting
Vesting
date 2019
award
£8.26 March 2022
– March 2022
–
–
–
–
Mid-market closing price of a share on the day before the BIP 2019 grant was £8.23. The face value of the award to S.C. Harris was
£948,359. The face value of the award to D. Yates was £684,275.
The 2017 BIP award did vest at 84.4% out of 100%.
End of auditable section
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Board report on remuneration continued
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 the position of Non-Executive Director of Mondi plc since 1 March 2011 and in accordance with Group policy he
retained fees for the year of £97,016.
Comparison of overall performance and pay
The chart below shows the value over the last ten 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 it is a broad market index of which Bodycote plc is a
constituent and reflects the wider sector in which we operate. The points plotted represent the values at each financial year end.
Historical TSR Performance
Growth in the value of a hypothetical £100 holding over nine years
FTSE All Share Industrial Index comparison based on spot values
£1,100
£1,000
£900
£800
£700
£600
£500
£400
£300
£200
£100
£0
Bodycote
FTSE All Share
Industrial Index
Dec 09
Dec 10
Dec 11 Dec 12 Dec 13 Dec 14
Dec 15 Dec 16
Dec 17 Dec 18 Dec 19
The table below shows how total remuneration for the Group Chief Executive, S.C. Harris, developed over the last ten years.
Single figure of remuneration £‘000
Annual variable element award
(as a % of maximum) opportunity
Long-term incentive vesting
(as a % of maximum)
2010
906
2011
3,252
2012
3,840
2013
3,089
2014
1,803
2015
771
2016
875
2017
2,280
2018
2,728
2019
2,156
98%
95%
73%
46%
73%
20%
19%
98%
68%
50%
0% 100% 100%
99%
44%
0%
0%
48%
89%
84%
Percentage change in remuneration of Group Chief Executive
The table below sets out the percentage change in the Group Chief Executive’s remuneration from the prior year compared to the average
percentage change in remuneration for the Senior Management population.
The senior management population is the most relevant and comparable population.
Salary
Annual bonus
Benefits
Total
2019 (£000)
558
563
42
1,163
Chief Executive Officer
2018 (£000)
542
742
22
1,306
Senior Management
population
Average % change
8.0%
-33.5%
0.8%
-11.2%
% change
3.0%
-24.1%
90.9%
-10.9%
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Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance
Pay ratio of Group Chief Executive to UK average employee
The UK government has now introduced legislation requiring companies to publish the ratio of their Chief Executive to that of the median,
25th and 75th percentile total remuneration of full-time equivalent UK employees. We are disclosing the pay ratio on the required basis in
this year’s report as shown in the table below:
Year
2019
Method
Option B
25th percentile
pay ratio
33:1
Median
pay ratio
18:1
75th percentile
pay ratio
10:1
The table above has been calculated using the approach determined by Option B which is deemed the most appropriate methodology for
Bodycote plc. The calculations for the relevant representative employees were performed as at 31 December 2019.
To ensure Option B provides a sufficiently accurate representation of the UK workforce, we have performed sensitivity analysis around
the three quartiles. Our approach has been to consider the total pay and benefits for a number of employees centred around each quartile.
This allows any anomalies that may arise when calculating the total pay and benefits for the full financial year (such as if an employee left
part way through the year) to be adjusted or excluded. By taking an average of the remaining figures, this provides a robust representation
of each quartile.
The total full-time equivalent pay and benefits for the relevant employees has been calculated based on the amount paid or receivable
in respect of the financial year. The calculations are on the same basis as required for the CEO’s remuneration for single total figure
purposes. For pension-related benefits, employer pension costs have been estimated using the employer contribution rates applicable
to the member’s pension scheme. No other estimates or adjustments have been used in the calculation and no remuneration items have
been omitted. For employees in this calculation employed on a part-time basis, their remuneration has been annualised to reflect the full-
time equivalent.
£
Total pay and benefits
Salary component
25th percentile
£22,379
£21,413
Median
£41,424
£38,757
75th percentile
£74,342
£68,172
Relative importance of pay spend
The table below shows the total expenditure in relation to staff and employee costs and distributions to shareholders in 2018 and 2019.
Staff and employee costs
Distributions to shareholders
2019
£m
280.6
74.7
2018 Restated
£m
289.3
81.8
% change
-3.0%
-8.7%
Committee membership
During 2019 the Committee was chaired by E. Lindqvist. The Committee also comprised I.B. Duncan, P. Larmon and L. Chahbazi.
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.
We set out below the members of the Committee, the number of meetings each Committee member attended during the year and the
main responsibilities of the Committee.
Committee activities
During 2019 the Committee met four times to consider, amongst other matters:
Theme
Best practice
Implementation Report
Executive Directors’
and senior executives’
remuneration
Agenda items
■■ The Group’s Remuneration Policy, discussions and feedback from the Group’s AGM in 2019 and
the Corporate Governance Code and Investment Management Association (IMA) guidelines on
executive remuneration
■■ Review of the current UK corporate governance environment and the implications for the Group
■■ Consideration and approval of the Implementation Report to be put to shareholders and as summarised
in Section A 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 2019
■■ The annual bonus structure and performance targets for the year ended 31 December 2019
■■ The awards and vestings made under the Bodycote Incentive Plan (‘BIP’)
Reporting
■■ Pension arrangements for senior executives
■■ Consideration and approval of the Board report on remuneration
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Advisers to the Committee
Following the audit tender undertaken in Q4 2018, PwC was appointed as new external auditors by the Board as of 1 January 2019.
Consequently PwC resigned as Remuneration Committee consultant on 31 December 2018. The Committee appointed EY as interim
Remuneration Consultants as of 1 January 2019 until a beauty parade could be arranged during October 2019.
The Committee was advised by EY during 2019 on remuneration matters including the provision of advice on matters under consideration
by the Committee, updates on good practice, legislative requirements and market practice. Following a competitive tender process,
the Committee appointed Deloitte LLP as Remuneration Committee advisers as of 1 January 2020. EY’s fees for the year, based on
the quantity and complexity of the work undertaken, amounted to £22,100. EY also undertakes internal audit work for the Company.
The Remuneration Committee is satisfied that the advice provided on executive remuneration is objective and independent, and that no
conflict of interest arises as a result of these services. The Committee reviews the objectivity and independence of the advice it received
from EY at a private meeting each year. Legal advice was provided by Eversheds and fees amounted to £nil. All fees are based on the
quantity and complexity of work undertaken.
The Committee also received assistance from the Group Chief Executive and Group Company Secretary, although they do not participate
in discussions relating to the setting of their own remuneration. The Committee in particular consulted with the Group Chief Executive
and received recommendations from him in respect of his direct reports.
Statement of shareholder voting
The table below displays the voting results on the remuneration resolution at the 2019 Annual General Meeting as well as the result of the
Remuneration Policy at the 24 May 2019 AGM:
Votes cast
For
Against
Number of abstentions
E. Lindqvist
Chair of the Remuneration Committee
12 March 2020
2019 Board report on
remuneration
(% votes)
2019 Directors’
Remuneration
Policy (% votes)
81%
98%
2%
7,048
81%
97%
3%
613,242
Section B
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.
The Policy has been revised in order to ensure continued alignment between remuneration and the evolving strategic direction of our
business, as well as to ensure alignment with the 2018 UK Corporate Governance Code.
Below is an explanation of how the Bodycote Remuneration Committee has addressed the principles prescribed by the 2018 UK
Corporate Governance Code in determining the Executive Remuneration Policy, approved at the 2019 AGM.
UK Corporate Governance Code Provisions
Clarity – remuneration arrangements should be transparent
and promote effective engagement with shareholders and the
workforce.
Simplicity – remuneration structures should avoid complexity
and their rationale and operation should be easy to understand.
Risk – remuneration arrangements should ensure reputational
and other risks from excessive rewards, and behavioural risks
that can arise from target-based incentive plans, are identified
and mitigated.
How the Committee has addressed these
The Committee is satisfied that the remuneration arrangements in
the Policy are transparent, comprising simple incentive structures
that are commonplace in the market and best practice remuneration
provisions.
No significant structural changes to incentive plans were proposed.
The Committee concluded that the operation of the deferred annual
bonus and Bodycote Incentive Plan (BIP) would remain easy for
stakeholders to understand given the prevalence of these structures
in the FTSE market and that the rationale for their operation remains
unchanged and is clearly set out within the Policy.
The Committee concluded that there are two principal approaches
to mitigate these risks: to ensure that remuneration arrangements
do not offer the potential for excessive rewards; and to ensure the
Committee has recourse to recover sums where appropriate. As such,
no increases to maximum incentive opportunities were proposed and
the malus and clawback provisions for the annual bonus and Bodycote
Incentive Plan (BIP) have been extended to include a provision for the
action or conduct of a participant which results in reputational damage
to the Group.
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Bodycote plc annual report 2019GovernanceStrategic reportAdditional informationFinancial statementsGovernance Predictability – the range of possible values of rewards to
individual directors and any other limits or discretions should be
identified and explained at the time of approving the policy.
Proportionality – the link between individual awards, the
delivery of strategy and the long-term performance of the
company should be clear. Outcomes should not reward poor
performance.
Alignment to culture – incentive schemes should drive
behaviours consistent with company purpose, values
and strategy.
The unpredictability of company performance, including share price
performance, means that the Committee cannot provide certain
future values of Executive Director remuneration. However, in
order to provide a guideline range of outcomes possible under the
Policy, the ‘illustration of application of remuneration policy’ chart on
page 60 indicates the potential impact of share price appreciation on
Executive Director pay outcomes for both on-target and maximum
performance scenarios.
The Committee believes that the Policy table clearly sets out how
each element of remuneration links to the delivery of strategy and
that the disclosure of BIP performance targets provides a clear link
between individual awards and the long-term performance of the
Company. The Policy also provides the Committee with discretion to
adjust incentive outcomes so that reward fairly and accurately reflects
the performance of the Company over the relevant period.
The Committee assessed the incentive plans and considered that
they were consistent with Bodycote’s values:
Honesty and Transparency: The incentive designs are simple,
transparent and in line with market practice, facilitating understanding
by all stakeholders.
Respect and Responsibility: The Committee has recourse to recover
sums where appropriate.
Creating Value: The incentives are calibrated to reward participants
for delivering exceptional performance. The Committee reviews
all outcomes for Executive Directors and has discretion to adjust
outcomes where appropriate.
This Policy is intended to apply for three years from the date of the 2019 Annual General Meeting and is set out below.
Discretion
In line with the 2018 Corporate Governance Code provision for remuneration policies to enable the use of discretion to override formulaic
outcomes, 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.
Remuneration Policy Table
Performance measures
None.
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.
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.
Maximum
opportunity
under the element
While 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.
In general an Executive Director
with the same scope and role
throughout the Policy period
will retain the same salary other
than potential changes in line
with all other Group employees.
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Element and
how it supports
our strategy
Benefits
Provides market-
competitive
benefits at an
appropriate cost.
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.
Operation of the element
The Company provides a range of
cash benefits and benefits in kind to
Executive Directors in line with market
practice.
These may include the provision of
company car (or allowance), private
medical insurance, short and long-term
sick pay and death in service cover.
The Company may also meet certain
mobility costs, such as relocation
support, expatriate allowances,
temporary living and transportation
expenses.
Benefits provision will also extend to the
reimbursement of taxable work-related
expenses, such as travel.
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.
In the case of non-UK executives, the
Committee may consider providing
additional allowances in line with
relevant market practice, including
expatriate benefits.
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.
Pension contributions for new Executive
Directors are to be aligned to those
applicable to other employees and
will be set at the time of appointment.
Performance measures
None.
Maximum
opportunity
under the element
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.
None.
Pension contributions for
current Executive Directors will
be reduced to 23.5% of salary
by 1 January 2022. This is so
that they are aligned with the
levels available to the wider
workforce within the countries
in which the Executive
Directors live.
Pension contributions for a
new Executive Director will be
aligned with the levels available
to the wider workforce within
the country in which the
Executive Director lives.
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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).
Dividend equivalents are payable in
respect of the shares which vest.
35% of any bonus earned is deferred
into shares for three years, conditional
on continued employment until the
vesting date.
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;
■■ Action or conduct of a participant
which amounts to fraud or gross
misconduct; or
■■ Action or conduct of a participant
which results in reputational damage
to the Group.
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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Maximum
opportunity
under the element
Performance measures
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.
Awards vest based on performance
over three years against performance
measures chosen by the Committee
to align with business and
strategic priorities.
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.
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 headline EPS provides a
measure of the level of value created
for shareholders. ROCE and headline
EPS are our top two KPIs as shown
on page 6 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.
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.
Operation of the element
Awards will be granted annually under
the Bodycote Incentive Plan subject to a
three year vesting period and stretching
performance conditions measured over
three years. Awards granted from 2019
will also have a two-year holding period
from the date of vest.
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 vesting.
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;
■■ Action or conduct of a participant
which amounts to fraud or gross
misconduct; or
■■ Action or conduct of a participant
which results in reputational damage
to the Group.
The Committee believes that the
rules of the Plan provide sufficient
powers to enforce malus and clawback
where required.
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under the element
Performance measures
Executive Directors are
required to build up a holding
of 200% of base salary.
None.
Element and
how it supports
our strategy
Shareholding
requirement
To provide
alignment of
interest between
participants and
shareholders.
Operation of the element
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
Committee has the power to introduce a
post cessation of employment minimum
shareholding requirement in line with the
UK Corporate Governance Code and will
review emerging market practice before
determining the extent of any terms or
conditions of any requirements.
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 68 to 77 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.
Non-Executive Director (NED) Fee Policy
The Policy on Non-Executive Director (NED) and Chair fees is set out below.
Performance measures
None.
Maximum
opportunity
under the element
Fees for Non-Executive
Directors for the following year
are set out in the Statement of
Implementation of Policy on
page 60.
The Company’s Policy is that
the Chair 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).
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 Chair and the Group
Chief Executive.
The fee for the Chair is set by the
Remuneration Committee.
The Chair 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 Chair and Non-Executives
are set at 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 Chair and Non-Executive Directors
are not entitled to any pension or other
employment benefits and, in line with
the UK Corporate Governance Code,
are not allowed to participate in any
incentive plan.
The Company will pay reasonable
expenses incurred by the Non-Executive
Directors and Chair and may settle any
tax incurred in relation to these.
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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 the 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 policies. However, it does take into
account information provided by the Human Resources function on pay and conditions across the Company, and considers these as part
of its discussions and decision making, along with feedback from employee satisfaction surveys. In addition, the Board of Bodycote is
developing its approach to engagement with the workforce in line with the guidance in the 2018 Corporate Governance Code and the
results of this engagement will be available to the Remuneration Committee.
We recognise the Government’s recent commentary in this area, and will ensure that our approach to consideration of employee views
and pay and conditions across the Company reflect appropriate legislative and corporate governance requirements.
Statement of consideration of Shareholders’ 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 current Remuneration Policy, 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
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 Policy table on pages 69 to 73.
Component
General
Base salary
Other benefits
Pension
Annual bonus
Long-term incentives
Policy
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 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 will be considered in light of the Policy 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.
Pension contribution levels will be considered by the Committee in light of the new recruit’s package
as a whole, market practice at the time and in line with the new provision that Executive Director
pension contributions will be in line with Bodycote contribution rates applicable to other employees.
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 prorated basis in the first year
of appointment.
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 prorated basis when appointed.
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.
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Replacement awards
Internal promotions
Policy
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 time frame. An explanation will be provided at the time of recruitment of
why a buyout award has been granted.
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.
Fee levels for a new Chair or new Non-Executive Directors will be determined in accordance with the Policy set out on page 73.
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:
Date of service contract
Notice period
Remuneration
S.C. Harris, Group Chief Executive
6 October 2008
12 months
■■ Annual base salary
D. Yates, Chief Financial Officer
1 November 2016
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)
■■ Private medical insurance
■■ Company car allowance
evidence provided)
■■ Private medical insurance
■■ Company car allowance
■■ Entitlement to receive an annual performance-
■■ Entitlement to receive an annual performance-
related bonus award
related bonus award
■■ Entitlement to participate in a long-term
■■ Entitlement to participate in a long-term
incentive plan
incentive plan
Termination
Non-competition
Company has right to terminate on payment
of a termination payment with agreement
of executive
During employment and for 12 months
thereafter
■■ Entitlement to a reasonable relocation package if
D. Yates relocates within 30 months of starting
date of 1 November 2016
Company has right to terminate on payment of a
termination payment
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
P. Larmon
E. Lindqvist
I.B. Duncan
A.C. Quinn
L. Chahbazi
Date of initial appointment
13 September 2016
1 June 2012
17 November 2014
1 January 2018
1 January 2018
Notice period
6 months
6 months
6 months
6 months
6 months
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The Non-Executive Directors of the Company (including the Chair) do not have service contracts. The Non-Executive Directors are
appointed by letters of appointment. Each independent Non-Executive Director’s and the Chair’s term of office runs for a maximum three-
year period.
The initial terms of the Non-Executive Directors’ and the Chair’s 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.
Component
Compensation for loss of
office in service contracts
Treatment of cash
element of the bonus under
Plan rules
Treatment of unvested
deferred bonus awards
under Plan rules
Policy
Under the terms of the Group Chief Executive’s contract, the Company may at its choice, in lieu of
giving notice, terminate his 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. For the purposes of transparency, if the CEO had left Bodycote in FY18, and the
Company had chosen to make a compensation payment in lieu of giving notice, this would have
comprised: £541,923 (one year of base salary) + £135,481 (25% of base salary) + £450,667 (three-
year average bonus over FY15-FY17) = £1,128,070.
Under the terms of the Chief Financial Officer’s contract, the contract is 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.
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 prorated for the period worked during the
financial year.
The Committee retains the 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;
■■ not to prorate the bonus to time. The Committee’s Policy is that it will prorate bonus for time. It is
the Committee’s intention to use its discretion to not prorate 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 the CEO).
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.
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Exercise of discretion
Change of control
On cessation of employment, awards under the BIP 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 award should not lapse in full, awards will normally vest at
the normal vesting date, prorated 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 prorate 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 prorate awards for time. It is the Committee’s
intention to use discretion to not prorate in circumstances where there is an appropriate business
case which will be explained in full to shareholders.
In addition, awards granted from 2019 will be subject to a two-year holding period.
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.
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.
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.
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.
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Statement of directors’ responsibilities in respect of the financial statements
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law
and regulation.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared
the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union
and parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law). Under company law the directors
must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group
and parent company and of the profit or loss of the Group and parent company for that period. In preparing the financial statements, the
directors are required to:
■■ select suitable accounting policies and then apply them consistently;
■■ state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and United
Kingdom Accounting Standards, comprising FRS 101, have been followed for the company financial statements, subject to any material
departures disclosed and explained in the financial statements;
■■ make judgements 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 Group and parent company will
continue in business.
The directors are also responsible for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent
company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent company and
enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the IAS Regulation.
The directors are responsible for the maintenance and integrity of the parent company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ confirmations
The directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group and parent company’s position and performance, business model
and strategy.
Each of the directors, whose names and functions are listed in the Directors’ report confirm that, to the best of their knowledge:
■■ the parent company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law), give a true
and fair view of the assets, liabilities, financial position and profit of the company;
■■ the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and
fair view of the assets, liabilities, financial position and profit of the Group; and
■■ the Strategic report includes a fair review of the development and performance of the business and the position of the Group and parent
company, together with a description of the principal risks and uncertainties that it faces.
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Bodycote plc annual report 2019Financial statements
Independent auditors’ report to the members
of Bodycote plc
Report on the audit of the financial statements
Opinion
In our opinion:
■■ Bodycote plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view of
the state of the Group’s and of the Company’s affairs as at 31 December 2019 and of the Group’s profit and cash flows 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 Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); 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.
We have audited the financial statements, included within the annual report 2019 (the “Annual Report”), which comprise: the Group
consolidated and Company balance sheets as at 31 December 2019; the Group consolidated income statement and Group consolidated
statement of comprehensive income, the Group consolidated cash flow statement, and the Group consolidated and Company statements
of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant
accounting policies. Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided
to the Group or the Company.
Other than those disclosed in note 3 to the financial statements, we have provided no non-audit services to the Group or the Company in
the period from 1 January 2019 to 31 December 2019.
Our audit approach
Overview
Materiality
Audit scope
■■ Overall Group materiality: £6,200,000, based on 5% of profit before tax.
■■ Overall Company materiality: £5,100,000, based on 1% of total assets.
■■ Our audit included full scope audits of 17 components and audit procedures on one specific
financial statement line item of a further component. Taken together the above procedures account
for 78% of consolidated revenue, 70% of consolidated absolute profit before tax and 83% of
consolidated total assets.
We assessed the risks of material misstatement in the financial statements and determined the
following key audit matters for 2019:
Key audit
matters
■■ Uncertain tax positions (Group);
■■ Impairment assessment of goodwill and other intangible assets (Group and Company); and
■■ Adoption of IFRS 16, ‘Leases’ (Group).
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Independent auditors’ report continued
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and the industry in which it operates, we identified that the principal risks of non-compliance
with laws and regulations related to breaches of environmental regulations and health and safety regulations (see pages 28-29 of the
Annual Report), and we considered the extent to which non-compliance might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies
Act 2006 and the UK Listing Rules. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal
entries and management bias in accounting estimates and judgements. The Group engagement team shared this risk assessment with
the component auditors so that the component auditors could include appropriate audit procedures in response to such risks in their work.
Audit procedures performed by the Group engagement team and/or component auditors included:
■■ Discussions with management, internal audit and the Group’s internal legal counsel, including consideration of potential instances of
non-compliance with laws and regulation and fraud;
■■ Assessment of matters reported through the Group’s whistleblowing helpline and the results of management’s investigation of such
matters; and
■■ Challenging assumptions and judgements made by management in its accounting estimates or judgements, in particular in relation to
uncertain tax positions and its impairment assessment of goodwill.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of
not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, 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. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Uncertain tax positions (Group)
The Group has operations in a number of geographical locations
and as such is subject to multiple tax jurisdictions, giving rise to
complexity in accounting for the Group’s taxation.
In particular, the interpretation of complex tax regulations and
the unknown future outcome of any pending judgements by the
tax authorities results in the need to provide against a number
of uncertain tax positions. The Group undertakes financing
activities between jurisdictions and non-financing cross-
border transactions, which require judgement to determine the
appropriate tax charge and any associated provisions, and for
these reasons we considered uncertain tax positions to be a key
audit matter.
In addition, the Group adopted IFRIC 23, ‘Uncertainty over
income tax treatments’ (IFRIC 23) in the financial year.
Refer to notes 6 and 19, and the Audit Committee’s views set
out on page 53.
Our audit work, which involved taxation audit specialists at Group,
included the assessment of the Group’s uncertain tax positions.
As part of our audit, we also involved transfer pricing experts
to consider the appropriateness of the Group’s assessment
of its exposure to transfer pricing risks and related corporate
tax provisions.
Our assessment included reading correspondence with tax
authorities to understand the current status of tax assessments
and investigations and to monitor developments in ongoing
disputes. We also read recent rulings by local tax authorities,
as well as external tax advice received by the Group where
relevant, to satisfy ourselves that the tax provisions had been
appropriately recorded or adjusted to reflect the latest tax
legislative developments.
In assessing the adequacy of the tax provisions, we considered
factors such as possible penalties and interest that could be
imposed by the local tax authorities. We also determined whether
the tax provisions were recognised in accordance with the relevant
accounting standards.
We considered the appropriateness of the related disclosures in
note 6 and note 19 to the financial statements.
Based on the procedures performed, we noted no material issues
from our work.
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Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Key audit matter
How our audit addressed the key audit matter
Impairment assessment of goodwill and other intangible
assets (Group and Company)
The Group has goodwill of £170 million as at 31 December 2019
(2018: £164 million).
We obtained the Group’s impairment analyses and tested the
integrity of the calculations and corroborated the information to
Board approved budgets and strategic plans. We also understood
management’s process for forecasting cash flows.
For the CGUs to which goodwill relates (which require an annual
impairment test), the determination of the recoverable amount,
being the higher of value in use (VIU) and fair value less costs
of disposal (FVLCD), requires judgement and estimation by
management. This is because the determination of a recoverable
amount includes management’s consideration of key internal
inputs and external market conditions such as future market and
pricing trends in those industries in which its customers operate,
which impacts future cash flows, and the determination of the
most appropriate discount rate. Therefore, we considered it to be
a key audit matter.
The Group and the Company also have software assets related to
the Group’s ERP solutions of £9.8 million (2018: £9.1 million) that
are not yet available to use and are, therefore, not amortised.
Refer to notes 9 and 10 of the Group financial statements, note 2
of the Company financial statements and the Audit Committee’s
views set out on page 53.
Adoption of IFRS 16, ‘Leases’ (Group)
The Group adopted IFRS 16, ‘Leases’ on 1 January 2019 and
applied it fully retrospectively. This new accounting standard
requires a lessee to recognise a right-of-use asset representing
its right to use the underlying leased asset, and a lease liability
representing its obligation to make lease payments.
Management has applied judgement in assessing whether the
Group’s arrangements contain a lease, determining the lease
terms, calculating the discount rate and concluding whether any
service or lease components of lease arrangements need to be
separated. Therefore, we considered it to be a key audit matter.
As at 31 December 2019 the Group has recorded a right-
of-use asset of £73 million (2018: £74 million) and lease
liabilities of £79 million (2018: £80 million). The depreciation
charge recognised on the right-of-use assets was £15 million
(2018: £14 million) and the interest on lease liabilities was
£2 million (2018: £2 million). Refer to notes 12 and 31 and the
Audit Committee’s views set out on page 53.
We challenged management’s key assumptions for profit and
cash flow budgets by comparing them with third party forecast
market data, where available. We also performed look back
testing to understand how accurate management had been in its
forecasting historically.
We used our valuations experts to assess the reasonableness of
the discount rates, by independently calculating a range for the
weighted average cost of capital, and considered if the rate used
by management was within a supportable range. Our valuations
experts also compared management’s long-term growth rate with
economic forecasts.
We obtained management’s sensitivity analyses which showed
the impact of reasonably possible changes to key assumptions and
performed our own sensitivity analyses.
On the software assets, we tested the costs capitalised in the year
and considered management’s plans for its future use of these
ERP solutions.
We also assessed the appropriateness of the related disclosures in
notes 9 and 10 of the Group financial statements and note 2 of the
Company financial statements.
Based on the procedures performed, we noted no material issues
from our work.
We obtained the Group’s calculation of the right-of-use asset, lease
liability, depreciation charge and interest on the lease liability based
on the lease data for the population of leases identified.
With the support of our component teams, we performed
procedures to assess the completeness of management’s listing
of the lease contracts in place, including reading new contracts and
management meeting minutes and assessing expense accounts.
We tested the accuracy of the lease data compiled by
management by agreeing key inputs to the underlying
arrangements to ensure the accuracy of key data points used in
determining the IFRS 16 accounting entries.
Our testing included an evaluation of the mathematical accuracy of
the underlying calculations. We also involved our internal valuations
experts to consider the appropriateness of the Group’s assessment
of the discount rates used in the lease calculations.
Based on the procedures performed, we noted no material issues
from our work.
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How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in
which they operate.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at components by
us, as the Group engagement team, or component auditors operating under our instruction.
We identified one component as significant (as defined within ISAs (UK)) which, in our view, required an audit of its complete financial
information, due to its financial significance to the Group. Outside of this component, we obtained full scope audit reporting from a further
eight components, where we concluded that the component engagement leader is a Key Audit Partner (as defined under ISAs (UK)), and
an additional eight components where full scope audits were performed. Together, these components were in 11 countries, representing
the Group’s principal businesses, and accounted for 78% of the Group’s revenue, 70% of consolidated absolute profit before tax and 83%
of consolidated total assets.
An audit of a specific financial statement line item was performed at a further component and central testing was performed on selected
items, such as goodwill and uncertain tax positions, primarily to ensure appropriate audit coverage.
The components included within our scope of audit were determined based on the individual components’ contribution to the Group’s key
financial statement line items (in particular revenue and profit before tax), and considerations relating to aggregation risk within the Group.
Where work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at
those components to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on
the Group financial statements as a whole.
We issued formal written instructions to all component auditors setting out the audit work to be performed by each of them and
maintained regular communication with them throughout the audit cycle. These interactions included attending certain component audit
clearance meetings, as well as reviewing and assessing any matters reported. The Group engagement team also reviewed selected
audit working papers for certain in-scope component teams, including the significant component and the further components where we
concluded that the component engagement leader is a Key Audit Partner. In addition, given the extent of testing performed by our Czech
Republic team at the Group’s Prague Shared Services Centre, which supports the financial accounting for the majority of the Group’s
European businesses, a working paper review was also conducted of this team’s work.
In addition, senior members of the Group engagement team visited component teams in the US and France and visited the Prague
Shared Service Centre on a number of occasions. These visits included meetings with local management and with the local auditors.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
Rationale for benchmark applied
Group financial statements
Company financial statements
£6,200,000.
5% of profit before tax.
Based on the benchmarks used in the
Annual Report, profit before tax is the
primary measure used by the shareholders
in assessing the performance of the
Group, and is a generally accepted
auditing benchmark.
£5,100,000.
1% of total assets.
The Company holds the Group’s investments
in subsidiary companies. The strength of the
balance sheet is the key measure of financial
health that is important to shareholders as
this determines the Company’s ability to
pay dividends.
For each component in the scope of our Group audit, we allocated a materiality that was less than our overall Group materiality. The range
of materiality allocated across components was between £500,000 and £3,750,000. Certain components were audited to a local
statutory audit materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £310,000 (Group
audit) and £255,000 (Company audit) as well as misstatements below those amounts that, in our view, warranted reporting for
qualitative reasons.
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Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or
draw attention to in respect of the directors’ statement in the
financial statements about whether the directors considered
it appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the directors’
identification of any material uncertainties to the Group’s and
the Company’s ability to continue as a going concern over a
period of at least twelve months from the date of approval of the
financial statements.
We are required to report if the directors’ statement relating
to Going Concern in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit.
Outcome
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Group’s and
Company’s ability to continue as a going concern. For example,
the terms of the United Kingdom’s withdrawal from the European
Union are not clear, and it is difficult to evaluate all of the potential
implications on the Group’s trade, customers, suppliers and the
wider economy.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform
procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report, Directors’ report and Corporate governance statement, we also considered whether the disclosures
required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs
(UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described
below (required by ISAs (UK) unless otherwise stated).
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Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report
for the year ended 31 December 2019 is consistent with the financial statements and has been prepared in accordance with applicable
legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did
not identify any material misstatements in the Strategic report and Directors’ report. (CA06)
Corporate governance statement
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate governance statement (on
pages 40 to 46) about internal controls and risk management systems in relation to financial reporting processes and about share capital
structures in compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and Transparency Rules sourcebook of the FCA (“DTR”) is
consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did
not identify any material misstatements in this information. (CA06)
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate governance statement (on
pages 40 to 46) with respect to the Company’s corporate governance code and practices and about its administrative, management and
supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06)
We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared by the
Company. (CA06)
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity
of the Group
We have nothing material to add or draw attention to regarding:
■■ The directors’ confirmation on page 27 of the Annual Report 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 in the Annual Report that describe those risks and explain how they are being managed or mitigated.
■■ The directors’ explanation on page 31 of the Annual Report 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 have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking
that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering
whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment
obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
■■ The statement given by the directors, on page 78, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the
course of performing our audit.
■■ The section of the Annual Report on page 53 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
■■ The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
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Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ responsibilities statement set out on page 78, the directors are responsible for the preparation
of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view.
The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditors responsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
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 Company, or returns adequate for our audit have not been received from
branches not visited by us; or
■■ certain disclosures of directors’ remuneration specified by law are not made; or
■■ the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 24 May 2019 to audit the
financial statements for the year ended 31 December 2019 and subsequent financial periods. This is therefore our first year of
uninterrupted engagement.
Simon Morley (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
12 March 2020
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For the year ended 31 December 2019
Revenue
Cost of sales and overheads
Net impairment (losses)/gains on financial assets
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation charge
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share
Basic
Diluted2
1 A reconciliation of the restatement to the previously reported numbers is provided in note 31
2 The diluted EPS figure for 2018 has been re-presented to reflect certain dilutive share options
All activities have arisen from continuing operations.
Note
2
2,3
5
6
8
2019
£m
719.7
(590.5)
(0.6)
128.6
0.2
(4.9)
123.9
(29.9)
94.0
93.8
0.2
94.0
Pence
49.4
49.2
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Profit for the year
Items that will not be reclassified to profit or loss:
Actuarial loss on defined benefit pension schemes
Tax on items that will not be reclassified
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss:
Exchange (losses)/gains on translation of overseas operations
Total items that may be reclassified subsequently to profit or loss
Other comprehensive (expense)/income for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
1 A reconciliation of the restatement to the previously reported numbers is provided in note 31
2019
£m
94.0
(2.0)
0.9
(1.1)
(26.4)
(26.4)
(27.5)
66.5
66.4
0.1
66.5
Restated1
2018
£m
728.6
(592.3)
0.2
136.5
0.2
(4.5)
132.2
(28.6)
103.6
103.2
0.4
103.6
Pence
54.2
53.8
Restated1
2018
£m
103.6
(0.8)
(0.5)
(1.3)
15.8
15.8
14.5
118.1
117.9
0.2
118.1
86
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Consolidated balance sheet
At 31 December 2019
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Investment in associate
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
Borrowings
Lease liabilities
Provisions
Net current assets
Non-current liabilities
Lease liabilities
Retirement benefit obligations
Deferred tax liabilities
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
9
10
11
12
24
19
14
13
14
15
16
20
17
12
21
12
29
19
21
20
22
2019
£m
169.8
42.6
534.5
73.3
4.2
6.1
1.2
831.7
14.8
15.7
142.9
22.0
–
195.4
1,027.1
127.4
31.2
1.1
13.4
4.0
177.1
18.3
66.0
17.9
48.6
9.5
2.2
144.2
321.3
705.8
33.1
177.1
(11.6)
136.7
37.9
331.8
705.0
0.8
705.8
Restated1
2018
£m
Restated1
1 January
2018
£m
163.9
43.0
546.6
73.7
4.1
9.1
1.4
841.8
13.9
7.0
146.3
38.5
1.8
207.5
1,049.3
140.4
26.6
2.3
13.6
4.7
187.6
19.9
66.7
16.8
44.8
11.9
2.2
142.4
330.0
719.3
33.1
177.1
(14.8)
141.4
64.2
317.6
718.6
0.7
719.3
157.6
43.4
520.5
67.9
–
9.8
1.0
800.2
16.4
12.8
140.4
41.0
2.1
212.7
1,012.9
138.4
29.2
1.4
13.0
8.7
190.7
22.0
61.5
15.2
40.9
11.0
3.4
132.0
322.7
690.2
33.1
177.1
(7.2)
141.0
48.2
297.5
689.7
0.5
690.2
1 A reconciliation of the restatement to the previously reported numbers is provided in note 31
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue on
12 March 2020.
They were signed on its behalf by:
S.C. Harris
Director
D. Yates
Director
87
www.bodycote.comBodycote plc annual report 2019Stock code: BOYAdditional informationGovernanceStrategic reportFinancial statements
Consolidated cash flow statement
For the year ended 31 December 2019
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 other intangible assets
Acquisition of businesses, net of cash acquired
Disposal of businesses
Net cash used in investing activities
Financing activities
Interest received
Interest paid
Dividends paid
Repayments of bank loans
Principal elements of lease payments
Own shares purchased
New bank loans raised
Net cash used in financing activities
Net decrease 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
1 A reconciliation of the restatement to the previously reported numbers is provided in note 31
Note
26
7
26
2019
£m
177.3
(77.7)
7.4
(1.0)
(19.1)
–
(90.4)
0.2
(4.7)
(74.9)
(37.3)
(14.4)
(6.0)
35.0
(102.1)
(15.2)
36.2
(0.1)
20.9
Restated1
2018
£m
190.1
(82.4)
10.2
(1.8)
(8.3)
0.7
(81.6)
0.2
(4.3)
(81.8)
(40.7)
(14.4)
(10.6)
40.0
(111.6)
(3.1)
39.6
(0.3)
36.2
88
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Consolidated statement of changes in equity
For the year ended 31 December 2019
Share
capital
£m
33.1
–
33.1
–
Share
premium
account
£m
177.1
–
177.1
–
Own
shares
£m
(7.2)
–
(7.2)
–
Other
reserves
£m
141.0
–
141.0
–
Translation
reserves
£m
45.9
2.3
48.2
–
Retained
earnings
£m
307.1
(9.6)
297.5
103.2
Equity
attributable
to equity
holders of
the parent
£m
697.0
(7.3)
689.7
103.2
Non-
Total
controlling
equity
interests
£m
£m
0.5 697.5
(7.3)
0.5 690.2
0.4 103.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(7.6)
–
–
–
–
–
–
–
(3.4)
3.8
–
–
16.0
–
16.0
(0.2)
15.8
–
(1.3)
(1.3)
–
(1.3)
16.0
101.9
117.9
0.2
118.1
–
–
–
–
–
(0.2)
(0.2)
0.4
–
(0.2)
(81.8)
317.6
93.8
(10.6)
3.8
(0.2)
(81.8)
718.6
93.8
–
–
–
–
–
(0.2)
(10.6)
3.8
(0.2)
(81.8)
0.7 719.3
94.0
0.2
33.1
–
177.1
–
(14.8)
–
141.4
–
64.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.2
–
(5.8)
1.1
–
–
33.1
–
–
177.1
–
–
(11.6)
–
–
136.7
(26.3)
–
(26.3)
(0.1)
(26.4)
–
(1.1)
(1.1)
–
(1.1)
(26.3)
92.7
66.4
0.1
66.5
–
–
–
–
37.9
(3.4)
–
(0.4)
(74.7)
331.8
(6.0)
1.1
(0.4)
(74.7)
705.0
–
–
(6.0)
1.1
–
–
(0.4)
(74.7)
0.8 705.8
1 January 2018, as previously reported
Impact of change in accounting policy
Restated balance at 1 January 2018
Net profit for the year
Exchange differences on translation of
overseas operations
Actuarial losses on defined benefit
pension schemes net of deferred tax
Total comprehensive income for
the year
Return of capital to shareholders and
redemption of B shares
Acquired in the year/settlement of
share options
Share-based payments
Deferred tax on share-based
payment transactions
Dividends
Restated balance at
31 December 2018
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
Deferred tax on share-based
payment transactions
Dividends
31 December 2019
Included in other reserves is a capital redemption reserve of £129.8m (2018: £129.8m) and a share–based payments reserve of £6.1m
(2018: £10.8m). The capital redemption reserve arose from B shares which were converted into deferred shares in 2008 and 2009, and as
a result, £129.8m was transferred from retained earnings to a capital redemption reserve.
The own shares reserve represents the cost of shares in Bodycote plc purchased in the market. At 31 December 2019, 1,405,555
(2018: 1,839,860) ordinary shares of 17 3/11p each were held by the Bodycote International Employee Benefit Trust to satisfy
share-based payments under the Group’s incentive schemes (see note 27).
Certain subsidiaries have taken an exemption to be audited. Refer to page 142 for further information.
89
www.bodycote.comBodycote plc annual report 2019Stock code: BOYAdditional informationGovernanceStrategic reportFinancial statements Group accounting policies
Year ended 31 December 2019
Basis of accounting
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB). The financial statements have also been prepared in accordance with IFRS as
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. There are no differences for the Group in applying IFRS as issued by the IASB and IFRS as adopted by the EU.
The Group has adopted Standards and Interpretations issued by the 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 and retirement benefit assets. Historical cost is generally based on the fair value of the consideration given up 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 Chief Financial Officer’s report on page 24.
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. A subsidiary is an entity controlled, directly or indirectly, by Bodycote plc. Control exists
when the Group has power over the subsidiary, has exposure or rights to the variable returns from its involvement with a subsidiary and
then holds the ability to use its power to affect its returns.
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 in 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 profits and losses less any distributions made. 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.
90
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 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.
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. The discount rate applied in the calculation of scheme liabilities is a key source of estimation uncertainty
for the Group. The Group has taken the decision not to recognise an asset in relation to the surplus on the UK defined benefit pension
scheme. Details of the accounting policies applied in respect of retirement benefit schemes are set out on page 93 and see note 29 on
page 127 for further details.
No areas other areas of key sources of estimation uncertainty have been identified in relation to Brexit.
Critical judgements in applying the Group’s accounting policies
In the course of preparing the financial statements, certain judgements have been made in the process of applying the Group’s
accounting policies, in addition to those involving estimations (above), that have had a significant effect on the amounts recognised
in the financial statements.
Taxation
The Group operates in a number of countries and is subject to taxes in numerous jurisdictions. The recognition of a provision for taxes
is a significant judgement which is based upon the interpretation of applicable tax legislation on a country-by-country basis and an
assessment of the likely outcome of any open tax computations. Amounts provided are accrued based on management’s interpretation
of country-specific tax laws and the likelihood of settlement which may take several years to conclude. Where the final tax outcome of
these matters is different from the amounts that were initially recorded, such differences could have a consequent adverse impact on the
Group’s income statement in the period in which such determination is made. This includes outcomes where the provision is no longer
required. Please refer to note 6 on page 106, note 19 on page 121 and note 30 on page 132 for further details.
Due to the uncertainty associated with such tax matters, a range of outcomes is reasonably possible, the extent of this range is difficult
to define due to the nature of the risks, their inter-dependency and the numerous Tax Authorities involved, but is not expected to differ
materially to the provisions recorded. Tax provisions as at 31 December 2019 totalled £15.3m (2018: £16.1m).
Investments in associates
An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through
participation in the financial and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting.
Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the
net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s
interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the
associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf
of the associate.
Any excess of the cost of acquisition over the Group’s share of the fair values of the identifiable assets, liabilities and contingent
liabilities of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the
investment. Any deficiency of the cost of acquisition below the Group’s share of the fair values of the identifiable assets, liabilities and
contingent liabilities of the associate at the date of acquisition (i.e. discount on acquisition) is credited in the income statement 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 dispose.
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.
91
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Year ended 31 December 2019
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 the income statement.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated
to each cash-generating unit 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 a 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 units 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 and in subsequent years. 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
The Group predominantly has one revenue stream relating to customer specific thermal processing services with either identifiable
customer contracts or specific terms and conditions and pricing specific performance obligations. Revenue is recognised net of discounts,
VAT and other sales-related taxes. The Group’s right to consideration equates to the value of the services provided, the transaction price
of which is based upon pricing as agreed with the customer. In general, the services provided to the Group’s customers consist of one
performance obligation. Where multiple performance obligations are determined to exist in one transaction, the allocation of transaction
price and delivery of services are considered on a case by case basis. The determination of the transaction price is based upon pricing as
agreed with the customer. Revenue is recognised on completion of the services rendered.
In certain cases, the Group will use third parties as part of delivering customer contracts. When a third party is involved in providing
goods or services, the Group determines if there is a Principal or an Agency relationship with that third party. Due to the nature of the
contractual arrangements, it is initially assumed that the Group enters into a Principal relationship with third party contractors and thus
recognises the related revenue on a gross basis with related costs included in cost of sales and overheads in the consolidated income
statement. In some circumstances, third party work arranged for a customer of the Group could validly be considered as agency activity.
In such a case, the revenue and related cost of sale is recorded in net revenue in the consolidated income statement on a net basis.
Other operating income represents scrap sales, asset sales and other items of operating income not provided in the normal course
of business.
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 the income statement in the period in which they arise except for:
■■ exchange differences on transactions entered into to hedge certain foreign currency risks (see page 121); 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). These 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 the income statement 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.
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 finance income and finance costs.
92
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Exceptional items
The Group considers exceptional items to be those which derive from events or transactions which are 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, acquisition costs, 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 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 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 5).
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 or tax assessment adjustments made to prior years. 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, 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 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.
93
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Year ended 31 December 2019
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
2%
Leasehold improvements
over the projected life of the lease
Fixtures and fittings
10%–20%
Plant and machinery
5%–20%
Motor vehicles
20%–33%
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.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 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 under development are carried at cost (less any accumulated impairment losses) until available
for use. 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 of these assets is recognised in the Consolidated Income Statement on a straight-line basis over their estimated useful lives,
on the following bases:
Software
10%–33%
Non-compete agreements
20%–33%
Customer relationships
7%–10%
Amortisation is recognised within administration expenses.
94
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 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 dispose 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 and are accounted for on a first in, first out basis or, in some cases, a
weighted-average basis, if deemed more appropriate for the business. For finished goods and work-in-progress, 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.
Receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are
classified as ‘receivables’. 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 expected credit losses and estimated irrecoverable amounts.
Trade receivables are initially recognised at fair value less allowance for impairments. A simplified lifetime Expected Credit Loss (ECL)
model is used to assess trade receivables for impairment. ECL is the present value of all cash shortfalls over the expected life of a trade
receivable. Expected credit losses are based on historical loss experience on trade receivables, adjusted to reflect information about
current economic conditions and reasonable and supportable forecasts of future economic conditions. At the date of initial recognition,
the credit losses expected to arise over the lifetime of a trade receivable are recognised as an impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the fair value, 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.
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Year ended 31 December 2019
Derivative financial instruments
The Group uses derivative financial instruments, in particular 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 derivative financial instruments.
Derivative financial instruments are initially 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.
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 the income statement such that the cumulative expense reflects the revised estimates with a corresponding
adjustment to the equity-settled employee benefits reserve.
General information
Bodycote plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is given
on page 39.
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.
Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic
environment in which the entity operates. The consolidated financial statements are presented in pounds sterling, which is the functional
and presentation currency of the Parent, Bodycote plc. Foreign operations are included in accordance with the policies set out in the
Foreign Currencies accounting policy on page 92.
96
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Adoption of new and revised standards
In the current year, the following new and revised standards and interpretations have been adopted:
■■ IFRIC 23
Uncertainty over Income Tax Treatments
The interpretation was issued in June 2017 and was implemented by the Group from 1 January 2019. The interpretation clarifies that if it
is considered probable that a tax authority will accept an uncertain tax treatment, the tax charge should be calculated on that basis. If it is
not considered probable, the effect of the uncertainty should be estimated and reflected in the tax charge. In assessing the uncertainty,
it is assumed that the tax authority will have full knowledge of all information related to the matter. The Group has assessed the potential
impact of the new interpretation and the application of IFRIC 23 on 1 January 2019 has not resulted in a material change to the provisions
held for uncertain tax positions.
■■ IFRS 16
Leases
From 1 January 2019 the Group has adopted IFRS 16, ‘Leases’ on a fully retrospective basis. The process of collecting lease information
and calculating the financial impact on adoption of IFRS 16 has been performed at Group level. Refer to note 31 for restatement
information. Right-of-use assets and lease liabilities recognised under IFRS 16 are presented separately on the face of the balance sheet.
As at the balance sheet date the carrying value of right-of-use assets of £73.3m (31 December 2018 (restated): £73.7m; 1 January 2018
(restated): £67.9m) comprised: Land & buildings of £59.5m (31 December 2018 (restated): £56.4m; 2018 (restated): £51.5m); plant &
machinery of £8.0m (31 December 2018 (restated): £10.3m; 1 January 2018 (restated): £9.0m); and other assets of £5.8m (31 December
2018 (restated): £7.0m; 1 January 2018 (restated): £7.4m).
The carrying value of lease liabilities in current liabilities at the balance sheet date is £13.4m (31 December 2018 (restated): £13.6m;
1 January 2018 (restated): £13.0m), and in non-current liabilities is £66.0m (31 December 2018 (restated): £66.7m; 1 January 2018
(restated): £61.5m). Following a review of lease arrangements, a dilapidation provision has been recognised in non-current liabilities at the
balance sheet date of £2.3m (31 December 2018 (restated): £2.3m; 1 January 2018 (restated): £2.3m).
The carrying value of resulting deferred tax assets in non-current assets at the balance sheet date is £1.5m (31 December 2018
(restated): £1.6m; 1 January 2018 (restated): £1.6m).
Amounts recognised in respect of leases in the income statement during the year comprised: Right-of-use asset depreciation of £14.5m
(2018 (restated): £14.4m); interest on lease liabilities of £2.4m (2018 (restated): £2.4m); and expenses relating to leases of low value
assets and short leases of £1.8m (2018 (restated): £1.2m).
Amounts recognised in respect of leases in the consolidated cash flow statement during the year comprised: payments of capital
elements of leases of £14.4m (2018 (restated) £14.4m); and payments of lease interest of £2.4m (2018: (restated) £2.4m).
The Group has adopted the following IFRS 16 accounting policy for leasing arrangements where it is the lessee:
To the extent that a right-of-control exists over an asset subject to a lease, with a lease term exceeding one year, a right-of-use asset,
representing the Group’s right to use the underlying leased asset, and a lease liability, representing the Group’s obligation to make lease
payments, are recognised in the Group’s balance sheet at the commencement of the lease.
The right-of-use asset is initially measured at cost and includes the amount of initial measurement of the lease liability and any direct
costs incurred, including advance lease payments and an estimate of the dismantling, removal and restoration costs required by the terms
and conditions of the lease.
Depreciation is charged to the income statement to depreciate the right-of-use asset from the commencement date until the earlier of the
end of the useful life of the right-of-use asset or the end of the lease term. The lease term shall include the period of any extension option
where it is reasonably certain that the option will be exercised. Where the lease contains a purchase option the asset is written off over
the useful life of the asset when it is reasonably certain that the purchase option will be exercised.
The lease liability is measured at the present value of the future lease payments, including fixed payments less any lease incentives
receivable, amounts expected to be payable by the Group under residual value guarantees and the exercise price of purchased options
where it is reasonably certain that the option will be exercised, discounted using the interest rate implicit in the lease, if readily
determinable. If the rate cannot be readily determined, the lessee’s incremental borrowing rate is used, being the rate that the individual
lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic
environment with similar terms, security and conditions. Finance charges are recognised in the income statement over the period of
the lease.
Lease arrangements that are short-term in nature or in relation to low value assets are charged directly to the income statement when
incurred. Short-term leases are leases with a lease term of 12 months or less and low value assets are defined as assets which have an
underlying value of five thousand US dollars or less.
97
www.bodycote.comBodycote plc annual report 2019Stock code: BOYAdditional informationGovernanceStrategic reportFinancial statements Notes to the consolidated financial statements
Year ended 31 December 2019
1. Alternative performance measures (APMs)
Bodycote uses various APMs, in addition to those reported under IFRS, as management consider these measures enable users of the
financial statements to assess the underlying trading performance of the business. These APMs of financial performance, position or
cash flows are not defined or specified according to International Financial Reporting Standards (IFRS) and are defined below and, where
relevant, are reconciled to IFRS measures. APMs are prepared on a consistent basis for all periods presented in this report.
The APMs used include headline operating profit, return on sales, headline profit before taxation, EBITDA, headline EBITDA, headline
tax charge, headline tax rate, headline earnings per share (EPS), headline operating cash flow, free cash flow, headline operating cash
conversion, net cash, net cash plus lease liabilities and return on capital employed (ROCE). These measures reflect the underlying trading
performance of the business as they exclude certain non operational items, acquisition costs and amortisation of acquired intangible
assets. The Group also uses revenue growth percentages adjusted for the impact of foreign exchange movements, where appropriate, to
better represent the underlying performance of the business. The measures described above are also used in the target setting process
for executive and management annual bonuses (headline operating profit and headline operating cash flow) and share schemes (headline
EPS and return on capital employed). During the year the group made changes to the definition of headline EBITDA and its cash flow
related APMs; refer to page 26 for further information.
The constant exchange rate comparison uses the current year reported segmental information, stated in the relevant functional currency,
and translates the results into its presentational currency using the prior year’s monthly exchange rates. Expansionary capital expenditure
is defined as capital expenditure invested to grow the Group’s business.
APMs are defined and reconciled to the IFRS statutory measure as follows:
Headline operating profit
Operating profit
Add back:
Amortisation of acquired intangibles
Acquisition costs
Headline operating profit
Return on sales
Headline operating profit
Revenue
Return on sales
Headline profit before taxation
Profit before taxation
Add back:
Amortisation of acquired intangibles
Acquisition costs
Headline profit before taxation
EBITDA and Headline EBITDA (Earnings Before Interest, Taxation, Depreciation, and Amortisation)
Operating profit
Depreciation and amortisation
Impairment of property, plant and equipment
Profit on disposal of property, plant and equipment
Share-based payments
Loss on disposal of businesses
Income from associate
EBITDA
Acquisition costs
Share-based payments
Headline EBITDA
98
2019
£m
128.6
4.6
1.7
134.9
2019
£m
134.9
719.7
18.7%
2019
£m
123.9
4.6
1.7
130.2
2019
£m
128.6
84.2
–
(4.4)
1.1
–
(0.2)
209.3
1.7
(1.1)
209.9
Restated
2018
£m
136.5
3.7
0.5
140.7
Restated
2018
£m
140.7
728.6
19.3%
Restated
2018
£m
132.2
3.7
0.5
136.4
Restated
2018
£m
136.5
80.1
1.8
(1.7)
3.8
0.6
–
221.1
0.5
(3.8)
217.8
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 1. Alternative performance measures (APMs) continued
Headline tax charge
Tax charge
Tax on amortisation of acquired intangibles
Headline tax charge
Headline tax rate
Headline tax charge
Headline profit before taxation
Headline tax rate
Headline earnings per share
A detailed reconciliation is provided in note 8.
Headline operating cash flow
Headline EBITDA
Less:
Net maintenance capital expenditure
Net working capital movement
Headline operating cash flow
Free cash flow
Headline operating cash flow
Less:
Restructuring cash flows
Income taxes paid
Interest paid
Free cash flow
Headline operating cash conversion
Headline operating cash flow
Headline operating profit
Headline operating cash conversion
Net cash and net cash plus lease liabilities
Cash and bank balances
Bank overdrafts (included in borrowings)
Net cash
Lease liabilities
Net cash plus lease liabilities
2019
£m
29.9
1.1
31.0
2019
£m
31.0
130.2
23.8%
2019
£m
209.9
(50.2)
(4.2)
155.5
2019
£m
155.5
(3.2)
(24.7)
(4.5)
123.1
2019
£m
155.5
134.9
115.3%
2019
£m
22.0
(1.1)
20.9
(79.4)
(58.5)
Restated
2018
£m
28.6
0.9
29.5
Restated
2018
£m
29.5
136.4
21.7%
Restated
2018
£m
217.8
(48.7)
(3.7)
165.4
Restated
2018
£m
165.4
(2.8)
(24.5)
(4.3)
133.8
Restated
2018
£m
165.4
140.7
117.6%
Restated
2018
£m
38.5
(2.3)
36.2
(80.3)
(44.1)
99
Strategic reportAdditional informationGovernanceAdditional informationGovernanceStrategic reportwww.bodycote.comBodycote plc annual report 2019Stock code: BOYFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2019
1. Alternative performance measures (APMs) continued
Return on capital employed
Headline operating profit
Average capital employed1
Return on capital employed
1 Average capital employed is defined as the average opening and closing net assets adjusted for net cash plus lease liabilities
Revenue and headline operating profit at constant exchange rates
Reconciled to revenue and headline operating profit in the table below:
2019
£m
134.9
762.4
17.7%
Restated
2018
£m
140.7
743.5
18.9%
Revenue
Constant exchange rates adjustment
Revenue at constant exchange rates
Headline operating profit
Constant exchange rates adjustment
Headline operating profit at constant exchange rates
Year to 31 December 2019
Central
cost and
eliminations
£m
–
–
–
(6.8)
0.3
(6.5)
AGI
£m
418.3
(0.7)
417.6
65.9
0.4
66.3
Consolidated
£m
719.7
(5.7)
714.0
134.9
(0.6)
134.3
ADE
£m
301.4
(5.0)
296.4
75.8
(1.3)
74.5
2. Business and geographical segments
The Group has more than 185 facilities 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 regularly 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 business reporting structure of the Group.
We have also presented combined results of our two key business areas, ADE and AGI. The split being driven by customer behaviour and
requirements, geography, and services provided. 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.
100
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 2. Business and geographical segments continued
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 assets
Acquisition costs
Segment result
Finance income
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.
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 assets
Acquisition 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 assets
Acquisition costs
Segment result
ADE
2019
£m
301.4
76.8
(1.0)
–
75.8
(1.1)
(1.3)
73.4
Central costs
and eliminations
2019
£m
AGI
2019
£m
Consolidated
2019
£m
418.3
–
719.7
65.6
0.3
–
65.9
(3.5)
(0.4)
62.0
–
(0.6)
(6.2)
(6.8)
–
–
(6.8)
142.4
(1.3)
(6.2)
134.9
(4.6)
(1.7)
128.6
0.2
(4.9)
123.9
(29.9)
94.0
Western
Europe
2019
£m
North
America
2019
£m
Emerging
markets
2019
£m
Total ADE
2019
£m
141.3
158.7
35.9
(0.4)
35.5
–
–
35.5
40.6
(0.6)
40.0
(1.1)
(1.3)
37.6
1.4
0.3
–
0.3
–
–
0.3
301.4
76.8
(1.0)
75.8
(1.1)
(1.3)
73.4
Western
Europe
2019
£m
North
America
2019
£m
Emerging
markets
2019
£m
Total AGI
2019
£m
246.0
107.4
40.5
0.6
41.1
(0.4)
(0.4)
40.3
9.7
(0.3)
9.4
(2.9)
–
6.5
64.9
15.4
–
15.4
(0.2)
–
15.2
418.3
65.6
0.3
65.9
(3.5)
(0.4)
62.0
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Strategic reportAdditional informationGovernanceAdditional informationGovernanceStrategic reportwww.bodycote.comBodycote plc annual report 2019Stock code: BOYFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2019
2. Business and geographical segments continued
Restated
Central costs
and eliminations
2018
£m
Consolidated
2018
£m
–
728.6
ADE
2018
£m
288.0
69.7
(0.3)
–
69.4
(0.9)
–
68.5
AGI
2018
£m
440.6
87.2
(3.3)
–
83.9
(2.8)
(0.5)
80.6
–
(1.8)
(10.8)
(12.6)
–
–
(12.6)
1.2
(0.5)
–
(0.5)
–
(0.5)
156.9
(5.4)
(10.8)
140.7
(3.7)
(0.5)
136.5
0.2
(4.5)
132.2
(28.6)
103.6
Total ADE
2018
£m
288.0
69.7
(0.3)
69.4
(0.9)
68.5
Total AGI
2018
£m
440.6
87.2
(3.3)
83.9
(2.8)
(0.5)
80.6
Western
Europe
2018
£m
Restated
North
America
2018
£m
Emerging
markets
2018
£m
137.7
149.1
36.4
(0.4)
36.0
(1.1)
34.9
33.8
0.1
33.9
0.2
34.1
Western
Europe
2018
£m
Restated
North
America
2018
£m
Emerging
markets
2018
£m
272.0
106.5
58.3
(2.5)
55.8
(0.3)
–
55.5
12.2
(0.6)
11.6
(2.5)
(0.5)
8.6
62.1
16.7
(0.2)
16.5
–
–
16.5
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 assets
Acquisition costs
Segment result
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year
Aerospace, Defence & Energy
Revenue
Total revenue
Result
Headline operating profit/(loss) prior to share-based payments
Share-based payments (including social charges)
Headline operating profit/(loss)
Amortisation of acquired intangible 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 assets
Acquisition costs
Segment result
102
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 2. Business and geographical segments continued
Other information
Group
Gross capital additions
Depreciation and amortisation
Balance sheet
Segment assets
Segment liabilities
Segment net assets
Aerospace, Defence & Energy
Gross capital additions
Depreciation and amortisation
Balance sheet
Segment assets
Segment liabilities
Segment net assets
Automotive & General Industrial
Gross capital additions
Depreciation and amortisation
Balance sheet
Segment assets
Segment liabilities
Segment net assets
Group
Gross capital additions
Depreciation and amortisation
Balance sheet
Segment assets
Segment liabilities
Segment net assets
ADE
2019
£m
27.5
29.1
375.5
(82.4)
293.1
Western
Europe
2019
£m
10.4
13.1
181.5
(43.7)
137.8
Western
Europe
2019
£m
18.1
27.4
289.2
(101.5)
187.7
ADE
2018
£m
31.3
27.6
390.9
(84.4)
306.5
AGI
2019
£m
49.6
52.8
607.1
(171.8)
435.3
North
America
2019
£m
17.0
15.9
189.2
(38.5)
150.7
North
America
2019
£m
19.4
15.3
182.2
(30.3)
151.9
Central
costs and
eliminations
2019
£m
4.8
2.3
Consolidated
2019
£m
81.9
84.2
44.5
(67.1)
(22.6)
Emerging
markets
2019
£m
0.1
0.1
4.8
(0.2)
4.6
Emerging
markets
2019
£m
12.1
10.1
135.7
(40.0)
95.7
1,027.1
(321.3)
705.8
Total ADE
2019
£m
27.5
29.1
375.5
(82.4)
293.1
Total AGI
2019
£m
49.6
52.8
607.1
(171.8)
435.3
Restated
AGI
2018
£m
68.6
49.9
605.3
(185.4)
419.9
Central costs
and eliminations
2018
£m
3.1
2.6
Consolidated
2018
£m
103.0
80.1
53.1
(60.2)
(7.1)
1,049.3
(330.0)
719.3
103
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Year ended 31 December 2019
2. Business and geographical segments continued
Aerospace, Defence & Energy
Gross capital additions
Depreciation and amortisation
Balance sheet
Segment assets
Segment liabilities
Segment net assets
Automotive & General Industrial
Gross capital additions
Depreciation and amortisation
Balance sheet
Segment assets
Segment liabilities
Segment net assets
Western
Europe
2018
£m
18.8
12.4
189.9
(45.0)
144.9
Western
Europe
2018
£m
29.8
28.1
305.2
(119.1)
186.1
Restated
North
America
2018
£m
12.1
14.8
194.7
(36.6)
158.1
Restated
North
America
2018
£m
20.6
13.4
189.9
(36.7)
153.2
Emerging
markets
2018
£m
0.4
0.4
6.3
(2.8)
3.5
Emerging
markets
2018
£m
18.2
8.4
110.2
(29.6)
80.6
Total ADE
2018
£m
31.3
27.6
390.9
(84.4)
306.5
Total AGI
2018
£m
68.6
49.9
605.3
(185.4)
419.9
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:
USA
France
Germany
UK
Sweden
Netherlands
Others
Revenue from external customers
2019
£m
255.3
102.6
87.6
62.3
44.2
26.9
140.8
719.7
2018
£m
243.6
111.3
101.0
58.7
44.4
29.6
140.0
728.6
Non-current assets
As previously
reported
2018
£m
298.2
75.3
84.2
91.9
34.8
22.8
147.7
754.9
Change in
accounting policy
2018
£m
18.3
8.6
5.9
8.5
1.7
3.1
30.3
76.4
2019
£m
315.2
71.9
82.9
96.5
40.4
23.3
194.2
824.4
Restated
2018
£m
316.5
83.9
90.1
100.4
36.5
25.9
178.0
831.3
104
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 3. Operating profit
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administration expenses
Other operating expenses
Headline operating profit
Amortisation of acquired intangible assets
Acquisition costs
Operating profit
Further details of acquisition costs are included in the Chief Financial Officer’s report on page 24.
Profit for the year has been arrived at after (crediting)/charging:
Net foreign exchange gain
Inventory expensed
Depreciation of property, plant and equipment
Depreciation of Right-of-use assets
Amortisation of other intangible assets
Gain on disposal of property, plant and equipment
Sub-lease rental income
Staff costs (see note 4)
Acquisition costs
Impairment loss/(gain) on trade receivables
Impairment of property, plant and equipment – recognised in operating profit
The analysis of auditors’ remuneration on a worldwide basis is as follows:
Fees payable to the auditor for the audit of the annual accounts
Fees payable to the auditor and its associates for other services:
The audit of the Group’s subsidiaries
Total audit fees
Audit related assurance services1
Other non-audit fees2
Total fees payable to the auditor
1 This includes £0.1m (2018: £0.1m) for the review of the half year report
2 Agreed upon procedures over adoption of IFRS 16
2019
£m
719.7
(452.3)
267.4
14.4
(21.6)
(124.7)
(0.6)
134.9
(4.6)
(1.7)
128.6
2019
£m
(0.1)
52.9
63.3
14.5
6.4
(4.4)
–
280.6
1.7
0.6
–
2019
£m
0.4
0.7
1.1
0.1
0.1
1.3
Restated
2018
£m
728.6
(448.2)
280.4
13.2
(20.2)
(128.8)
(3.9)
140.7
(3.7)
(0.5)
136.5
Restated
2018
£m
(0.1)
55.6
60.1
14.4
5.6
(1.7)
(0.1)
289.3
0.5
(0.2)
1.8
2018
£m
0.2
0.7
0.9
0.1
–
1.0
In addition to the amounts shown above, the predecessor auditor received fees of £7,700 in 2018 for the audit of the Group’s
pension schemes.
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.
105
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Year ended 31 December 2019
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 salaries1
Social security costs
Pension costs
2019
Number
2018
Number
899
810
21
1,894
926
761
223
39
5,573
2019
£m
238.3
34.0
8.3
280.6
921
851
21
2,021
971
748
225
36
5,794
Restated
2018
£m
245.8
34.6
8.9
289.3
1 Following the adoption of IFRS 16, Leases, 2018 wages and salaries have been restated to reflect a £1.8m credit for vehicle leases
Included in wages and salaries are share-based payments (excluding social charges) resulting in a charge of £1.1m (2018: £3.8m).
Included in pension costs are £7.8m relating to defined contribution schemes (2018: £7.0m) and £0.5m relating to defined benefit
schemes (2018: £1.9m).
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 56 to 77 and form part of these financial statements.
5. Finance costs
Interest on bank overdrafts and loans
Interest on lease liabilities
Total interest expense
Net interest on the defined benefit pension liability
Other finance charges
Total finance costs
6. Taxation
Current taxation – charge for the year
Current taxation – adjustments in respect of previous years
Deferred tax (see note 19)
2019
£m
0.3
2.4
2.7
0.3
1.9
4.9
2019
£m
24.8
(3.9)
9.0
29.9
Restated
2018
£m
0.1
2.4
2.5
0.2
1.8
4.5
2018
£m
27.4
(0.4)
1.6
28.6
The Group uses a weighted average country tax rate rather than the UK tax rate for the reconciliation of the charge for the year to the
profit before taxation per the consolidated income statement. The Group operates in several jurisdictions, many of which have a tax rate
in excess of the UK tax rate. As such, a weighted average country tax rate is believed to provide the most meaningful information to the
users of the financial statements. The appropriate tax rate for this comparison is 25.9% (2018: 26.5%).
106
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 6. Taxation continued
The charge for the year can be reconciled to the profit before taxation per the consolidated income statement as follows:
Profit before taxation
Tax at the weighted average country tax rate of 25.9% (2018: 26.5%)
Tax effect of expenses not deductible in determining taxable profit1
Impact of recognition or derecognition of deferred tax balances
Tax effect of other adjustments in respect of previous years:
Current tax2
Deferred tax2
Effect of financing activities between jurisdictions3
Impact of trade and minimum corporate taxes
Effect of changes in statutory tax rates on deferred tax assets and liabilities
Other tax risk provision movements4
Tax expense for the year
2019
£m
123.9
32.1
0.7
(0.5)
(3.9)
2.9
(3.6)
1.1
(0.1)
1.2
29.9
Restated
2018
£m
132.2
35.0
0.6
(0.9)
(0.4)
0.2
(7.9)
1.5
(0.1)
0.6
28.6
Tax on items taken directly to equity is a credit of £0.5m (2018: charge of £0.7m).
1 Those costs in various jurisdictions not deductible in calculating taxable profits
2 2019 and 2018 adjustments in current and deferred tax in respect of previous years relate mainly to changes in assumptions and outcomes in UK and overseas tax positions
3
The Group is externally financed by a mix of cash flows from operations and short-term borrowings. Internally, operating subsidiaries are predominantly financed via intercompany
loans. The effect is net of provisions based on management’s estimation of tax risk relating to the potential disallowance of interest. £1.7m of interest deductions were restricted in the
US in 2019 (2018: £2.2m) following the passing of the Tax Cuts and Jobs Act
4
Includes provisions for local tax risks and non-financing cross border transactions
As part of the calculation of the tax charge, the Group recognises a number of tax risk provisions in respect of ongoing tax enquiries and
in recognition of the multinational tax environment that Bodycote operates in where the nature of the tax positions that are taken is often
complex and subject to change. Tax provisions totalling £15.3m were recognised at 31 December 2019 (2018: £16.1m). The provisions
included are based on an assessment of a range of possible outcomes to determine reasonable estimates of the consequences of
tax authority audits in the various tax jurisdictions in which the Group operates. Management judgement is exercised to determine
the quantum of the tax risk provisions based on an understanding of the appropriate local tax legislation, taking into consideration the
differences of interpretation that can arise on a wide variety of issues including the nature of ongoing tax audits and the experience from
earlier enquires.
Note 30 to the accounts refers to a contingent liability in respect of the European Commission state aid investigation into the Group
financing exemption in the UK controlled foreign company rules.
7. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2018 of 13.3p (2017: 12.1p) per share
Special dividend for the year ended 31 December 2018 of 20.0p (2017: 25.0p) per share
Interim dividend for the year ended 31 December 2019 of 6.0p (2018: 5.7p) per share
Proposed final dividend for the year ended 31 December 2019 of 14.0p (2018: 13.3p) per share
The Board is not recommending a special dividend for the year ended 31 December 2019
(2018: 20.0p).
2019
£m
25.2
38.1
11.4
74.7
26.6
–
2018
£m
23.3
47.6
10.9
81.8
25.2
38.3
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability
in these financial statements.
The dividends are waived on shares held by the Bodycote International Employee Benefit Trust.
During the year, the Group became aware of an issue concerning technical compliance with the Companies Act 2006 in respect of the
declaration and payment of the 2018 interim dividend and 2018 special dividend. Although the Group had such distributable reserves
at the time of declaration and payment, the Group had not lodged interim accounts with Companies House to show that each of the
dividends were supported by sufficient distributable reserves. The Group’s historical reported trading results and financial condition
are entirely unaffected, but the Group proposes to put a resolution to shareholders at the Company’s annual general meeting to rectify
the position.
107
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Year ended 31 December 2019
8. 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
Shares subject to performance conditions
Weighted average number of ordinary shares for the purpose of diluted earnings per share
Earnings per share:
Basic
Diluted1
Headline earnings
Net profit attributable to equity holders of the parent
Add back:
Amortisation of acquired intangible assets (net of tax)
Acquisition costs (net of tax)
Headline earnings
Headline earnings per share:
Basic
Diluted1
1 The diluted EPS figure for 2018 has been re-presented to reflect certain dilutive share options
9. Goodwill
Cost
At 1 January
Exchange differences
Recognised on acquisition of businesses
At 31 December
Accumulated impairment
At 1 January
Exchange differences
At 31 December
Carrying amount
2019
£m
Restated
2018
£m
93.8
103.2
Number
Number
189,921,112
190,289,981
794,287
190,715,399
1,449,664
191,739,645
Pence
Pence
49.4
49.2
£m
93.8
3.5
1.7
99.0
54.2
53.8
£m
103.2
2.8
0.5
106.5
Pence
Pence
52.1
51.9
55.9
55.5
2019
£m
225.2
(4.9)
10.4
230.7
61.3
(0.4)
60.9
169.8
2018
£m
218.8
3.2
3.2
225.2
61.2
0.1
61.3
163.9
108
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 9. Goodwill continued
Goodwill acquired through business combinations is allocated to cash generating units (CGUs) that are expected to benefit from the
synergies of the combination. The recoverable amounts of these CGUs are the higher of fair value less costs to dispose and value-in-use.
Goodwill is allocated to the CGUs as follows:
ADE:
Western Europe
North America
AGI:
Western Europe
North America
Emerging markets
2019
£m
26.8
47.9
27.6
55.5
12.0
169.8
2018
£m
27.0
48.4
24.3
57.8
6.4
163.9
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 and are the sum of the discounted
cash flows. The key assumptions for those calculations are the discount rates and the growth rates in respect of future cash flows.
Growth rates are determined by a combination of management forecasts of between two and four years together with a further
estimate of cash flows into perpetuity using GDP Growth rates based on an historical weighted average growth in GDP in the respective
geographies. The cash flows are discounted using a pre-tax Weighted Average Cost of Capital (WACC) which reflects current market
assessments of the time value of money and the risks specific to the cash generating units, including country risk premium. The pre-tax
rates used to discount the forecast cash flows for each cash generating unit are between 11.7% (2018: 9.8%) and 12.7% (2018: 10.8%).
The forecast cash flows reflect management’s expectation of how sales and operating profit will develop at this point in the economic
cycle reflecting management’s experience of each cash generating unit’s profitability at the forecast level of sales, and, 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. Capital expenditure forecasts are based on historical experience and include expenditure necessary to maintain the
projected cash flows from operations. The cash flows are adjusted for the expected working capital requirements to deliver the sales and
the timing of converting operating profit into cash. GDP growth rates used to determine cash flows into perpetuity are in the range 2.3%
(2018: 2.3%) and 5.4% (2018: 5.4%) depending on the geographical region of each cash generating unit.
The majority of goodwill is allocated to two of the cash generating units, being North America ADE and North America AGI. The long term
growth rates applied to cash flows after two years and the rates used to discount the forecast cash flows for these cash generating units
are shown below:
Cash generating unit
North America ADE
North America AGI
Cash generating unit
North America ADE
North America AGI
Goodwill
carrying value
2019
£m
Long term
growth rate
2019
%
Discount rate
2019
%
47.9
55.5
2.8
2.8
11.7
11.7
Goodwill
carrying value
2018
£m
Long term
growth rate
2018
%
Discount rate
2018
%
48.4
57.8
2.8
2.8
9.7
9.7
Expected future cash flows are inherently uncertain and could change materially over time. They are affected by a number of factors,
including market and production estimates, together with economic factors such as prices, discount rates, currency exchange rates,
estimates of production costs, and future capital expenditure, and therefore the Group has conducted sensitivity analysis on the key
assumptions applied to the value in use calculations for the cash generating units. Sensitivity analyses of reasonably possible changes
in the underlying assumptions for the cash generating units included: no sales growth beyond 2019; 2020 sales results 20% below
budgeted expectations; and no long term GDP growth. None of these scenarios resulted in an impairment.
The Directors do not consider that there are any reasonable possible sensitivities for the business that could arise in the next 12 months
that could result in a material impairment charge being recognised. The Directors' have concluded that no impairment charge is required
in 2019.
109
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Year ended 31 December 2019
10. Other intangible assets
Cost
At 1 January 2018
Exchange differences
Additions
Acquired on acquisition of businesses
Disposals
Derecognised on disposal of businesses
At 1 January 2019
Exchange differences
Additions
Acquired on acquisition of businesses (see note 23)
At 31 December 20191
Amortisation
At 1 January 2018
Exchange differences
Charge for the year
Disposals
Derecognised on disposal of businesses
At 1 January 2019
Exchange differences
Charge for the year
At 31 December 2019
Carrying amount
At 31 December 2019
At 31 December 2018
Software
£m
Customer
relationships
£m
Non-compete
agreements
£m
39.9
0.4
1.8
–
(0.6)
(1.0)
40.5
(0.5)
1.0
–
41.0
16.6
0.3
1.9
(0.6)
(0.8)
17.4
(0.4)
1.8
18.8
22.2
23.1
45.7
1.8
–
3.0
–
–
50.5
(2.3)
–
5.7
53.9
25.6
1.3
3.7
–
–
30.6
(1.6)
4.6
33.6
20.3
19.9
3.1
–
–
–
–
–
3.1
–
–
0.1
3.2
3.1
–
–
–
–
3.1
–
–
3.1
0.1
–
Total
£m
88.7
2.2
1.8
3.0
(0.6)
(1.0)
94.1
(2.8)
1.0
5.8
98.1
45.3
1.6
5.6
(0.6)
(0.8)
51.1
(2.0)
6.4
55.5
42.6
43.0
1
Included in software assets are ongoing development costs related to the Group’s ERP solutions. £9.8m (2018: £9.1m) of these costs are related to assets that are not yet available for
use and are therefore not amortised. As such solutions become available for use they will be amortised according to Group policy
110
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 11. Property, plant and equipment
Land and buildings
Long
leasehold
improvements
£m
Short
leasehold
improvements
£m
Freehold
£m
Plant and
machinery
£m
Fixtures and
fittings
£m
Assets under
construction
£m
Cost or valuation
At 1 January 2018
Additions
Acquisition of
businesses
Exchange differences
Transfer to assets held
for sale
Recategorisation
Disposals
Disposal of businesses
At 1 January 2019
Additions
Acquisition of
businesses
Exchange differences
Transfer from assets
held for sale
Recategorisation
Disposals
At 31 December 2019
253.4
0.6
–
5.8
–
7.4
(9.3)
(0.3)
257.6
0.2
–
(12.5)
0.9
4.7
(2.5)
248.4
Accumulated depreciation and impairment
At 1 January 2018
Charge for the year
Impairment losses
incurred
Exchange differences
Transfer to assets held
for sale
Recategorisation
Eliminated on disposals
Eliminated on disposal
of businesses
At 1 January 2019
Charge for the year
Exchange differences
Recategorisation
Eliminated on disposals
At 31 December 2019
Carrying amount
At 31 December 2019
At 31 December 2018
115.0
6.5
–
2.6
–
(0.1)
(4.3)
(0.1)
119.6
6.8
(5.9)
–
(1.9)
118.6
129.8
138.0
11.8
0.1
–
–
–
0.2
(1.6)
–
10.5
0.6
–
(0.4)
–
0.6
(0.1)
11.2
5.0
1.1
–
–
–
0.1
(1.6)
–
4.6
1.2
(0.2)
–
(0.1)
5.5
5.7
5.9
13.5
0.3
–
0.4
–
3.2
(0.9)
–
16.5
–
–
(0.7)
–
1.4
(1.0)
16.2
7.7
0.9
0.1
0.2
–
–
(1.0)
–
7.9
1.0
(0.4)
–
(1.0)
7.5
8.7
8.6
929.0
8.5
2.1
21.7
(0.8)
53.7
(39.3)
(0.6)
974.3
3.7
7.7
(44.7)
–
64.3
(23.1)
982.2
632.1
50.2
1.7
15.1
(0.5)
(0.1)
(36.6)
(0.4)
661.5
52.9
(30.8)
0.8
(22.7)
661.7
320.5
312.8
29.8
0.4
–
0.6
–
1.3
(2.0)
(0.4)
29.7
0.4
–
(1.4)
–
1.2
(2.2)
27.7
23.7
1.4
–
0.4
–
0.1
(1.9)
(0.3)
23.4
1.4
(1.1)
(0.8)
(1.0)
21.9
5.8
6.3
66.5
72.5
–
1.9
–
(65.8)
(0.1)
–
75.0
64.2
0.2
(3.2)
–
(72.2)
–
64.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
64.0
75.0
Total
£m
1,304.0
82.4
2.1
30.4
(0.8)
–
(53.2)
(1.3)
1,363.6
69.1
7.9
(62.9)
0.9
–
(28.8)
1,349.7
783.5
60.1
1.8
18.3
(0.5)
–
(45.4)
(0.8)
817.0
63.3
(38.4)
–
(26.7)
815.2
534.5
546.6
At 31 December 2019 the Group had entered into contractual commitments for the acquisition of property, plant and equipment
amounting to £1.3m (2018: £3.1m).
In addition to the above, property, plant and equipment amounting to £nil (2018: £1.8m) has been classified as held for sale and is
disclosed within current assets.
111
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Year ended 31 December 2019
11. Property, plant and equipment continued
The Group restructured various operations during 2018 and identified £1.8m of asset impairments. Asset impairments broken down by
business segment in the prior year were as follows:
ADE:
Western Europe
North America
AGI:
Western Europe
North America
2019
£m
–
–
–
–
–
2018
£m
0.1
0.7
0.7
0.3
1.8
It is the Directors’ view that there are no material differences between the fair value of the land owned and its carrying value in the
balance sheet.
12. Leases
As a lessee
Information about leases for which the Group is lessee is presented below:
Amounts recognised in the balance sheet
Right-of-use assets
Land and buildings
Plant and machinery
Vehicles
Fixtures and fittings
Additions to right-of-use assets during 2019 were £11.8m (2018: £18.8m)
Lease liabilities
Maturity analysis – contractual undiscounted cash flows
Less than one year
One to five years
More than five years
Total undiscounted cash flows
Total lease liabilities1
Current
Non-current
1 A reconciliation of the restatement to the previously reported numbers is provided in note 31
2019
£m
59.5
8.0
5.7
0.1
73.3
Restated
2018
£m
Restated
1 January
2018
£m
56.4
10.3
6.9
0.1
73.7
2019
£m
15.9
41.5
62.0
119.4
79.4
13.4
66.0
51.5
9.0
7.3
0.1
67.9
Restated
2018
£m
17.0
44.4
59.6
121.0
80.3
13.6
66.7
112
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 12. Leases continued
Amounts recognised in the consolidated income statement
Depreciation of right-of-use assets
Land and buildings
Vehicles
Plant and machinery
Fixtures and fittings
Interest on lease liabilities
Expenses relating to short-term leases
Expenses relating to leases of low value assets
2019
£m
7.9
3.5
3.0
0.1
14.5
2.4
1.2
0.6
Restated
2018
£m
7.5
3.8
3.0
0.1
14.4
2.4
0.6
0.6
The total cash outflow for leases in 2019 was £16.8m (2018: £16.8m).
Contracts may contain both lease and non-lease components such as administrative charges and taxes. The Group allocates the
consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. Lease terms are
negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any
covenants other than the security interests in the leased assets that are held by the lessor.
As a lessor
The Group sub-leases a small number of properties. There were no material arrangements where the Group is the lessor.
13. Inventories
Raw materials
Work-in-progress
Finished goods and goods for resale
Less: obsolescence provision
14. Trade and other receivables
Amounts falling due within one year:
Amounts receivable for the supply of services
Allowance for expected credit loss
Net trade receivables
Other receivables
Prepayments
Amounts falling due after more than one year:
Trade and other receivables
2019
£m
13.1
1.8
0.4
(0.5)
14.8
2019
£m
115.0
(4.8)
110.2
23.5
9.2
142.9
1.2
2018
£m
13.1
1.1
0.4
(0.7)
13.9
2018
£m
125.2
(5.1)
120.1
17.2
9.0
146.3
1.4
The average credit period given to customers for the supply of services as at 31 December 2019 is 63 days (2018: 64 days). An allowance
has been made for estimated irrecoverable amounts from the supply of services of £4.8m (2018: £5.1m). This allowance has been
determined by reference to expected credit loss.
The carrying amount of trade and other receivables approximates their fair value.
113
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Year ended 31 December 2019
14. Trade and other receivables continued
Included in the Group’s trade receivables balance are specific debtor balances with a carrying amount of £26.5m (2018: £30.3m) which
are past due but not impaired at the reporting date. The Group has assessed these balances for recoverability and considers the credit
quality intact.
The average credit terms offered to customers is 35 days, with a range from 12 days to 67 days.
Ageing analysis of net trade receivables:
Trade receivables within terms
Ageing of past due but not impaired receivables:
31–60 days
6 –90 days
91–120 days
Greater than 120 days
Movement in the allowance for expected credit loss:
At 1 January
Impairment losses recognised
Amounts written off as uncollectable
Impairment losses reversed
Exchange differences
At 31 December
2019
£m
83.7
13.1
8.8
2.6
2.0
110.2
2019
£m
5.1
1.3
(0.7)
(0.7)
(0.2)
4.8
2018
£m
89.8
15.1
11.1
2.4
1.7
120.1
2018
£m
5.5
1.6
(0.3)
(1.8)
0.1
5.1
In determining the recoverability of a trade receivable the Group considers any change in the quality of the trade receivable from the date
credit was initially granted up to the reporting date. The Group uses judgement in making these assumptions and selecting the inputs to
the impairment calculation, based on the Group’s past history and existing market conditions, as well as forward-looking estimates at the
end of each reporting period. 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 expected credit loss.
Included in the allowance for expected credit loss are individually impaired trade receivables with a gross balance of £4.8m (2018: £6.2m).
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
2019
£m
0.1
2.6
2.1
4.8
2018
£m
0.1
3.8
2.3
6.2
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Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 15. 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:
US dollar
Euro
Sterling
Swedish krona
Chinese yuan
Mexican peso
Other
Total cash and bank balances1
1 Refer to note 17 for an analysis of overdraft by currency
2019
£m
6.0
5.4
4.8
1.7
1.5
0.9
1.7
22.0
2018
£m
7.0
7.8
14.9
2.0
0.9
2.8
3.1
38.5
16. Assets held for sale
Included in Property, plant and equipment in the prior year were £1.8m of assets held for sale which consisted exclusively of land and
buildings that were not currently in use by the Group. During the year assets held for sale in the ADE operating segment were sold and
assets held for sale in the AGI operating segment were reclassified as no longer held for sale as a sale is no longer considered highly
probable in the next 12 months. The assets held for sale in the prior year are analysed between operating segments as follows:
ADE:
North America
AGI:
North America
17. Borrowings
Bank overdrafts
Weighted average interest rate paid
Analysis of bank overdrafts by currency:
US dollar
Other
2019
£m
–
–
–
2019
£m
1.1
1.7%
1.0
0.1
1.1
2018
£m
0.9
0.9
1.8
2018
£m
2.3
1.3%
2.2
0.1
2.3
Bank overdrafts are repayable on demand. No overdrafts are secured.
The Group holds a revolving credit facility in the amount of £230m. This unsecured facility commenced on 3 April 2017 and matures
on 3 April 2022. The multi-currency drawings under this facility carry an interest rate of between 0.90% and 1.75% above LIBOR.
The applicable margin at 31 December 2019 was 0.90% (2018: 0.90%).
At 31 December 2019, the Group’s revolving credit facility had drawings of £nil (2018: £nil). During the year the Group utilised £35.0m
(2018: £40.0m) under the committed facility which was subsequently repaid during the period.
All borrowings are classified as financial liabilities measured at amortised cost. Given their short term nature, the carrying amount of bank
overdrafts approximate their fair value.
115
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Year ended 31 December 2019
17. Borrowings continued
Other financial liabilities
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.
Non-interest bearing
Bank loans and overdrafts
Lease liabilities
Derivative financial instruments
Non-interest bearing restated1
Bank loans and overdrafts
Lease liabilities
Derivative financial instruments
Less than
1 year
2019
£m
65.4
1.1
15.9
1.4
83.8
Less than
1 year
2018
£m
79.0
2.3
17.0
0.9
99.2
1-2 years
2019
£m
1.1
–
14.5
–
15.6
Restated
1-2 years
2018
£m
0.9
–
14.4
–
15.3
2-5 years
2019
£m
0.1
–
27.0
–
27.1
2-5 years
2018
£m
0.2
–
30.0
–
30.2
5+ years
2019
£m
1.0
–
62.0
–
63.0
5+ years
2018
£m
1.1
–
59.6
–
60.7
Total
2019
£m
67.6
1.1
119.4
1.4
189.5
Total
2018
£m
81.2
2.3
121.0
0.9
205.4
1 The 2018 comparatives have been restated to exclude provisions as these are not considered to be financial liabilities
Of the £1.1m (2018: £2.3m) bank loans and overdrafts outflows disclosed above, £nil (2018: £nil) of bank loans are drawn under the
committed facility maturing on 3 April 2022. The overdrafts are on demand and some are part of pooling arrangements, which include
offsetting cash balances. Of the £1.4m (2018: £0.9m) derivative financial instruments outflows disclosed above, £1.4m (2018: £0.9m) are
matched by derivative cash inflows, therefore the net impact on the balance sheet is £nil (2018: £nil).
116
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 17. Borrowings continued
Net cash at 1 January 2018 as
previously reported
Impact of change in accounting policy
Net cash plus lease liabilities as at
1 January 2018 restated
Cash flows
New bank loans raised
Repayment of bank loans
Debt acquired on acquisition
of businesses
Repayment of debt acquired on
acquisition of business
Additions – leases
Foreign exchange adjustments
Net cash plus lease liabilities as at
31 December 2018 restated
Cash flows
New bank loans raised
Repayment of bank loans
Debt acquired on acquisition
of businesses
Repayment of debt acquired on
acquisition of business
Additions – leases
Foreign exchange adjustments
Net cash plus lease liabilities as at
31 December 2019
Borrowings
£m
Leases
£m
Financing activities
Total liabilities
from financing
activities
£m
Cash/bank
overdraft
£m
–
–
–
–
40.0
(40.0)
0.6
(0.6)
–
–
–
–
35.0
(35.0)
2.3
(2.3)
–
–
–
–
74.5
74.5
(14.4)
–
–
–
–
18.8
1.4
80.3
(14.4)
–
–
–
–
17.2
(3.7)
79.4
–
74.5
74.5
(14.4)
40.0
(40.0)
0.6
(0.6)
18.8
1.4
80.3
(14.4)
35.0
(35.0)
2.3
(2.3)
17.2
(3.7)
79.4
(39.6)
–
(39.6)
3.1
–
–
–
–
–
0.3
(36.2)
15.2
–
–
–
–
–
0.1
(20.9)
Total
£m
(39.6)
74.5
34.9
(11.3)
40.0
(40.0)
0.6
(0.6)
18.8
1.7
44.1
0.8
35.0
(35.0)
2.3
(2.3)
17.2
(3.6)
58.5
117
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Year ended 31 December 2019
18. Financial instruments
(a) Financial instruments by category
The Group adopted IFRS 9, ‘Financial instruments’, on 1 January 2018 and in accordance with the transitional provisions in IFRS 9.
The classification categories previously defined under IAS 39 were replaced in IFRS 9 with the categories ‘amortised cost’, ‘fair value
through the income statement’ and ‘fair value through other comprehensive income’.
Fair value
hierarchy
Level 2
Fair value
hierarchy
Level 2
Fair value
hierarchy
Level 3
Level 2
Level 2/3
Fair value
hierarchy
Level 3
Level 2
Level 2/3
At amortised
cost
2019
£m
At fair value
through profit
or loss
2019
£m
At fair value
through OCI
2019
£m
123.8
–
22.0
145.8
–
–
–
–
–
–
–
–
At amortised
cost
2018
£m
At fair value
through profit
or loss
2018
£m
At fair value
through OCI
2018
£m
132.6
–
38.5
171.1
–
–
–
–
–
–
–
–
At amortised
cost
2019
£m
At fair value
through profit
or loss
2019
£m
At fair value
through OCI
2019
£m
1.1
79.4
62.2
–
2.2
144.9
–
–
–
–
–
–
–
–
–
–
–
–
At amortised
cost
2018
£m
At fair value
through profit
or loss
2018
£m
At fair value
through OCI
2018
£m
2.3
80.3
75.2
–
2.2
160.0
–
–
–
–
–
–
–
–
–
–
–
–
Total
2019
£m
123.8
–
22.0
145.8
Total
2018
£m
132.6
–
38.5
171.1
Total
2019
£m
1.1
79.4
62.2
–
2.2
144.9
Total
2018
£m
2.3
80.3
75.2
–
2.2
160.0
Financial assets
Trade and other
receivables
Derivative financial
instruments
Cash and cash
equivalents
Financial assets
Trade and
other receivables
Derivative
financial instruments
Cash and
cash equivalents
Financial liabilities
Borrowings – loans
and overdrafts
Lease liabilities
Trade and
other payables
Derivative
financial instruments
Other non-
current liabilities
Financial liabilities
Borrowings – loans
and overdrafts
Lease liabilities
Trade and
other payables
Derivative
financial instruments
Other non-
current liabilities
118
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 18. Financial instruments continued
(b) Fair value measurement
There have been no transfers of assets or liabilities between levels of the fair value hierarchy during the year.
The carrying values of financial instruments at amortised cost as presented in the consolidated financial statements approximate their
fair values.
(c) Financial risk management
The Group’s multinational operations expose it to a variety of financial risks. In the course of its business, the Group is exposed to
foreign currency risk, interest rate risk, liquidity risk and credit risk. Financial risk management policies are set by the Board. 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.
In accordance with its treasury policy, the Group does not use or hold derivative financial instruments for trading or speculative purposes.
The Group may however use derivative instruments, 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.
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 strategic plan, an annual budget agreed by the Board each year and a quarterly
re-forecast undertaken during the financial year. To mitigate the risk, the resulting forecast net bank cash/(debt) is measured against the
liquidity headroom policy which, at the current net bank cash/(debt) 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 2019, the Group had a committed but undrawn revolving credit facility of £230.0m (2018: £230.0m) which, together
with net cash of £20.9m (2018: £36.2m), resulted in available funds of £250.9m (2018: £266.2m). 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 2019 the Group’s principal committed bank facility of £230.0m had a maturity date of 3 April 2022 (2.3 years to
maturity) and had drawings of £nil (2018: £nil).
Cash management pooling, netting and concentration techniques are used to minimise borrowings. As at 31 December 2019, the Group
had gross cash of £22.0m (2018: £38.5m).
Credit risk
Credit risk primarily arises because a counterparty may fail to perform its obligations. The Group is exposed to credit risk on financial
assets such as cash balances, derivative financial instruments 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 appropriate
allowances for expected credit loss. 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 quantitative analysis of credit risk relating to
receivables is included in note 14.
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.
Refer to section (d) for further disclosure of the Group’s financial instrument risk management activities.
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 and Europe. Measurement of this interest rate risk and its potential impact due to volatility on 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.
119
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Year ended 31 December 2019
18. Financial instruments continued
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; 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 2019 would reduce or increase profit before tax by approximately £0.1m (2018: £0.3m). There is
no significant impact on equity in the current or previous year.
Currency risk
Bodycote has operations in 23 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.
Ninety-one per cent of the Group’s revenues are in currencies other than sterling (EUR 37%, USD 34% and SEK 6%). Cumulatively over
the year, sterling rates moved such that the sales for the year were £5.7m higher than if sales had been translated at the rates prevailing
in 2018.
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 dollars,
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.
Transactional 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 has been 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
immaterial for the Group.
Currency sensitivity
Taking the 2019 sales by currency, a 10% weakening/strengthening in the 2019 cumulative average rates for all currencies versus sterling
would have given rise to a +£73.0m/-£59.8m 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 2019 operating profit mix, a 10% weakening/strengthening in 2019
cumulative average rates for all currencies would have given rise to a +£14.4m/-£11.2m movement in headline operating profit.
Interest risk sensitivity analysis
To represent management’s best estimate of a reasonable range of potential outcomes, the Group has measured the estimated change
to the income statement and equity of either an instantaneous increase or decrease of 1% (100 basis points) in market interest rates
(of which the outcome would not have a material impact on the financial statements). This analysis is for illustrative purposes only.
The sensitivity analysis excludes the impact of market risks on net post employment benefit obligations.
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.
120
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 18. Financial instruments continued
(d) Derivative financial instruments
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 material in either 2019
or 2018.
The following summarises the aggregate notional amount (aggregate face value) of all open contracts and their related fair values as of the
balance sheet date:
Currency forward foreign exchange contracts
Contractual or
notional amount
2019
£m
1.4
Fair value
2019
£m
–
Contractual or
notional amount
2018
£m
0.9
Fair value
2018
£m
–
In accordance with IFRS 7 Financial Instrument: Disclosures, 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).
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 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 (2018: nil).
All forward foreign exchange contracts are on demand or due within one year.
19. Deferred tax
The following are the major deferred tax liabilities and (assets) recognised by the Group and movements thereon during the current and
prior reporting periods:
At 1 January 2018, as
previously reported
Impact of change in accounting policy
At 1 January 2018, restated
(Credit)/charge to the consolidated
income statement
Debit to equity
Acquisition of businesses
Disposal of businesses
Transfers
Exchange differences
Effect of change in tax rate:
Income statement
At 1 January 2019
Charge to the consolidated
income statement
(Credit)/debit to equity
Acquisition of businesses
Transfers
Exchange differences
Effect of change in tax rate:
Income statement
At 31 December 2019
Accelerated tax
depreciation
£m
Tax losses
£m
Retirement
benefit
obligations
£m
Other1
£m
46.8
–
46.8
2.6
–
–
–
(0.2)
1.6
(0.1)
50.7
4.5
–
0.5
–
(2.7)
(0.2)
52.8
(2.0)
–
(2.0)
(0.5)
–
–
–
–
–
–
(2.5)
0.4
–
–
0.1
–
–
(2.0)
(4.5)
–
(4.5)
(0.6)
0.5
–
0.2
0.1
(0.1)
–
(4.4)
0.1
(0.9)
–
–
0.2
0.1
(4.9)
(7.6)
(1.6)
(9.2)
0.2
0.2
0.9
–
0.1
(0.3)
–
(8.1)
4.1
0.4
0.3
(0.1)
–
–
(3.4)
1 Following the adoption of IFRS 16, Leases, deferred tax has been restated to reflect a £1.6m deferred tax asset within ‘Other’
Total
£m
32.7
(1.6)
31.1
1.7
0.7
0.9
0.2
–
1.2
(0.1)
35.7
9.1
(0.5)
0.8
–
(2.5)
(0.1)
42.5
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Year ended 31 December 2019
19. Deferred tax continued
The following is the analysis of the deferred tax balances for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
2019
£m
48.6
(6.1)
42.5
Restated
2018
£m
44.8
(9.1)
35.7
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. Management has applied a more strict application of this netting for 2019 which has resulted in a restatement
of the 2018 balances, reducing both the asset and the liability by £16.1m, to conform with the approach taken for 2019.
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 £19.8m (2018: £34.2m) available for offset against future profits.
A deferred tax asset has been recognised in respect of £7.3m (2018: £9.0m) 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 £12.5m (2018: £25.2m) 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.
The Group has capital losses of £55.8m (2018: £55.8m) which are not recognised for deferred tax as there is uncertainty over the timing
of future suitable profits against which the losses could be utilised.
A deferred tax liability of £1.0m (2018: £0.5m) relating to the temporary differences on unremitted earnings of overseas subsidiaries
has been recognised as the Group believes it is probable that these temporary differences will reverse in the foreseeable future.
Temporary differences arising in connection with interests in associates and joint ventures are insignificant.
20. Trade and other payables
Amounts falling due within one year:
Trade payables
Other taxes and social security
Other payables
Accruals1
Amounts falling due after more than one year:
Other payables
1 Accruals include £28.0m (2018: £31.1m) of payroll related accruals
2019
£m
31.3
28.8
12.1
55.2
127.4
2019
£m
2.2
2018
£m
37.6
24.8
11.4
66.6
140.4
Restated
2018
£m
2.2
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period
taken for trade purchases as at 31 December 2019 is 33 days (2018: 36 days).
The directors consider the carrying value of trade payables equal to their fair value.
122
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 21. Provisions
31 December 2018, as previously reported
Impact of change in accounting policy
At 31 December 2018, restated
At 1 January 2019
Increase in provision
Release of provision
Utilisation of provision
Exchange differences
At 31 December 2019
Included in current liabilities
Included in non-current liabilities
Restructuring
£m
2.4
2.3
4.7
Restructuring
£m
4.7
1.2
(0.3)
(2.5)
(0.1)
3.0
Restructuring
environmental
£m
3.2
–
3.2
Restructuring
environmental
£m
3.2
–
–
(0.7)
(0.1)
2.4
Environmental
£m
8.7
–
8.7
Environmental
£m
8.7
0.9
(0.2)
(1.0)
(0.3)
8.1
Total
£m
14.3
2.3
16.6
Total
£m
16.6
2.1
(0.5)
(4.2)
(0.5)
13.5
4.0
9.5
13.5
The restructuring provision relates to the costs associated with the closure of a number of Heat Treatment facilities over the last few
years and the dilapidation of leases. Following the adoption of IFRS 16, Leases the Group retrospectively recognised a provision of £2.3m
for the dilapidation of leased buildings at 1 January 2018.
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 identify separately 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.
22. Share capital
Issued and fully paid:
191,456,172 (2018: 191,456,172) ordinary shares of 17 3/11p each
2019
£m
33.1
2018
£m
33.1
123
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Year ended 31 December 2019
23. Acquisition of businesses
During the year the Group acquired two facilities in Europe for total consideration of £20.0m. Individually the acquisitions are not expected
to have a material impact on net profit.
The acquisitions were made to strengthen the Group’s network and to enhance the process offering within its Western European and
Emerging Markets segments. The acquisitions fit well with the Group’s automotive and general industrial strategy.
The transactions have been accounted for as business combinations under IFRS 3 and are summarised below:
Fair value of net assets acquired:
Other intangible assets
Property, plant and equipment
Right-of-use assets
Inventories
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Lease liabilities
Deferred tax liabilities
Current tax liabilities
Bank loans
Goodwill
Total consideration
Satisfied by:
Cash consideration
Deferred consideration
Total consideration transferred
Net cash outflow arising on acquisition:
Cash consideration
Less: cash and cash equivalents acquired
2019
£m
5.8
7.9
6.1
0.2
1.2
(1.9)
0.5
(6.1)
(1.7)
(0.1)
(2.3)
9.6
10.4
20.0
19.5
0.5
20.0
19.5
(0.5)
19.0
1 Acquisition-related costs amounted to £1.7m (2018: £0.5m) of which £0.4m related to acquisitions made during the year
The businesses were acquired in June 2019 and contributed £3.8m revenue and £1.0m headline operating profit for the period between
the dates of acquisition and the balance sheet date.
If the acquisitions had been completed on the first day of the financial year, Group revenue would have been £723.9m and Group headline
operating profit attributable to equity holders of the parent would have been £136.2m.
Deferred payments on acquisitions
Payments totalling £0.1m (2018: £1.4m) were made during the year in respect of deferred consideration due on acquisitions made in
2016. The amounts were recorded in other payables at 31 December 2018.
24. Investment in associate
Set out below are the details of the Group’s investment in Techmeta Engineering, being the only investment in an associate held by the
Group. The entity is registered in France and has share capital consisting solely of ordinary shares of which the Group owns 49%, having
made a disposal of 51% of the ordinary share capital in the prior year.
Investment in associate
Loan receivable from associate
Profit after tax from continuing operations
2019
£m
1.6
2.6
4.2
0.2
2018
£m
1.4
2.7
4.1
–
Prior to disposal in 2018 the Group provided an interest bearing credit facility of £3.6m to Techmeta Engineering repayable over 10 years.
At the balance sheet date £2.6m (2018: £2.7m) remained outstanding.
124
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 25. Post balance sheet event
Acquisition of businesses
Following the Group’s strategy of strengthening core divisions through the acquisition of complementary businesses, Bodycote
announced the agreement to purchase Ellison Surface Technologies (‘Ellison’) in December 2019 for gross consideration of £154m, to be
settled through the Group’s existing committed funding facilities.
Ellison’s business generated revenues of £38m in 2018 leading to pro-forma EBITDA of £6m. Anticipated revenue for 2019 will be £44m
with pro-forma EBITDA of £9m. Ellison employs approximately 400 people across six sites located across the United States, Canada,
and Mexico.
Completion of the acquisition is expected in March 2020 pending confirmation of regulatory filing processes.
26. Notes to the cash flow statement
Profit for the year
Adjustments for:
Finance income
Finance costs
Taxation
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of other intangible assets
Profit on disposal of property, plant and equipment
Share-based payments
Income from associate
Impairment of property, plant and equipment
Loss on disposal of businesses
EBITDA (See note 1 on page 98)
Increase in inventories
Increase in receivables
(Decrease)/increase in payables
Decrease in provisions
Cash generated by operations
Income taxes paid
Net cash from operating activities
Cash and cash equivalents comprise:
Cash and bank balances
Bank overdrafts (included in borrowings)
2019
£m
94.0
(0.2)
4.9
29.9
128.6
63.3
14.5
6.4
(4.4)
1.1
(0.2)
–
–
209.3
(1.5)
(1.1)
(2.1)
(2.6)
202.0
(24.7)
177.3
2019
£m
22.0
(1.1)
20.9
Restated
2018
£m
103.6
(0.2)
4.5
28.6
136.5
60.1
14.4
5.6
(1.7)
3.8
–
1.8
0.6
221.1
(3.9)
(4.0)
5.1
(3.7)
214.6
(24.5)
190.1
2018
£m
38.5
(2.3)
36.2
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Year ended 31 December 2019
27. Share-based payments
Bodycote Incentive Plan (BIP)
The Company operates the BIP under which executive directors and senior executives receive 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.
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)
Fair value of awards granted during the year (£)
BIP
2019
2,512,501
691,088
(1,140,967)
(164,448)
1,898,174
725.6
5,014,535
BIP
2018
2,206,287
1,043,457
(491,116)
(246,127)
2,512,501
848.5
8,853,733
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 (pence)
Weighted average exercise price (pence)
Expected life (years)
Expected dividend yields (%)
Average fair value of share awards granted during the year at date of grant (pence)
Fair value of awards granted during the year (£)
2019
725.6
nil
3.0
4.2
725.6
5,014,535
2018
848.5
nil
3.0
3.8
848.5
8,853,733
The Group recognised a total charge to the income statement of £1.1m (2018: £3.8m) related to equity-settled share-based
payment transactions.
28. Related party transactions
Transactions between the Group 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
Pensions
2019
2.4
1.5
0.2
4.1
2018
2.6
1.2
0.2
4.0
Further information about the remuneration of the individual directors is provided in the Board Report on Remuneration on pages 56 to 77.
126
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 29. Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for employees in the United Kingdom, France, Belgium, Canada
and the United States of America. The assets of the schemes are held separately from those of the Group in funds under the control of
trustees. Where there are employees who leave the schemes prior to vesting fully in the contributions, the contributions payable by the
Group are reduced by the amount of forfeited contributions.
The Group’s employees in Denmark, Finland, Sweden, Italy, Slovakia, Switzerland 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 £7.8m (2018: £7.0m) represents contributions payable to these schemes by the Group at rates
specified in the rules of the plans. As at 31 December 2019 contributions of £0.2m (2018: £0.2m) due in respect of the current reporting
period had not been paid over to the schemes. In the prior year a £0.7m cost was recognised in relation to a one off Guaranteed Minimum
Pension (GMP) equalisation charge as a result of the High Court ruling on 26 October 2018 in the landmark Lloyds Banking Group case
on GMPs.
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:
Defined benefit obligation less fair value of assets
UK Scheme
Non-UK Schemes
Total expense recognised in the income statement
UK Scheme
Non-UK Schemes
2019
£m
–
17.9
17.9
2019
£m
0.1
1.0
1.1
2018
£m
–
16.8
16.8
2018
£m
1.6
0.4
2.0
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 2019 was completed by a
qualified independent actuary and the results of this have been updated on an approximate basis to 31 December 2019.
The contributions made by the employer over the financial year have been £0.5m, comprising £0.1m in respect of benefit accrual and
£0.4m in respect of ongoing expenses. During the year the Group has closed the UK scheme to new entrants.
The Group acknowledges that the recognition of pension scheme surplus is an area of accounting judgement, which depends on the
interpretation of the wording of the Scheme Rules and the relevant accounting standard, IFRIC14. In the Group’s view there is uncertainty
over whether the wording of the Scheme Rules provides the Group with an unconditional right to a refund of surplus from the Scheme
either on an ongoing basis or assuming the full settlement of Scheme liabilities. The Group’s interpretation of the Scheme Rules is that
there is significant judgement over whether the power to wind-up the Scheme is wholly within the Group’s control as would be required
under the terms of IFRIC14 in order to recognise a surplus on the balance sheet. Consistent with previous years, given this uncertainty
the Group has adopted the provisions of IFRIC14 and the associated additional reporting requirements. As the Scheme is in surplus as
at 31 December 2019 a restriction has been applied to the balance sheet, and the net surplus recognised on the balance sheet has been
restricted to £nil (2018: £nil). As at 31 December 2019, the Group was not formally committed to paying any further deficit reduction
contributions to the Scheme under the current Schedule of Contributions, and therefore no further liabilities have been recognised.
The surplus not recognised at 31 December 2019 in relation to the UK scheme was £8.8m (2018: £10.8m).
127
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Year ended 31 December 2019
29. Retirement benefit schemes continued
Reconciliation of opening and closing balances of the present value of the defined benefit obligation
Defined benefit obligation at start of year
Current service cost
Interest expense
Contributions by plan participants
Actuarial gains arising from changes in demographic assumptions
Actuarial losses/(gains) arising from changes in financial assumptions
Benefits paid, death in service insurance premiums and expenses
Past service (credit)/cost
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
Fair value of assets at end of year
Total expense recognised in the income statement
Current service cost
Past service (credit)/cost
Net interest on the defined benefit asset
Scheme administration expenses
Total expenses
Assets
Bonds
Cash
Diversified credit funds
2019
£m
100.2
0.1
2.6
–
(0.6)
12.1
(7.5)
(0.3)
106.6
2019
£m
111.0
2.9
8.8
(0.3)
0.5
–
(7.5)
115.4
2019
£m
0.1
(0.3)
–
0.3
0.1
2018
£m
109.9
0.6
2.4
0.1
(0.7)
(7.1)
(5.7)
0.7
100.2
2018
£m
117.5
2.6
(3.8)
(0.4)
0.7
0.1
(5.7)
111.0
2018
£m
0.6
0.7
(0.1)
0.4
1.6
2019
Quoted
£m
89.5
2.9
–
92.4
2019
Unquoted
£m
9.8
–
13.2
23.0
2018
Quoted
£m
78.9
9.1
–
88.0
2018
Unquoted
£m
9.8
–
13.2
23.0
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 current strategic target is to allocate 70% of the investment portfolio to ‘non-matching’ asset classes, predominantly
longer-term credit-based investments and 30% to a ‘liability-matching’ portfolio, comprising Liability Driven Investment (‘LDI’), money
market and shorter-term credit based investments. The LDI portion of the strategy has been put in place to reduce interest and
inflation risk.
128
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 29. Retirement benefit schemes continued
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
2019
% per annum
3.00
2.20
n/a
1.85
2.43
2.20
2018
% per annum
3.25
2.45
3.00
2.65
2.41
2.45
2019
S2PxA YoB CMI
2018 1.5% long
term trend
22.3
2018
S2PxA YoB CMI
2017 1.5% long
term trend
22.4
2019
S2PxA YoB CMI
2018 1.5% long
term trend
24.0
2018
S2PxA YoB CMI
2017 1.5% long
term trend
24.2
2019
All members
commute 75%
of maximum
permitted
2018
All members
commute 75%
of maximum
permitted
The weighted average duration of the defined benefit obligation at 31 December 2019 is approximately 18 years (31 December
2018: 18 years).
The defined benefit obligation at 31 December 2019 can be approximately attributed to the scheme members as follows:
■■ Active members: 0% (31 December 2018: 16%)
■■ Deferred members: 50% (31 December 2018: 35%)
■■ Pensioner members: 50% (31 December 2018: 49%)
All benefits are vested at 31 December 2019 (unchanged from 31 December 2018).
Present value of defined benefit obligations, fair value of assets and deficit
Present value of defined benefit obligation
Fair value of plan assets
Surplus in the Scheme
Adjustment relating to asset ceilings and minimum funding requirements
Net defined benefit asset before deferred tax
2019
£m
106.6
(115.4)
(8.8)
8.8
–
2018
£m
100.2
(111.0)
(10.8)
10.8
–
129
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Year ended 31 December 2019
29. Retirement benefit schemes continued
Reconciliation of asset ceiling
Restriction due to asset ceiling at beginning of period
Interest on asset restriction
Other changes in asset restriction
Restriction due to asset ceiling at end of period
The best estimate of contributions to be paid into the plan for the year ending 31 December 2020 is £0.4m.
Amounts recognised in Other Comprehensive Income
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
Gain/(loss) due to change in asset restriction
Total loss recognised in Other Comprehensive Income
Impact of changes to assumptions
2019
£m
10.8
0.3
(2.3)
8.8
2019
£m
8.8
(12.1)
0.6
2.3
(0.4)
2018
£m
5.2
0.1
5.5
10.8
2018
£m
(3.8)
7.1
0.7
(5.5)
(1.5)
0.25% change in discount rate
0.25% change in price inflation (and associated assumptions)
1 year change in life expectancy at age 65
Increase
£m
(4.9)
2.0
4.3
2019
Decrease
£m
4.9
(2.0)
(4.3)
Increase
£m
(4.3)
1.7
3.2
2018
Decrease
£m
4.3
(1.7)
(3.2)
The sensitivity table is based on an illustrative 0.25% change, although the assumptions may vary by greater amounts. Therefore, the
Group considers the retirement benefit obligations a key source of estimation uncertainty.
Combined non-UK disclosures
The Group operates defined benefit schemes in the USA and continental Europe.
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/(gains) arising from changes in financial assumptions
Experience gains on liabilities
Benefits paid, death in service insurance premiums and expenses
Employee contributions
Settlements
Exchange rate (gain)/loss
Defined benefit obligation at end of year
2019
£m
26.3
0.7
0.5
2.9
(0.4)
(1.4)
0.1
–
(1.2)
27.5
2018
£m
27.3
0.7
0.4
(1.1)
(0.3)
(1.0)
0.1
(0.6)
0.8
26.3
130
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 29. Retirement benefit schemes continued
Reconciliation of opening and closing balances of the fair value of plan assets
Fair value of assets at start of year
Interest income
Return on scheme assets excluding interest income
Contributions by employer
Contributions by employees
Benefits paid, death in service insurance premiums and expenses
Exchange rate (loss)/gain
Fair value of assets at end of year
Total expense recognised in the income statement
2019
£m
9.5
0.2
1.2
0.2
0.1
(0.9)
(0.2)
10.1
2019
£m
0.7
0.3
–
1.0
2018
£m
9.7
0.1
(0.7)
0.2
0.1
(0.4)
0.5
9.5
2018
£m
0.7
0.3
(0.6)
0.4
Current service cost
Net interest on the defined benefit liability
Settlements
Total expense
Equities
Insurance contracts
Total
Quoted
£m
4.6
–
4.6
2019
Unquoted
£m
–
5.5
5.5
Quoted
£m
3.7
–
3.7
2018
Decrease
£m
–
5.8
5.8
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 2019
USA
France
Germany
Italy
Turkey
Liechtenstein
Switzerland
Salary
increases %
per annum
n/a
2.5
2.5
2.5
8.0
2.5
n/a
Rate of
discount %
per annum
3.0
0.7
1.3
0.7
13.5
0.3
0.3
Inflation %
per annum
n/a
1.5
n/a
1.5
8.0
n/a
n/a
Pension
increases
% per annum
n/a
1.0
1.8
n/a
n/a
n/a
n/a
Duration
The weighted average durations of the defined benefit obligations of the overseas schemes at 31 December 2019 range from 12 years to
18 years. The durations ranged from 11 years to 19 years as at 31 December 2018.
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
Adjustment relating to asset ceilings and minimum funding requirements
Net defined benefit liability, before deferred tax
2019
£m
27.5
(10.1)
17.4
0.5
17.9
2018
£m
26.3
(9.5)
16.8
0.0
16.8
As all actuarial gains and losses are recognised, the deficit shown above at 31 December 2019 is that recognised in the balance sheet.
131
Strategic reportAdditional informationGovernanceAdditional informationGovernanceStrategic reportwww.bodycote.comBodycote plc annual report 2019Stock code: BOYFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2019
29. Retirement benefit schemes continued
Amounts recognised in Other Comprehensive Income
Gain from experience on plan liabilities
Loss due to change in asset restriction
Return on scheme assets excluding interest income
Effects of changes in financial assumptions underlying the present value of the liabilities
Total (loss)/gain recognised in Other Comprehensive Income
2019
£m
0.4
(0.5)
1.2
(2.9)
(1.8)
2018
£m
0.3
–
(0.7)
1.1
0.7
The only funded plans are those operated in USA, France, Switzerland and Liechtenstein. The best estimate of contributions to be paid
into the plans for the year ending 31 December 2019 is £0.2m.
Sensitivities (changes to total defined benefit obligations)
0.25% change in discount rate
0.25% change in price inflation (and associated assumptions)
Increase
£m
(1.0)
0.6
2019
Decrease
£m
1.0
(0.6)
Increase
£m
(0.9)
0.5
2018
Decrease
£m
0.9
(0.5)
The sensitivity table is based on an illustrative 0.25% change, although the assumptions may vary by greater amounts. Therefore, the
Group considers the retirement benefit obligations a key source of estimation uncertainty.
30. Contingent liabilities
The international tax environment has received increased attention and seen rapid change over recent years, both at a US and European
level, and by international bodies such as the Organisation for Economic Cooperation and Development (OECD). Against this backdrop,
Bodycote has been monitoring developments and continues to engage transparently with the tax authorities in the countries where we
operate. On 25 April 2019, the European Commission released its decision that part of the UK Group Financing Exemption measures
in the UK– controlled foreign company rules were unlawful and incompatible State Aid and have instructed HM Revenue & Customs to
recover the State Aid. The UK Government has subsequently appealed against the decision.
In common with other UK–based international companies whose arrangements were in line with current UK CFC legislation, Bodycote
may be affected by the outcome of this decision and has calculated the maximum potential liability to be approximately £21.6m
(2018: £20.0m). Bodycote is reviewing the details of the decision and assessing any impact upon the Company’s tax position. At present,
Bodycote believes that no provision is required in respect of this matter.
The Group is subject to certain legal proceedings, claims, complaints and investigations arising out of the ordinary course of business.
Legal proceedings may include, but are not limited to, alleged breach of contract and alleged breach of environmental, competition,
securities and health and safety laws. The Group may not be insured fully, or at all, in respect of such risks. The Group cannot predict the
outcome of individual legal actions or claims or complaints or investigations. The Group may settle litigation or regulatory proceedings
prior to a final judgment or determination of liability. The Group may do so to avoid the cost, management efforts or negative business,
regulatory or reputational consequences of continuing to contest liability, even when it considers it has valid defences to liability.
The Group considers that no material loss is expected to result from these legal proceedings, claims, complaints and investigations.
Provision is made for all liabilities that are expected to materialise through legal and tax claims against the Group.
132
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 31. Restatement of comparative information
The following tables summarise the impacts resulting from two restatements; being the adoption of IFRS 16 on the Group’s consolidated
income statement, consolidated statement of comprehensive income, consolidated balance sheet and consolidated cash flow statement,
and, the netting of deferred tax (refer to note 19). Refer to the Group accounting policies for a summary of the resulting impact of the
adoption of IFRS 16.
Consolidated income statement
Revenue
Cost of sales and overheads
Net impairment gains on financial assets
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation charge
Profit for the period
Attributable to:
Equity holders of the parent
Non-controlling interests
Year ended 31 December 2018
As previously
reported
£m
728.6
(594.7)
0.2
134.1
0.2
(2.1)
132.2
(28.6)
103.6
103.2
0.4
103.6
Effect of
restatement
£m
–
2.4
–
2.4
–
(2.4)
–
–
–
–
–
–
As restated
£m
728.6
(592.3)
0.2
136.5
0.2
(4.5)
132.2
(28.6)
103.6
103.2
0.4
103.6
The restatement of the financial statements following the adoption of IFRS 16 had nil impact on earnings per share and other
comprehensive income.
133
Strategic reportAdditional informationGovernanceAdditional informationGovernanceStrategic reportwww.bodycote.comBodycote plc annual report 2019Stock code: BOYFinancial statements Notes to the consolidated financial statements continued
Year ended 31 December 2019
31. Restatement of comparative information continued
Consolidated balance sheet
Year ended 31 December 2018
1 January 2018
As previously
reported
£m
Effect of
restatement
£m
As restated
£m
As previously
reported
£m
Effect of
restatement
£m
As restated
£m
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Investment in associate
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
Borrowings
Lease liabilities
Provisions
Net current assets
Non-current liabilities
Lease liabilities
Retirement benefit obligations
Deferred tax liabilities
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
163.9
43.0
546.6
–
4.1
23.6
1.4
782.6
13.9
7.0
146.3
38.5
1.8
207.5
990.1
140.4
26.6
2.3
–
4.7
174.0
33.5
–
16.8
60.9
9.6
2.2
89.5
263.5
726.6
33.1
177.1
(14.8)
141.4
61.9
327.2
725.9
0.7
726.6
–
–
–
73.7
–
(14.5)
–
59.2
–
–
–
–
–
–
59.2
–
–
–
13.6
–
13.6
(13.6)
66.7
–
(16.1)
2.3
–
52.9
66.5
(7.3)
–
–
–
–
2.3
(9.6)
(7.3)
–
(7.3)
163.9
43.0
546.6
73.7
4.1
9.1
1.4
841.8
13.9
7.0
146.3
38.5
1.8
207.5
1,049.3
140.4
26.6
2.3
13.6
4.7
187.6
19.9
66.7
16.8
44.8
11.9
2.2
142.4
330.0
719.3
33.1
177.1
(14.8)
141.4
64.2
317.6
718.6
0.7
719.3
157.6
43.4
520.5
–
–
24.5
1.0
747.0
16.4
12.8
140.4
41.0
2.1
212.7
959.7
138.4
29.2
1.4
–
8.7
177.7
35.0
–
15.2
57.2
8.7
3.4
84.5
262.2
697.5
33.1
177.1
(7.2)
141.0
45.9
307.1
697.0
0.5
697.5
–
–
–
67.9
–
(14.7)
–
53.2
–
–
–
–
–
–
53.2
–
–
–
13.0
–
13.0
(13.0)
61.5
–
(16.3)
2.3
–
47.5
60.5
(7.3)
–
–
–
–
2.3
(9.6)
(7.3)
–
(7.3)
157.6
43.4
520.5
67.9
–
9.8
1.0
800.2
16.4
12.8
140.4
41.0
2.1
212.7
1,012.9
138.4
29.2
1.4
13.0
8.7
190.7
22.0
61.5
15.2
40.9
11.0
3.4
132.0
322.7
690.2
33.1
177.1
(7.2)
141.0
48.2
297.5
689.7
0.5
690.2
134
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 31. Restatement of comparative information continued
Consolidated cash flow statement
Net cash from operating activities
Net cash used in investing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents
Year ended 31 December 2018
As previously
reported
£m
173.3
(81.6)
(94.8)
(3.1)
Effect of
restatement
£m
16.8
–
(16.8)
–
As restated
£m
190.1
(81.6)
(111.6)
(3.1)
135
Strategic reportAdditional informationGovernanceAdditional informationGovernanceStrategic reportwww.bodycote.comBodycote plc annual report 2019Stock code: BOYFinancial statements Five year summary (unaudited)
Revenue
Profit:
Headline operating profit
Amortisation of acquired intangible fixed assets
Acquisition costs
Operating profit prior to exceptional items
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
Property, plant and equipment
Other assets and liabilities
Financed by
Share capital
Reserves
Shareholders' funds
Non–controlling interests
Right-of-use assets
Net cash
Capital employed
Net assets per share (pence)
Return on capital employed (%):
Headline operating profit divided by the average of
opening and closing capital employed2
2019
£m
719.7
134.9
(4.6)
(1.7)
128.6
–
128.6
(4.7)
123.9
(29.9)
94.0
(0.2)
93.8
52.1
20.0
–
212.4
534.5
17.4
764.3
33.1
671.9
705.0
0.8
79.4
(20.9)
764.3
368.2
Restated
2018
£m
728.6
140.7
(3.7)
(0.5)
136.5
–
136.5
(4.3)
132.2
(28.6)
103.6
(0.4)
103.2
55.9
19.0
20.0
206.9
546.6
9.9
763.4
33.1
685.5
718.6
0.7
80.3
(36.2)
763.4
375.3
20171
£m
690.2
123.9
(4.5)
–
119.4
–
119.4
(2.4)
117.0
(19.7)
97.3
(0.2)
97.1
49.2
17.4
25.0
201.0
520.5
(63.6)
657.9
33.1
663.9
697.0
0.5
(39.6)
657.9
364.1
20161
£m
600.6
99.6
(4.5)
(0.6)
94.5
–
94.5
(2.6)
91.9
(24.9)
67.0
–
67.0
37.0
15.8
–
206.7
509.0
(88.5)
627.2
33.1
594.8
627.9
0.4
(1.1)
627.2
328.0
20151
£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
17.7
18.9
19.3
17.1
19.0
1 Periods prior to the adoption of IFRS 16, Leases on 1 January 2018 have not been restated
2
In 2015 a one off adjustment to capital employed was made for an item of goodwill written off
136
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Company statement of financial position
At 31 December 2019
Fixed assets
Intangible fixed assets
Tangible fixed assets
Right-of-use assets
Investments in subsidiaries
Receivables
Current assets
Receivables
Current liabilities
Payables
Net current liabilities
Total assets less current liabilities
Payables: Amounts falling due after more than one year
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other reserves
Profit for the year
Accumulated (losses)/profit
Shareholders’ funds
Note
2
3
4
5
6
6
7
7
9
2019
£m
21.5
0.1
0.5
391.0
101.1
514.2
4.6
4.6
(10.3)
(5.7)
508.5
(0.8)
507.7
33.1
177.1
124.8
176.7
(4.0)
507.7
Restated
20181
£m
22.3
0.1
0.6
391.0
10.3
424.3
7.8
7.8
(11.9)
(4.1)
420.2
(12.1)
408.1
33.1
177.1
126.3
71.4
0.2
408.1
1
The 2018 statement of financial position has been restated following the adoption of IFRS 16, Leases and the recharge of share based payment costs for scheme members employed
by subsidiary companies. A reconciliation of the restatement to the previously reported numbers is provided in note 13
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue
on 12 March 2020.
They were signed on its behalf by:
S.C. Harris
Director
D. Yates
Director
137
www.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportGovernanceGovernanceAdditional informationAdditional informationStrategic reportFinancial statements Company statement of changes in equity
For the year ended 31 December 2019
1 January 2018, as previously reported
Impact of prior period restatement1
Impact of change in accounting policy1
Restated balance at 1 January 20181
Profit for the year
Actuarial loss on defined benefit pension
schemes net of deferred tax
Total comprehensive income for the year
Dividends paid
Shares acquired
Share-based payments
Settlement of share options
Restated balance at 31 December 20181
Profit for the year
Actuarial gain on defined benefit pension
schemes net of deferred tax
Total comprehensive income for the year
Dividends paid
Shares acquired
Share-based payments
Settlement of share options
31 December 2019
Called-up
share capital
£m
Share
premium
account
£m
Other
reserves
£m
Profit and
loss account
£m
33.1
–
–
33.1
–
–
–
–
–
–
–
33.1
–
–
–
–
–
–
–
33.1
177.1
–
–
177.1
–
–
–
–
–
–
–
177.1
–
–
–
–
–
–
–
177.1
133.6
–
–
133.6
–
–
–
–
(10.6)
3.8
(0.5)
126.3
–
–
–
–
(6.0)
1.1
3.4
124.8
76.7
6.6
(0.2)
83.1
71.4
(1.3)
70.1
(81.8)
–
–
0.2
71.6
176.7
0.4
177.1
(74.7)
–
–
(1.3)
172.7
Total
£m
420.5
6.6
(0.2)
426.9
71.4
(1.3)
70.1
(81.8)
(10.6)
3.8
(0.3)
408.1
176.7
0.4
177.1
(74.7)
(6.0)
1.1
2.1
507.7
1
The 2018 statement of financial position has been restated following the adoption of IFRS 16, Leases and the recharge of share based payment costs for scheme members employed
by subsidiary companies. A reconciliation of the restatement to the previously reported numbers is provided in note 13
Details of dividends paid are set out in note 7 of the consolidated financial statements.
During the year, the Group became aware of an issue concerning technical compliance with the Companies Act 2006 in respect of the
declaration and payment of the 2018 interim dividend and 2018 special dividend. Although the Group had such distributable reserves
at the time of declaration and payment, the Group had not lodged interim accounts with Companies House to show that each of the
dividends were supported by sufficient distributable reserves. The Group’s historical reported trading results and financial condition
are entirely unaffected, but the Group proposes to put a resolution to shareholders at the Company’s annual general meeting to rectify
the position.
Details of share-based payment transactions are set out in note 27 of the consolidated financial statements.
The other reserves are stated after deducting £11.6m (2018: £14.8m) 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 2019 1,405,555 (2018: 1,839,860) 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 market value of these shares was £13.4m (2018: £13.4m).
Included in other reserves is £6.0m (2018: £10.8m) relating to a share option reserve and a capital redemption reserve of £129.8m
(2018: £129.8m). The capital redemption reserve arose from B shares which were converted into deferred shares in 2008 and 2009,
and a result, £129.8m was transferred from retained earnings to a capital redemption reserve.
138
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Company accounting policies
Basis of accounting
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. 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 and related party transactions.
Where required, equivalent disclosures are given in the consolidated financial statements of Bodycote plc, which are publicly available.
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 Chief Financial Officer’s report on page 24.
Investments
Investments are held at cost less provision for impairment. Any potential impairment is determined on a basis of comparing the carrying
value of the investment against the higher of net assets or discounted future cashflows.
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 at 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.
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 93.
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
The Company has adopted the following IFRS 16 accounting policy for leasing arrangements where it is the lessor:
To the extent that a right-of-control exists over an asset subject to a lease, with a lease term exceeding one year, a right-of-use asset,
representing the Company’s right to use the underlying leased asset, and a lease liability, representing the Company’s obligation to make
lease payments, are recognised in the Company’s statement of financial position at the commencement of the lease.
The right-of-use asset is initially measured at cost and includes the amount of initial measurement of the lease liability and any direct
costs incurred, including advance lease payments and an estimate of the dismantling, removal and restoration costs required by the terms
and conditions of the lease.
Depreciation is charged to the Income Statement to depreciate the right-of-use asset from the commencement date until the earlier of
the end of the useful life of the right-of-use asset or the end of the lease term. The lease term shall include the period of any extension
option where it is reasonably certain that the option will be exercised. Where the lease contains a purchase option the asset is written off
over the useful life of the asset when it is reasonably certain that the purchase option will be exercised.
The lease liability is measured at the present value of the future lease payments, including any variable lease payments where applicable
that depend on an index and the exercise price of purchased options where it is reasonably certain that the option will be exercised,
discounted using the interest rate implicit in the lease, if readily determinable. If the rate cannot be readily determined, the lessee’s
incremental borrowing rate is used. Finance charges are recognised in the Income Statement over the period of the lease.
Lease arrangements that are short-term in nature or low value are charged directly to the Income Statement when incurred.
139
www.bodycote.comBodycote plc annual report 2019Stock code: BOYStrategic reportGovernanceGovernanceAdditional informationAdditional informationStrategic 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%
Receivables
Receivables are initially recognised at fair value. 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.
Per IFRS 9, a simplified lifetime Expected Credit Loss (ECL) model is used to assess receivables for impairment. An assessment
regarding the ECL of these amounts has been made and the Company has identified that no allowance for expected credit losses is
required. See details in note 6.
Amounts owed by subsidiary undertakings falling due after more than one year are classified as such according to the loan agreement in
place until 30 June 2021. The interest rate for such facility was at LIBOR plus 1.35% margin in 2019.
Payables
Financial liabilities are classified according to the substance of the contractual arrangements entered into. Non-interest-bearing financial
liabilities are stated at their nominal value. Trade payables are recognised at fair value.
The Company derecognises financial liabilities when, and only when, the Company obligations are discharged, cancelled or they expire.
Amounts owed to subsidiary undertakings falling due after more than one year are classified as such according to the loan agreement
in place until 30 June 2021. The interest rate for such facility was at LIBOR plus 0.6% margin in 2019.
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 temporary 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. Temporary 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 temporary
differences can be deducted.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the temporary differences are
expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Related party transactions
The Company has taken advantage of the disclosure exemptions available under FRS 101 not to disclose transactions or balances with
wholly-owned entities of the Group.
Share-based payments
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.
Critical judgements in applying the Company’s accounting policies and key sources of
estimation uncertainty
In the course of preparing the Company’s financial statements, no key sources of estimation uncertainty have been identified.
Please refer to note 11 for judgements identified in relation to IFRIC 14.
140
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Notes to the company financial statements
Year ended 31 December 2019
1. Profit for the year
Bodycote plc reported a profit for the financial year ended 31 December 2019 of £176.7m (2018: £71.4m).
The auditor’s remuneration for audit and other services is disclosed in note 3 of 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 56 to 77 and form part of these financial statements.
2.
Intangible fixed assets
Cost
At 1 January 2019
Additions
At 31 December 2019
Amortisation
At 1 January 2019
Charge for the year
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Software
£m
31.5
0.8
32.3
9.2
1.6
10.8
21.5
22.3
Included in software assets are ongoing development costs related to the Group’s ERP solutions. £9.8m (2018: £9.1m) of these costs are
related to assets that are not yet available for use and are therefore not amortised. As such solutions become available for use they will be
amortised according to Group policy.
3. Tangible fixed assets
Cost
At 1 January 2019 and 31 December 2019
Depreciation
At 1 January 2019 and 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
4. Right-of-use assets
Cost
At 1 January 2019 and 31 December 2019
Depreciation
At 1 January 2019
Charge for the year
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Fixtures
and fittings
£m
0.9
0.8
0.1
0.1
Buildings
and vehicles
£m
2.3
1.7
0.1
1.8
0.5
0.6
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Year ended 31 December 2019
4. Right-of-use assets continued
Lease liabilities
Maturity analysis – contractual undiscounted cash flows
Less than one year
One to five years
Total undiscounted cash flows
Current
Non-current
Total lease liabilities
5.
Investments in subsidiaries
Cost
At 1 January 2019 and 31 December 2019
Provision for impairment
At 1 January 2019 and 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
2019
£m
0.2
0.5
0.7
0.2
0.5
0.7
Restated
2018
£m
0.3
0.7
1.0
0.2
0.6
0.8
Shares
£m
397.6
6.6
391.0
391.0
The following subsidiaries have taken advantage of an exemption from audit under section 479A of the Companies Act 2006. As the
ultimate parent, Bodycote PLC has provided a statutory guarantee for any outstanding liabilities of this business. All subsidiary
undertakings have been included in the consolidated financial statements of Bodycote plc as at 31 December 2019.
Bodycote Heat Treatments Limited
Bodycote Surface Technology Limited
Bodycote H.I.P. Limited
Bodycote America Finance Limited
Bodycote America Treasury Limited
Bodycote Finance Limited
Bodycote Finance UK Limited
Bodycote International Limited
Bodycote Investments
Bodycote Nominees No.1 Limited
Bodycote Pension Trustees Limited
Bodycote HIP Germany Limited
Bodycote Treasury Services Limited
Bodycote Thermal Processing Mexico Limited
Bodycote America Capital Limited
A full list of directly and indirectly owned subsidiary undertakings can be found on page 145.
6. Receivables
Amounts falling due within one year:
Amounts owed by subsidiary undertakings
Corporation tax
Other receivables and prepayments
Amounts falling due after more than one year:
Amounts owed by subsidiary undertakings1
Deferred taxation (note 8)
2019
£m
1.9
2.6
0.1
4.6
101.1
–
101.1
105.7
Restated
2018
£m
6.5
1.0
0.3
7.8
10.0
0.3
10.3
18.1
1
An assessment regarding the ECL of these amounts has been made and the Company has identified that no allowance for expected credit losses is required based on their nature as
either quasi-equity or repayable on demand loans not exceeding the investee’s liquid assets
142
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements 7. Payables
Amounts falling due within one year:
Trade payables
Amounts owed to subsidiary undertakings
Other taxes and social security
Lease liabilities due within one year
Other payables
Accruals
Amounts falling due after more than one year:
Amounts owed to subsidiary undertakings1
Lease liabilities due after one year
1
Intercompany loan to Bodycote Finance Limited
2019
£m
–
0.9
0.9
0.2
3.1
5.2
10.3
0.3
0.5
0.8
Restated
2018
£m
0.6
0.8
1.1
0.2
4.0
5.2
11.9
11.5
0.6
12.1
8. Deferred tax
The following are the deferred tax assets and liabilities recognised by the Company and movements thereon during the current and prior
reporting period.
At 1 January 2018
(Debit)/credit to profit or loss
Credit to other comprehensive income
At 1 January 2019
Charge to profit or loss
Credit to other comprehensive income
At 31 December 2019
Accelerated tax
depreciation
0.1
(0.4)
–
(0.3)
(0.2)
–
(0.5)
Retirement
benefit
obligations
£m
(0.4)
0.2
0.2
–
(0.1)
0.1
–
Other timing
differences
£m
0.4
0.2
–
0.6
(0.1)
–
0.5
Total
£m
0.1
–
0.2
0.3
(0.4)
0.1
–
The classification of the Company’s deferred tax assets has been updated for 2019 to reflect amounts which the Company has concluded
are more appropriately identified as Accelerated Tax Depreciation. The values for 2018 have been restated on this basis.
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:
Net deferred tax asset
9. Called-up share capital
Share capital:
Ordinary shares (allotted, called-up and fully paid)
At 1 January 2019
Allotted in the year
At 31 December 2019
2019
£m
–
2018
£m
0.3
Number of
shares
191,456,172
–
191,456,172
£m
33.1
–
33.1
Details of share options in issue on the Company’s share capital and share-based payments are set out in note 27 of the consolidated
financial statements.
143
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Year ended 31 December 2019
10. Contingent liabilities
The Company has guaranteed bank overdrafts, loans and letters of credit of certain subsidiary undertakings amounting to £0.7m
(2018: £9.1m).
11. Pension commitments
The Company participates in a final salary defined benefit scheme, the details of which are disclosed in note 29 of 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 costs are recognised as per the requirements of
IAS 19 (revised) Employee Benefits.
The Company acknowledges that the recognition or not of a pension scheme surplus is an area of accounting judgement, which depends
on the wording of the scheme rules and IFRIC 14. A pension surplus at 31 December 2019 of £8.8m (2018: £10.1m) has not been
recognised. Full disclosures concerning the scheme as required by IAS 19 (revised) and IFRIC 14 are set out in note 29 of the consolidated
financial statements.
The contributions made by the Company over the financial year to the defined contribution scheme amounted to £0.5m (2018: £0.3m).
As at 31 December 2019, contributions of £nil (2018: £nil) due in respect of the current reporting period had not been paid over to
the scheme.
12. Related party transactions
Other than payments made to directors, which are set out in the Board Report on Remuneration on pages 56 to 77, there are no other
related party transactions to disclose. The Company has taken the exemption available under FRS 101 not to disclose transactions with
wholly-owned subsidiary companies.
13. Restatement of comparative information
The following table summarises the impacts on the Company’s statement of financial position resulting from the adoption of IFRS 16,
Leases and the effects of pushing down share based payment costs incurred on behalf of subsidiary companies in prior years. For further
details on the adoption of IFRS 16, Leases see note 31 of the consolidated financial statements.
Company statement of financial position
As previously
reported 2018
Effect of
restatement
Restated
at 2018
Fixed assets
Intangible fixed assets
Tangible fixed assets
Right-of-use assets
Investments in subsidiaries
Receivables
Current assets
Receivables
Current liabilities
Payables
Net current liabilities
Total assets less current liabilities
Payables: Amounts falling due after more than one year
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other reserves
Profit for the year
Accumulated (losses)/profit
Shareholders’ funds
144
22.3
0.1
–
391.0
2.9
416.3
7.8
7.8
(14.3)
(6.5)
409.8
(11.5)
398.3
33.1
177.1
126.3
67.7
(5.9)
398.3
–
–
0.6
–
7.4
8.0
–
–
2.4
2.4
10.4
(0.6)
9.8
–
–
–
3.7
6.1
9.8
22.3
0.1
0.6
391.0
10.3
424.3
7.8
7.8
(11.9)
(4.1)
420.2
(12.1)
408.1
33.1
177.1
126.3
71.4
0.2
408.1
Bodycote plc annual report 2019Financial statementsAdditional informationGovernanceStrategic reportFinancial statements Subsidiary undertakings
Incorporated in the UK
Springwood Court, Springwood Close, Tytherington Business Park, Macclesfield SK10 2XF
Bodycote America Capital Limited6
Bodycote America Finance Limited6
Bodycote America Treasury Limited6
Bodycote Developments Limited2, 4
Bodycote Finance Limited6
Bodycote Finance UK Limited6
Bodycote Heat Treatments Limited1
Bodycote H.I.P. Limited1
Bodycote HIP Germany Limited3
Bodycote International Limited3
Bodycote Investments6
Bodycote K-Tech Limited2
Bodycote Nominees No. 1 Limited2
Bodycote Nominees No. 2 Limited2
Bodycote Pension Trustees Limited5
Bodycote Processing (Skelmersdale) Limited2, 4
Bodycote Surface Technology Limited1
Bodycote Thermal Processing Limited2
Bodycote Thermal Processing Mexico Limited1
Bodycote Treasury Services Limited6 – ordinary and preference shares
Expert Heat Treatments Limited2, 4
Taylor & Hartley Fabrics Limited2
Incorporated in Belgium
Font Saint Landry 11, 1120 Brussels, Belgium
Bodycote Belgium SA1
Industrie Park Noord 7, 9100 Sint-Niklaas, Belgium
Bodycote Hot Isostatic Pressing NV1
Incorporated in Canada
630 Newpark Boulevard, Newmarket ON L3X 2S2, Canada
Bodycote Canada Property Inc.4
Bodycote Thermal Processing Canada, Inc.1
50 Queen Street North, Suite 1020, Kitchener ON N2H 6M2, Canada
Bodycote Heat Treatment Canada, Inc.1
Incorporated in China
No. 68 Ningbo East Road, Taicang Economic Development Area, Taicang City, Jiangsu, China
Bodycote Heat Treatments Technology (Taicang) Co., Limited1
2012 Kehang Road, High Tech District, Jinan City, Shandong, China
Bodycote (Jinan) Heat Treatments Technology Co., Ltd.1
No.12 Building, No. 78, Gu Cheng Zhong Road, Yu Shan Town, Kunshan City, Jiangsu Province, China
Bodycote (Kunshan) Heat Treatments Technology Co., Ltd.1
No.B2-A, Wuxi National Hi-New Tech Industrial Development Z, Wuxi City, Jiangsu Province, 214028, China
Bodycote Wuxi Technology Co., Ltd.1
Incorporated in Czech Republic
Liberec 30, Tanvaldska 345, PSC, 46311, Czech Republic
Bodycote HT s.r.o1
Rohanske nabrezi 671/15, Karlin, 186 00, Praha 8, Czech Republic
Bodycote SSC s.r.o6
145
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Incorporated in France
Ilena Park – Bât. B2, Parc Technologique de Lyon, 117, allée des Parcs, 69800 Saint Priest, France
Bodycote Bourgogne SAS1
Bodycote France Holdings SA3
Bodycote Haute-Savoie SAS2
Bodycote Lyon SNC6
Bodycote Metz-Tessy SAS1
Bodycote SAS1
Bodycote Sud-Ouest SAS1
HITEC SAS2
Nitruvid SAS1
Incorporated in Germany
Schiessstrasse 68, 40549 Düsseldorf, Germany
Bodycote Deutschland GmbH6
Bodycote European Holdings GmbH3
Bodycote Hirzenhain GmbH1
Bodycote Specialist Technologies GmbH1
Bodycote Specialist Technologies Deutschland GmbH1
Bodycote VHK Vakuum-Härterei Köllner GmbH1
Bodycote Wärmebehandlung GmbH1
Incorporated in Ireland
12 Merrion Square North, Dublin 2, Ireland
Bodycote Ireland Finance DAC6
Bodycote Ireland Treasury Limited6
Incorporated in Jersey
50 La Colomberie, St Helier, JE2 4QB, Jersey
Bodycote Jersey Finance Limited6
Bodycote Jersey Holdings Limited3
Incorporated in Mexico
Oficinas en el Parque Torre Baker & McKenzie, Piso 10, Blvd. Antonio L. Rodríguez 1884 Pte, Monterrey, NL, 64650, Mexico
Bodycote de Mexico, S. de R.L. de C.V.1
Bodycote de SLP, S. de R.L. de C.V.1
Bodycote Testing de Mexico, S. de R.L. de C.V.2
Bodycote Thermal Processing de Mexico, S. de R.L. de C.V.1
Bodycote Thermal Processing de Mexico Servicios, S. de R.L. de C.V.6
Incorporated in Sweden
Box 209, 735 23, Surahammar, Sweden
Bodycote Hot Isostatic Pressing AB1
Box 353, 681 23, Kristinehamn, Sweden
Bodycote Kristinehamn AB1
Box 124, 424 23, Angered, Sweden
Bodycote Sweden AB3
Bodycote Thermotreat AB2
Bodycote Värmebehandling AB1
Bodycote Ytbehandling AB1
Incorporated in USA
12750 Merit Drive, Suite 1400, Dallas, TX 75251, USA
Bodycote Americas, Inc.3
Bodycote IMT, Inc.1
Bodycote K-Tech, Inc.1
Bodycote Syracuse Heat Treating Corporation1
Bodycote Thermal Processing, Inc.1
Bodycote USA, Inc.3
1180 Enterprise Dr, Winchester, KY 40391, USA
Bodycote Winchester, Inc.1
146
Bodycote plc annual report 2019Additional informationFinancial statementsGovernanceStrategic reportAdditional information Incorporated in other overseas countries
Boehlerdurplatz 1, 8605 Kapfenberg, Austria
Bodycote Austria GmbH1
Groethofstraat 27, 5916PA Venlo, Netherlands
Bodycote Hardingscentrum BV1
Orczy ut 46, Budapest, H-1089, Hungary
Bodycote Hungary Hökezelö KFT1
Kemalpasa OSB, Izmir Kemalpasa Asfalti No:17/1, 35730 Kemalpasa-IZMIR, Turkey
Bodycote Istas Isil Islem Sanayi ve Ticaret AS (79.3% owned)1
Gesällvägen 7, 01730 Vantaa, Finland
Bodycote Lämpökäsittely Oy1
Wilgowa 65D, Czestochowa, 42-271, Poland
Bodycote Polska sp z.o.o.1
Im alten Riet 123, 9494 Schaan, Liechtenstein
Bodycote Rheintal Wärmebehandlung AG1
Matuškova 48, Vlkanová, Banksá Bystrica, 976 31, Slovakia
Bodycote Slovakia s.r.o.1
Avenue Perdtemps 23, 1260 Nyon, Switzerland
Bodycote (Suisse) SA6
Via Moie 28, 25050, Rodengo Saiano, Italy
Bodycote Trattamenti Termici SpA1
Brasov, str. Zizinului nr. 119, cod 500407, Romania
Bodycote Tratamente Termice SRL1
Industribuen 16-18, 5592, Ejby, Denmark
Bodycote Varmebehandling A/S1
Other:
Incorporated in France
Lieu-dit Champ Corbert, 74370, Metz Tessy, France
Techmeta Engineering SAS (49% Investment)
Incorporated in USA
13753 Otterson Court, Livonia, MI 48150, USA
Thixomat Technologies, LLC (13.9% Investment)
Classifications Key
1. Thermal processing company
2. Dormant
3. Holding company
4. Property holding company
5. Trustee
6. Provision of services to Group companies
Except where stated, these companies are wholly-owned subsidiaries and have only one class of issued shares.
It is agreed that the six German subsidiaries Bodycote European Holdings GmbH, Bodycote Hirzenhain GmbH, Bodycote Specialist
Technologies Deutschland GmbH, Bodycote Specialist Technologies GmbH, Bodycote VHK Vakuum-Härterei Köllner GmbH, and
Bodycote Wärmebehandlung GmbH make use of the exemption option under Sec. 264 para. 3 German Commercial Code for the fiscal
year 2018, and will not publish their annual financial statements according to Sec. 325 et seq. German Commercial Code.
It is also agreed that the Dutch subsidiary Bodycote Hardingscentrum BV makes use of the exemption under Article 403, paragraph 1
of Book 2 Dutch Civil Code and will not publish its annual financial statements.
The financial data of the above German and Dutch companies for 2019 are included in the consolidated annual accounts of Bodycote plc.
147
www.bodycote.comBodycote plc annual report 2019Stock code: BOYFinancial statementsGovernanceStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportAdditional information Shareholder enquiries
Enquiries on the following administrative matters can be addressed to the Company’s registrars at Equiniti Limited, Aspect House,
Spencer Road, Lancing, West Sussex BN99 6DA. Telephone 0333 207 5951 (+44 121 415 0804 if calling from outside the UK).
Lines open 8.30am to 5.30pm (UK time), Monday to Friday excluding public holidays in England and Wales. Email: Log on to help.
shareview.co.uk (from here you will be able to email your query securely).
■■ 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 www.shareview.co.uk. Shareholders can easily
access and maintain their shareholding online by registering at www.shareview.co.uk. To register, shareholders will require their
shareholder reference number which was recently provided. This is the 11 digit number found on recent dividend correspondence.
Share dealing service
For information on the share dealing service offered by Equiniti Limited, telephone 0345 603 7037 (+44 121 415 7560 if calling
from outside the UK). Lines open 8.00am to 4.30pm (UK time), Monday to Friday excluding public holidays in England and Wales).
Please either telephone Equiniti or look online at www.shareview.co.uk for up-to-date commission rates.
Dividend reinvestment plan (DRIP)
Equiniti’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 Equiniti Financial Services Limited, part of Equiniti Group, which is authorised and
regulated by the Financial Conduct Authority.
For more information and an application pack please call 0333 207 5951 (+44 121 415 0804 if calling from outside the UK).
Lines open 8.30am to 5.30pm (UK time), Monday to Friday excluding public holidays in England and Wales. Alternatively go to
shareview.co.uk/info/drip.
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
Equiniti provides a service to overseas shareholders that will convert sterling dividends into local currency at a competitive rate.
Dividend payments will then be made directly into your local bank account. For more information log on to www.shareview.co.uk/info/ops
where you will find the answer to any queries you have, as well as the full terms and conditions of the service. Alternatively please call
0333 207 5951 (+44 121 415 0804 if calling from outside the UK). Lines open 08.30am to 5.30pm (UK time), Monday to Friday excluding
public holidays in England and Wales.
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 Equiniti, who will be
pleased to carry out your instructions.
148
Bodycote plc annual report 2019Additional informationFinancial statementsGovernanceStrategic reportAdditional information Shareholder analysis
Analysis of share register as at 3 March 2020:
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
832
720
203
110
77
1,942
%
42.8
37.1
10.4
5.7
4.0
100.0
Number of
shares
347,561
2,271,893
7,427,720
25,203,678
156,205,320
191,456,172
% of
shareholders
0.3
34.5
65.2
100.0
As at 25 February 2020 the following voting rights in the Company had been notified in accordance with the Disclosure and
Transparency Rules.
Name of shareholders
Aberdeen Standard Investments
Merian Global Investors (UK) Limited
Franklin Templeton Fund Management Limited
BlackRock Investments Management (UK) Ltd
The Vanguard Group, Inc.
Norges Bank Investment Management
Alantra Asset Management SGIIC, S.A.
Schroder Investment Management Ltd
Dimensional Fund Advisors, LP
Baillie Gifford & Co.
Number of
shares
20,713,353
12,793,356
11,251,135
7,871,689
7,759,508
7,216,481
6,907,267
6,862,536
6,487,186
5,948,793
%
0.2
1.2
3.9
13.1
81.6
100.0
% of total
shares
0.4
98.4
1.2
100.0
%
10.8
6.7
5.9
4.1
4.1
3.8
3.6
3.6
3.4
3.1
149
www.bodycote.comBodycote plc annual report 2019Stock code: BOYFinancial statementsGovernanceStrategic reportAdditional informationFinancial statementsGovernanceStrategic reportAdditional information Company information
Advisers
Auditor
PricewaterhouseCoopers LLP
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 Sutherland (International) LLP, Herbert Smith Freehills LLP and DLA Piper UK LLP.
Financial calendar
Annual General Meeting
Final dividend for 2019
Interim results for 2020
Interim dividend for 2020
Results for 2020
28 May 2020
5 June 2020
July 2020
November 2020
March 2021
150
Bodycote plc annual report 2019Additional informationFinancial statementsGovernanceStrategic reportAdditional information Cover image
This image shows a photomicrograph of an S3P treated screw, and demonstrates the uniformity of the S3P treatment.
S3P is used to harden stainless steels, without affecting corrosion resistance, and provides superior sliding wear and
galling resistance and improved fatigue strength. For industrial and consumer fasteners, these properties provide staying
power and smooth assembly and disassembly.
Financial statementsGovernanceStrategic reportAdditional information www.bodycote.com
For the online version of this report go to
www.bodycote.com/investors
Bodycote plc
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
United Kingdom
SK10 2XF
Tel: +44 (0)1625 505300
Fax: +44 (0)1625 505313
Email: info@bodycote.com
© Bodycote plc 2020
Produced by Radley Yeldar
www.ry.com