Annual
Report
2023
Bodycote plc
Contents
Strategic report
Governance
1
2
3
4
6
8
Understanding Bodycote
54 Board of Directors
Our markets
Our technologies
Our global network
Highlights
56 Corporate governance statement
65 Directors’ report
67 Report of the Nomination Committee
72 Report of the Audit Committee
The investment proposition
77 Directors’ report on remuneration
10 Chair’s statement
11 Chief Executive’s review
14 Strategy and objectives
15 Our business model
16 Measuring progress; our KPIs
18 Our stakeholders
19 A component journey
On solid foundations –
Transmission shafts
20 Compliance with Directors’ duties
Section 172 statement
21 Section 172 cross-reference
22 Business review
24 A component journey
Rock solid – Drill bits
25 Chief Financial Officer’s report
28 Principal risks and uncertainties
33 Viability statement
34 A component journey
Touch down – Landing gear
35 Sustainability report
43 TCFD report
53 Non-financial and sustainability
information statement
92 Directors’ responsibilities statement
Financial statements
93 Independent auditors’ report
100 Consolidated income statement
100 Consolidated statement of
comprehensive income
101 Consolidated balance sheet
102 Consolidated cash flow statement
103 Consolidated statement of
changes in equity
104 Group accounting policies
111 Notes to the consolidated
financial statements
142 Company balance sheet
143 Company statement of changes
in equity
144 Company accounting policies
147 Notes to the Company
financial statements
Additional information
151 Five-year summary (unaudited)
152 Alternative performance measures
(APMs) – unaudited
155 Subsidiary undertakings
158 Shareholder enquiries
160 Company information
www.bodycote.com/investors
for more 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.
Strategic reportGovernanceFinancial statementsAdditional information Understanding Bodycote
Bodycote is the world’s leading
provider of thermal processing
services. As the partner 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.
Our breadth of solutions across
multiple technologies creates
value through superior customer
service 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 customers’
needs and continue to deliver long-
term success for our shareholders
and other stakeholders.
Driving performance
with our Core Values
Honesty and Transparency
We cultivate a culture of transparency, where honesty and integrity
are the foundation of our business and our relationships. Trust is at
the heart of everything we do.
Respect and Responsibility
We behave individually and collectively with respect for each other,
our stakeholders and the environment, conducting business
responsibly, taking ownership of our actions.
Creating Value
We create value for our employees, customers and shareholders,
and this is the very essence of Bodycote.
Page 35 for more information
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Understanding Bodycote
Our markets
Bodycote offers materials solutions for virtually every market sector, providing
expertise across classical heat treatment and specialist thermal processes.
Bodycote supports many market sectors; however, we categorise our business
into three major groups:
Aerospace and Defence
Automotive
General Industrial
(including Energy)
The aerospace market is highly complex
and requires significant technical expertise.
Within this market we primarily provide
thermal processing solutions for engine
components, which often undergo extremely
challenging operating conditions, as well as
landing gear and other aircraft components.
We provide these solutions across various
applications, including commercial, business
and military aircraft.
Bodycote operates an international network
of quality accredited facilities supporting
prime aerospace manufacturers and their
supply chains.
Focused on key components in the car,
light truck, heavy truck and bus markets,
thermal processing delivers greater strength
and durability.
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.
We serve a vast range of customers across
multiple industry segments in our General
Industrial business. These customers span
markets including power generation, tooling,
industrial gas turbines, medical equipment,
electronics, agriculture, industrial machinery,
construction and oil & gas components.
Our success in these markets is due to
the breadth of processes available within
Bodycote and our extensive technical
resources, combined with our local plant
network and superior customer service,
allowing for the development of cost-effective
solutions for our customers.
2
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Our technologies
Bodycote’s purpose is to support our customers in producing superior
components. Our thermal processing services encompass a variety of
heat treatment techniques and specialist technologies that extend the life
of components. Bodycote addresses the markets we serve with our
exceptional service levels 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
to obtain the desired mechanical, chemical
and metallurgical properties during the
manufacturing of a product.
Product life is extended by
accurately treating products,
carried out in precisely controlled
industrial furnaces that can heat
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, resulting
in the 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.
The extended life of our
customers’ products positively
impacts the environment by
reducing their carbon footprint.
We provide 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, reduce downtime,
increase the lifespan of the
products our customers
manufacture and improve the
sustainability of their products.
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
daily life, whether it’s a vehicle
seatbelt buckle to ensure that
it keeps the passenger safe
during an accident or a turbine
blade bringing power to your
neighbourhood.
Our Specialist Technologies business is a
selection of highly differentiated, early-stage
processes with high margins, significant market
opportunities and appealing growth prospects.
Our Specialist Technologies generally emit lower
carbon emissions and, therefore, are better for
the environment. Bodycote is either the clear
market leader or one of the top players among
a small number of competitors.
Hot Isostatic Pressing
(HIP) Services
Improves component integrity
and strength by application of
extreme pressure and heat.
HIP PF including Powdermet®
Additive manufacturing of
often complex components
by combining with HIP.
Specialty Stainless Steel
Processes (S³P)
Improves the strength, hardness
and wear resistance of stainless
steel. Standard heat treatments
negatively impact the corrosion
resistance of stainless steel,
but our proprietary S³P processes
can provide dramatically improved
material 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 under
vacuum using a cleaner process
than atmospheric carburising,
providing improved wear
resistance and fatigue life
with less distortion.
Corr-I-Dur® (CiD)
Improves corrosion resistance
and wear properties and is
primarily used as a sustainable
substitute for hard chrome.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Understanding Bodycote
Our global network
Delivering quality through our international network of facilities.
Bodycote offers significant advantages to our customers
as the only global thermal processing service provider.
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 165 facilities, with customers benefitting 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 broaden their manufacturing footprint, Bodycote will assist
them. They know that they can obtain the same process at the same quality standards
from multiple locations. Customers understand that Bodycote can operate its facilities
more efficiently and reduce their overall impact on the environment, assisting them in
achieving climate impact targets.
Such an extensive 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, increasing efficiency and reducing the
carbon footprint 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.
Revenue by geography
£802.5m
North America
Western Europe
Emerging Markets
36%
52%
12%
Revenue by market sector
>40,000
customers
4,833¹
employees
£802.5m
>165
facilities
22
countries
Aerospace and Defence
Automotive
General Industrial (including energy)
27%
24%
49%
1 At year end 2023.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
North America
Western Europe
Emerging Markets
Bodycote is the largest provider of thermal
processing services in North America
with comprehensive network coverage.
This network offers more than 55 facilities
convenient to customers in all areas where
manufacturing and technical industries
are concentrated.
Bodycote operates facilities across Western
Europe and is the number one provider of
thermal processing services, with the largest
network and comprehensive service offering
with facilities near major industrial hubs.
Bodycote has facilities across our 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.
£287.5m
£417.4m
£97.6m
Revenue by market sector
Aerospace and Defence
Automotive
General Industrial (including energy)
44%
19%
37%
Aerospace and Defence
Automotive
General Industrial (including energy)
18%
20%
62%
Aerospace and Defence
Automotive
General Industrial (including energy)
10%
57%
33%
>55
facilities
1,545
employees
>80
facilities
2,284
employees
>25
facilities
1,004
employees
5
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Understanding Bodycote
Highlights
Highlights
Financial summary
Revenue
Headline operating profit1
Headline operating margin1
Headline operating margin excluding surcharges1
Free cash flow1
Basic headline earnings per share1,2
Full year dividend per share
Return on capital employed1
Additional statutory measures
Operating profit
Operating profit margin
Profit after tax
Net cash generated from operating activities
Basic earnings per share
Financial performance
2023
£802.5m
£127.6m
15.9%
17.3%
£122.5m
48.4p
22.7p
14.8%
2023
£119.2m
14.9%
£86.8m
£191.6m
45.1p
2022
£743.6m
£112.2m
15.1%
16.1%
£84.0m
42.7p
21.3p
13.3%
2022
£102.0m
13.7%
£74.3m
£142.9m
38.6p
– Revenue up 8% to £802.5m. Growth of 6% excluding energy-related surcharges
– Headline operating profit of £127.6m, 17% higher at constant currency
– Headline operating margin of 15.9%, up 80bps; 17.3% excluding surcharge revenue, up 120bps
– Headline EPS1,2 growth of 13% to 48.4p
– Return on capital employed1 up 150bps to 14.8%
– Free cash flow improved by £38.5m to £122.5m1
– Full year dividend per share of 22.7p, up 7%, 36-year record of growing or maintaining the dividend
Key achievements
– Revenue growth led by Specialist Technologies, up 12% excluding surcharges3
– Strong performance in aerospace, oil & gas and medical markets
– 4% reduction in absolute energy consumption, notwithstanding 8% revenue growth
– Significant margin improvement; on track to achieve margins in excess of 20% over the medium term
– Returned to historical levels of free cash flow conversion1 of over 90%
– Disciplined capital allocation resulting in the £52m acquisition of Lake City in January 2024 and
a £60m share buyback commencing 15 March 2024
– Delivering successfully on all strategic focus areas
1 The headline performance measures represent the statutory results excluding certain items. These are deemed alternative performance measures under the European Securities and Markets
Authority guidelines. Please refer to page 152 for a reconciliation to the nearest IFRS equivalent.
2 A detailed EPS reconciliation is provided in note 8 of the consolidated financial statements.
3 At constant currency.
6
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Financial highlights
Revenue
£m
5
.
2
0
8
6
.
3
4
7
7
.
9
1
7
0
.
8
9
5
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.
5
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6
Full year dividend per share
pence
7
.
2
2
3
.
1
2
0
.
0
2
3
.
9
1
4
.
9
1
£802.5m
22.7p
’19
’20
’21
’22
’23
’19
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’21
’22
’23
Headline operating profit
£m
Basic headline earnings per share
pence
9
.
4
3
1
3
.
5
7
6
.
7
2
1
2
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2
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1
8
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4
9
£127.6m
4
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8
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8
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7
2
48.4p
’19
’20
’21
’22
’23
’19
’20
’21
’22
’23
Free cash flow
£m
Return on capital employed
%
.
1
3
2
1
.
1
6
0
1
.
0
5
0
01
4
8
.
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2
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1
£122.5m
.
7
7
1
.
8
4
1
.
3
3
1
.
0
2
1
8
9
.
14.8%
’19
’20
’21
’22
’23
’19
’20
’21
’22
’23
7
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Understanding Bodycote
The investment proposition
We provide expertise in heat treatment and specialist thermal
processes across a wide variety of markets. We aim to create
sustainable value for all our stakeholders, whether investors,
customers, employees or the communities where we operate.
Scale and expertise as the
world’s number one service
provider of heat treatment and
specialist thermal processing
Business resilience to a
downturn derived from flexibility
of the workforce, diversity
of end-markets, continuous
improvements in business
quality and geographic spread
Significant barriers to entry
in Specialist Technologies,
Emerging Markets and
civil aerospace
Consistently strong margins
and excellent free cash
flow generation
Highly cash-
generative business
funding both investment
and cash returns
to shareholders
Superior growth
opportunities
in Emerging Markets and
secular growth markets
of civil aerospace,
electric vehicles, and
medical products
Disciplined
capital allocation
focused on investing in the
business and returning capital
to shareholders
Plentiful investment
opportunities to drive
margins and returns
Strong balance sheet
providing options to
drive shareholder value
Specialist Technologies
with high margins and high
growth rates will become
a larger portion of the Group
Low-carbon
market opportunity
a major enabler of
Scope 4 avoided
emissions for customers
through outsourcing
8
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Key investment strengths
A strategy in place to further enhance margins
and growth through:
– Increasing the size of our Specialist
Technologies business with its superior
margins, higher growth characteristics
and lower emissions
– Investment in development and localisation
opportunities in Emerging Markets
– Investment in secular growth end-markets
of civil aerospace and electric vehicles
– Improving the mix of the Classical Heat
Treatment business
– Proactive approach to ESG and sustainability
– Investment in acquisitions and
greenfield sites
– Strategy that can accommodate widely
differing market outcomes
>£310m
invested in capacity growth
in last five years
>£225m
returned to shareholders
in last five years
What you can expect
Higher growth markets of Specialist
Technologies, Emerging Markets and
civil aerospace already constitute
more than half of the Group
revenues and more than 60% of the
Group’s headline operating profit
– These higher margin and growth
opportunities are expected to continue
to outperform the Classical Heat
Treatment business
Classical Heat Treatment should
perform ahead of markets, driven by:
– Increasing demand for improved
materials and quality
– Additional outsourcing as customers
understand that Bodycote is part of
the solution to reducing their
carbon emissions
Continued selected acquisitions
– Four key acquisitions in the last
five years
All on top of underlying industrial
production growth
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Chair’s statement
Bodycote is a service business,
reliant on its people at all levels.
The Group has exceptional people
who understand the needs of our
customers and are committed to
delivering outstanding performance
for them and for our shareholders.
D. Dayan
Chair
Overview
I am pleased with Bodycote’s performance in 2023, which delivered
further strong growth in revenue, profitability and cash flow.
Our Executive team has made significant strides in delivering our
strategic objectives and generating value for all our stakeholders.
Since the year end, we successfully closed the acquisition of Lake City,
strengthening further our Specialist Technologies offering. Appointing a
new Group Chief Executive to succeed Stephen Harris after his
successful 15 years leading Bodycote was a very significant step, and
the Board is delighted Jim Fairbairn has joined us in March 2024 to
continue the positive developments that have marked Stephen’s tenure.
Dividend and shareholder returns
The Board is proposing a final dividend of 16.0 pence per share, an
increase of 7%, to be paid on 6 June 2024 subject to shareholder
approval at the 2024 Annual General Meeting (AGM). Combined with
the interim dividend of 6.7 pence, this takes the full year dividend to
22.7 pence per share for the year, a 7% increase, returning £43m
to shareholders.
In addition to the regular dividend, the Group announced in January
2024 the intention to launch a £60m share buyback. This will commence
on 15 March 2024. Taken together with the dividend, this underlines
the Board’s commitment to delivering returns to our shareholders and
pursuing a balanced and flexible approach to capital allocation.
Board and governance
In May 2023, when Stephen Harris announced his plan to retire
from Bodycote at the 2024 AGM, the Board launched an extensive
search to find his successor, considering both internal and external
candidates. Jim Fairbairn joined the Board in March 2024 and
following a comprehensive induction programme, will be ready to
take up the position of Group Chief Executive on Stephen’s departure.
We welcome Jim to the Company.
Bodycote has been transformed since Stephen was appointed
Group Chief Executive in 2009. His legacy and impact on Bodycote will
be enduring and we thank him deeply and sincerely for his work and
dedication. With Jim Fairbairn’s succession as Group Chief Executive
we are well-positioned for the next chapter of Bodycote’s evolution.
We welcomed Beatriz García-Cos Muntañola to the Board in September
2023. Her experience within the industrial manufacturing and metals
industry and as a serving Chief Financial Officer makes her a further
well-qualified Non-Executive Director.
Governance remains a focal point for me as Chair and for the Board as a
whole. As a Board, we continually keep our governance approach under
10
review to ensure it remains effective and in-line with best practice as
it evolves; this is discussed in detail in the corporate governance report
on page 56.
People
I would like to thank all our colleagues across Bodycote for their hard
work and commitment on behalf of stakeholders during 2023. As a
service business, it is their dedication to delivering outstanding service
levels that sets us apart, and we are fortunate to have an impressive
team of experienced people across all levels of the organisation who
deliver against demanding expectations.
Sustainability
During 2023 the Board has been actively involved in oversight of the
execution of our sustainability strategy. Our Sustainability report,
on page 35, highlights the efforts and progress the Group has made.
In particular, given the energy-intensity and relatively simple supply
chains of Bodycote’s businesses, carbon emissions remain our
sustainability priority. Our operations continued to successfully
execute on a range of carbon reduction plans which put us on a path
to deliver against the Science Based Target initiative (SBTi) targets.
Our commitment to sustainability is an active part of the Group’s
strategy and is incorporated into our leadership team’s core objectives.
We are well placed to meet our goals underpinned by a set of clear
action plans which are laid out for the entire organisation and approved
by the Board.
Shareholders
Throughout 2023, I had the privilege of engaging with many of our
shareholders to understand their various points of view, especially
when considering the appointment of our new Group Chief Executive.
The Board appreciates the support of our shareholders and takes
their views into account as part of our decision-making processes.
I look forward to further opportunities to meet with shareholders
through 2024.
Summary
Overall, the Group has made good progress in 2023, remains in a
strong financial position and has the capability to take advantage of
many opportunities ahead. I am confident that Bodycote will continue
to perform well and deliver value to our customers, shareholders
and employees.
D. Dayan
Chair
15 March 2024
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Chief Executive’s review
In 2023, we once again
delivered good revenue growth
and improved financial performance,
as well as making progress against
our strategic priorities.
S.C. Harris
Group Chief Executive
Full year commentary
Overview
Group revenue increased 8% to £802.5m in 2023.
Excluding surcharges which have continued to be applied in order to
recover high energy prices, revenue was up 6% at constant currency.
This growth reflected significant progress in the Group’s strategic
focus areas, and was despite a mixed end-market picture, particularly
in the second half of the year. Bodycote delivered continued
outperformance in Specialist Technologies, up 12% at constant
currency and excluding surcharges, compared with Classical Heat
Treatment which grew by 4% at constant currency. Good revenue
progress was delivered with strong performance, in particular, in civil
aerospace (+12%), medical (+24%) and energy (+27%).
Headline operating profit increased 14% to £127.6m, from £112.2m
in 2022 (+17% at constant currency). Headline operating margin
improved to 15.9% (2022: 15.1%). Adjusting for the revenue impact
of energy surcharges, headline operating margin increased by
120bps to 17.3%. Cost inflation was successfully covered through
price increases. Margin improvement was led by the ADE business,
where headline operating margins rose by 410bps to 21%, driven by
strong revenue growth in Aerospace and Defence, in addition to the
successful actions to improve pricing and operational performance
in Surface Technology.
Statutory operating profit increased from £102.0m to £119.2m.
Basic headline earnings per share increased by 13% to 48.4p
(2022: 42.7p). Basic earnings per share rose 17% to 45.1p
(2022: 38.6p), reflecting the increase in statutory operating profit.
The Group delivered a significant improvement in free cash flow,
which increased £39m to £123m (2022: £84m). This reflected higher
operating profit, as well as a significant improvement in working
capital control, through better receivables collection. Investment in
maintenance capital expenditure increased by £6m reflecting ongoing
steps to drive improvements in equipment uptime performance.
As a result of the cash flow performance, the balance sheet further
strengthened, with a closing net cash position excluding lease
liabilities of £12.6m (2022: £33.4m net debt excluding lease liabilities).
Disciplined and balanced capital allocation to drive
shareholder value
The Group’s strong financial position provides flexibility for disciplined
and balanced capital allocation, with a number of actions taken during
2023 and in early 2024.
In 2023, the Group invested £85.5m (2022: £74.3m) in capital
expenditure, including expansionary capital expenditure of £27.8m
(2022: £22.1m). Over 80% of the expansionary spend was deployed
in our strategic focus areas of Specialist Technologies, Emerging
Markets, civil aerospace and electric vehicles.
Full year DPS was increased by 7% to 22.7p, continuing a 36-year
track record of growing or maintaining the dividend. The total cash
returned to shareholders through dividends in 2023 was £40.6m
(2022: £38.5m).
In January 2024, the Group announced completion of the
acquisition of Lake City Heat Treating for a total gross consideration
of £52m (£46m net of expected tax benefits). Lake City is a leading
hot isostatic pressing (HIP) and vacuum heat treatment business in
Warsaw, Indiana, serving the orthopaedic implant market as well
as civil aerospace. It fits well with the strategic focus on growing
further the Group’s Specialist Technologies revenue in addition
to significantly expanding the Group’s presence in the structurally
attractive medical market.
In addition, a £60m share buyback programme was announced in
January, which will commence on 15 March 2024. Further details
are provided in a separate announcement.
Business focus
The following commentary reflects constant currency growth rates
versus the comparable period last year, unless stated otherwise.
11
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Strategic report
Governance
Financial statements
Additional information
Chief Executive’s review continued
Specialist Technologies
Specialist Technologies are differentiated, early-stage processes with
high margins, large market opportunities and good growth prospects,
where Bodycote is either the clear leader or one of the top players
among few competitors. A key part of the Group’s strategy is to grow
these businesses and, over time, to increase their relative weight
within our portfolio. Over the past six years, Specialist Technologies
has now outgrown Classical Heat Treatment by on average c.10% per
year (at constant currency and excluding surcharges).
In 2023, revenue from Specialist Technologies grew by 12%,
supported by existing customer growth and ongoing sales and
marketing efforts to drive higher rates of new adoption of these
processes. To service this growth there was also investment in
additional capacity, with 58% of expansionary capital expenditure in
2023 (£16m) invested in Specialist Technologies. In 2023 this included
HIP capacity expansion in the US on the East Coast and in the
Midwest, growth in our S3P businesses in Mooresville, North Carolina
and in Vellinge, Sweden, as well as additional LPC capacity in Hungary
to support electric vehicle production. In 2024 we expect to drive
further expansion, including new Corr-I-Dur® capability in China and
additional HIP capacity at several sites in the US.
Market sectors
Aerospace & Defence revenue of £214m was 15% higher than the
prior year, 11% higher excluding the impact of energy surcharges.
Civil aerospace revenue was 12% higher excluding surcharges, as
production rates for commercial aircraft and engines continued to
recover, and there was a considerable step-up in air traffic and related
aftermarket and servicing activity. Further growth in OEM production
volumes and aftermarket activity is expected in 2024, which the
Group is well positioned to capture through strong exposure on
newer engine programmes like the CFM LEAP engine. Supply chain
issues continue to temper growth in civil aerospace, although there
was some improvement in the second half of 2023. Outside civil
aerospace, we also saw good growth in defence (up 10%), notably
in France and the US, and in the space sector.
Automotive revenue was £195m, 6% higher in the year, 5% growth
excluding the impact of energy surcharges. Growth was led by
Emerging Markets, which saw strong performance in Eastern Europe
(up 24%), partly offset by weakness in China and Mexico. There was
modest growth in Western Europe, where heavy truck and bus sales
grew strongly but light vehicle sales were flat. Automotive revenue in
North America grew by a low single digit percentage. There was
considerable order activity in electric vehicles (EVs), including battery
electric vehicles and hybrids. We secured further major new OEM
contracts for EV components in Emerging Markets, North America
and Europe, which will progressively ramp-up in the coming years.
General Industrial (including energy) revenue increased 6% to
£394m, which represented 4% growth excluding surcharges.
There was significant variation across end markets, with energy
sales increasing 27%, and with continued strong growth delivered in
medical, up 24%. There were more challenging conditions in the
manufacturing, industrial machinery, tooling, and electronics markets,
which saw declines in the second half of the year.
Sustainability
We are proud of the work we do to improve sustainability through our
innovative range of metallurgy services across a multitude of markets
and applications. Our services deliver a wide range of sustainability
benefits to customers: extending the lifespan of components,
reducing carbon emissions, supporting the development of low-carbon
industries, and enabling lighter and thinner components to be adopted
for more sustainable manufacturing. With increasing pressure on
companies to decarbonise their activities to meet emissions targets
and align with emerging legislation, Bodycote’s role in helping
customers reduce emissions has never been more important.
As part of our sales and marketing agenda, in 2023 we accelerated
our work to develop digital tools that automate the quantification of
carbon savings for customers. Emissions are up to 60% lower when
parts are processed in our facilities, compared with customers’ own
in-house processing. Our tools will enable us to demonstrate the
positive impact of outsourcing to Bodycote, enabling our customers to
reduce their operational emissions, and avoid some emissions entirely.
Our work to transition customers to lower carbon technologies also
gained momentum in 2023. Encouraging accelerated conversion to
these technologies plays a role in reducing emissions, while driving
growth at the same time. We secured several new contracts in the
year where avoided carbon emissions (Scope 4) were a critical factor
for our customers.
The pace of investment in our own carbon reduction programme
continues to accelerate. This also yields a financial payback through
lowering the cost of energy, driving higher margins. The Group’s
energy consumption reduced by 4% in 2023 as a result of our
initiatives, notwithstanding the 8% growth in Group revenue. We are
well on track to achieve our Science Based Target1 for emissions
reduction, having now reduced emissions by 24% since 2019.
Summary and outlook
In 2023 we once again delivered strong revenue growth and
improved financial performance, as well as making progress against
our strategic focus areas.
We delivered significant headline operating profit margin
improvement, notably in the ADE business, helping to drive Group
margins to 17.3%, excluding surcharges. Headline EPS increased
by 13% to 48.4p. Bodycote returned to the strong levels of cash
conversion which are more typical for the business, with free
cash flow of £123m, up 46%, reflecting improved working
capital management.
We will continue to deliver on our strategic focus areas in 2024,
including driving growth in Specialist Technologies, capitalising on
the growth opportunities from delivering carbon reductions for our
customers, and integrating the newly acquired Lake City business.
Despite macroeconomic uncertainty we expect to deliver further
progress in 2024. We anticipate a reduction in the level of energy
surcharges, reflecting further normalisation of energy prices.
2024 should see us take another step towards our medium term
margin target of more than 20%.
The Board remains confident in the Group’s prospects for continued
profitable growth.
S.C. Harris
Group Chief Executive
15 March 2024
1 Bodycote has signed up to emissions reductions in line with the Science Based Targets
initiative (SBTi).
12
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Bodycote plc Annual Report 2023
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Strategic report
Governance
Financial statements
Additional information
Case study: A real world example
Driving the green energy transition with
Specialist Technologies
In 2023, Bodycote began work on a major new multi-year contract to
provide efficient processing of automotive parts destined for hybrid
vehicles, using low pressure carburising (one of our Specialist
Technologies). The win marked another key milestone in the Group’s
efforts to transition customers into adopting newer, lower-carbon
heat treatment processes.
Bodycote won the contract with a key supplier to a leading global
automaker and is providing heat treatment services for a number
of parts in the vehicles’ driveline system.
Instead of quoting for services using traditional processing methods,
as the customer had requested, Bodycote proposed low pressure
carburising (LPC) for the customers’ parts. The LPC process enables
a significant reduction in the amount of energy required to achieve
the same metallurgical properties for a product. It cuts processing
time by around 20% and the amount of energy required by 50%.
Process gas – needed to achieve carburisation – is also reduced by
99% in LPC technology.
As the LPC process uses electricity, as opposed to gas, it also
enables a continuous reduction in products’ carbon footprints as
the grid becomes increasingly decarbonised over time.
Through the application of our specialist knowledge and expertise,
Bodycote successfully transitioned the customer to a process that
will enable them to achieve significant emissions avoidance and
provide low carbon revenue growth at high margins for Bodycote
at the same time.
20% less
processing time using
Bodycote’s LPC process
50% saving
in energy using LPC versus
traditional processing methods
99% reduction
in process gas used
Bodycote plc Annual Report 2023
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Strategy and objectives
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 minimal environmental impact.
m
Strategic priorities
Objectives
1
2
3
4
5
6
Safety and
Climate Change
We have a strategic commitment to ensuring the safety of
our employees and reducing our direct environmental impact,
specifically on climate change.
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, as well as helping
them reduce their impact on the environment.
Investing in
Emerging Markets
Expanding alongside our customers, with an emphasis in
markets delivering higher growth in Eastern Europe, Mexico
and China.
Investing in structural
growth opportunities
We invest in structural growth markets of civil aerospace
and electric vehicles.
Driving operational
improvement
Continuous improvement of business processes and systems
makes us more efficient and responsive.
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.
We cultivate a culture of transparency where honesty
and integrity are at the foundation of our business and our
relationships. Trust is at the heart of everything we do.
Core markets
Aerospace and Defence
Creating
Value
We create value for our employees, customers and
shareholders, and this is the very essence of Bodycote.
Automotive
We behave individually and collectively with respect for each
other, our stakeholders and the environment, conducting
business responsibly and taking ownership of our actions.
General Industrial
(including Energy)
Core values
Honesty and
Transparency
Respect and
Responsibility
14
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 m
Our business model
Our business model ensures we are the supplier of choice
for our customers’ thermal processing needs.
We provide essential
solutions to customers
Our thermal processing services simplify customer manufacturing by reducing
their non-core activities. Bodycote adds value while reducing the impact
on the environment by operating more efficiently and offering substitute
Specialist Technologies processes, which are inherently lower emissions
processes. Our global network of engineers and metallurgists collaborates
with customers to solve complex challenges, enhance operational efficiencies
and help improve product performance. Our services allow our customers’
parts to last longer and reduce their environmental impact,
supporting a more sustainable future.
A global network
– A global network of more than 165 market-
focused facilities in 22 countries. We have global
expertise but are located near our customers.
See our global network on pages 4–5.
Unmatched expertise
– Recognised as the leader in the industry with
the best metallurgists, engineers and technicians,
Bodycote is ideally placed to provide solutions
for customers, whatever their market or wherever
in the world they may be.
See managing our people on pages 36–38.
– Unique opportunities for transferring knowledge,
skills and technology across the network.
See our customer component journeys throughout
the Strategic report.
Utilising our
strategic
competitive
advantages
We focus on
service and quality
Scale and investment
– Bodycote’s scale enables continuous yet focused
investment in the latest processes and the most
efficient and environmentally friendly equipment.
See Chief Executive’s review on pages 11–12.
Customer focus
– Building strong customer relationships through local
service expertise; the scope of Bodycote’s network
enables us to specialise at individual locations and
provide comprehensive backup for our customers
more effectively than competitors.
– We secure service-specific agreements with our
customers, giving protection from supply disruption
and leveraging Bodycote’s unique facility network.
See business review on pages 22–23.
Service and expertise
– We provide 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, validated by
major engineering OEMs, have been developed to
meet the requirements of both international and national
accrediting bodies.
– Bodycote’s extensive expertise means that projects can
– Our facilities hold industry and customer approvals
improve beyond customers’ in-house capabilities,
combining identification and provision of technical solutions
to deliver value-adding material properties with a lower
environmental impact and often at a lower cost.
appropriate to the services they offer and the markets
they serve.
We create value for customers, Bodycote and our investors.
For our customers
– Value-adding services
– Global supplier meeting multiple
processing needs
– Carbon reduction versus in-house
operations, reducing the overall
emissions from their value chain
– Cost reduction benefits versus
in-house operations
– Access to the entire Bodycote
knowledge base and expertise
For Bodycote
– Mutually beneficial
customer relationships
– Vast customer base means Bodycote
is not reliant on any one customer
or market
– Ideally positioned to promote
growth in targeted markets and
selected technologies
For our investors
– Financially stable and
sustainable business
– Solid growth drivers
– Superior return on investment
– Strong margins and cash flows
– Proactive approach to sustainability
and climate change
15
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Measuring progress
Our key performance indicators
Performance
Return on capital employed increased by 1.5 percentage points during the year,
up from 13.3% to 14.8%.
Definition
Headline operating profit1 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).
Return on capital employed
(%)
7
.
7
1
8
.
4
1
3
.
3
1
0
.
2
1
8
.
9
’19
’20
’21
’22
’23
Basic headline earnings per share
(pence)
Performance
Basic headline earnings per share increased by 5.7p (13.3%) from 42.7p to 48.4p.
Definition
Basic headline earnings per share is defined on page 26.
Performance
Headline operating margin increased by 0.8 percentage points during the year,
from 15.1% to 15.9%. Headline operating profit increased by 14% from £112.2m to £127.6m,
while revenue increased by 8% from £743.6m to £802.5m.
Definition
Headline operating profit as a percentage of revenue.
4
.
8
4
7
.
2
4
1
.
2
5
8
.
5
3
8
.
7
2
’19
’20
’21
’22
’23
Headline operating margin
(%)
7
.
8
1
.
6
2
1
.
4
5
1
1
.
5
1
9
.
5
1
’19
’20
’21
’22
’23
1 Defined on page 152.
16
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Performance
Free cash flow for the Group was £122.5m (2022: £84.0m).
This was 96% of headline operating profit (2022: 75%).
Definition
Free cash flow is defined on page 26.
Performance
Bodycote works hard 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 TRIR rate
increased to 2.8 (2022: 2.5). Further details are included in the Sustainability section on
page 37.
Definition
TRIR is defined as the number of lost time incidents, restricted work cases and medical
treatment cases x 200,000 hours, divided by the total number of employee hours worked.
Performance
The Group’s carbon footprint, absolute Scope 1 and Scope 2 CO2e emissions,
reduced by 2% year-on-year, from 270.7 to 265.3 ktCO2e. Further details are included
in the Sustainability report.
Definition
Carbon footprint is defined as the kilotonnes of CO2 equivalent emissions.
CO2 equivalent emissions are calculated by taking electricity, fuel and process
gas consumption data and multiplying by relevant conversion factors.
Further details are included in the Sustainability report.
Free cash flow
(£m)
1
.
3
2
1
5
.
2
2
1
1
.
6
0
1
0
.
5
0
1
0
.
4
8
’19
’20
’21
’22
’23
Total Reportable
Incident Rate (TRIR)
0
9
.
2
2
8
.
2
2
5
.
2
7
7
.
2
0
3
.
2
’19
’20
’21
’22
’23
Carbon footprint1
(ktCO2e)
6
.
6
5
3
.
5
4
9
2
9
.
4
8
2
7
.
0
7
2
.
3
5
6
2
’19
’20
’21
’22
’23
1 CO2e emissions for 2019–2022 have been
restated in line with the Group’s emissions
calculation methodology and using
appropriate CO2e conversion factors for
the years presented here. See page 40
for details.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Our stakeholders
How and why we engage
Building strong, positive relationships with Bodycote’s key stakeholders
is essential to achieving long-term success.
Employees
Their interests
– Health and safety at work
– Employee development/engagement
– Wages, benefits and social packages
– Career opportunities
– Training opportunities
– Reputation of the organisation
– Sustainability
– Diversity and inclusion
Customers
Their interests
– Value-enhancing services and satisfaction of
their needs
– Service performance, efficiency and quality
– Commitment to sustainability and
emissions reduction
– Supply chain transparency
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 meet their expectations and make the right
business decisions. This helps us to retain and
develop the best talent.
How we engage
– Employee Engagement Groups and
Town Hall meetings
– Annual individual performance reviews
– Works councils and their representatives
– Intranet and communications, suggestion boxes
and grievance mechanisms
– Annual Report and Accounts
– Environment, health and safety briefings
and trainings
– Social media communications
Reason for engagement
We collaborate with our customers to improve our
customers’ product characteristics and to develop
a project pipeline.
Investors
Their interests
– Financial performance and financial returns
– Effective capital allocations and dividends
– Commitment to sustainability and climate change
– Mergers and acquisitions
– Health and safety performance
– Governance and transparency
– Sustainability of performance
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
understand our strategy and performance well.
How we engage
– Through ongoing customer
relationship management
– Participation in industry forums and trade events
– Surveys of customer satisfaction
– Customer marketing communication programme,
including utilisation of our corporate website
– Engaging with our customers helps us to
understand their needs and identify opportunities
and challenges
How we engage
– Annual General Meeting
– Annual Report and Accounts
– Results presentations and regular engagement
with top shareholders
– Investor communications and our
corporate website
– Meetings throughout the year with existing and
prospective shareholders and banking partners
– Press releases
(including regulatory announcements)
– Addressing enquiries regularly
Reason for engagement
Bodycote operates in a very large number of local
communities across the world, and we aim to
ensure that the business is seen as something that
contributes positively to these communities and
their inhabitants.
How we engage
– Employee engagement activities
involving families
– Employee volunteering in local communities
– Local site community activities
– Our corporate website
Society/Communities
Their interests
– Positive social impact
– Employment opportunities
– Future talent pipeline
– Minimised environmental impact in the locations
where we operate and on the global community
– Safety, health and environmental performance
– Individual employee volunteering
– Corporate website
– Local site community activities
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Strategic report
Governance
Financial statements
Additional information
A component journey
On solid foundations – Transmission shafts
Transmission shafts form part of the drivetrain of all vehicles. In this example, we will look at how these hard
working components are given a longer lifetime as part of powerful construction vehicles, such as excavators,
through heat treatment and metal joining processes. Transmission shafts are an excellent example of thermal
processing’s contribution to value engineering. The Electron Beam Welding (EBW) process, in particular,
allows the fabrication of a high performance component from two pieces, thereby avoiding machining from
solid which is both wasteful and expensive.
The shafts begin life as
high grade steel alloy forgings.
The forged steel part
is then machined into its
near net shaft shape and
sent for heat treatment.
The shafts require carburising
to increase their wear resistance
and impart high hardness properties.
They are then quenched and tempered
to remove internal stresses.
Shafts requiring an EBW operation
after heat treatment are first
selectively chemically coated to
prevent carbon penetration; this
will ensure a clean electron beam
weld at a later stage.
The parts undergo automatic
shaft straightening to correct
any distortion caused by high
processing temperatures.
The shafts are machined
again to achieve final
engineering dimensions.
End application,
construction vehicles
such as an excavator.
The shafts need assembly with their
gear or drum using EBW. The parts are
ultrasonically cleaned and measured to
ensure no contamination of the parts
during the EBW vacuum process
which fuses the parent metal of the
parts together.
Denotes the parts of the component journey undertaken by Bodycote
Bodycote plc Annual Report 2023
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Compliance with Directors’ duties
Section 172 statement
Strategy
Performance
People
Governance
In determining the Group’s strategic
direction, and the sustainability
of our business model, the Board
is conscious of its collective
responsibilities to all stakeholders,
seeking to ensure that corporate
and management structures are
in place for our strategy to be
implemented effectively.
At each Board meeting, progress
against our strategic priorities
and the changing shape of the
business portfolio is reviewed.
This approach, together with the
Board’s approval of the Company
strategy, helps the Board to promote
the long-term success of the Group.
Board decisions are ultimately taken
against the backdrop of what it
considers to be in the best interest
of the long-term financial success of
the Company and each of the Group’s
stakeholders. The Company’s strong
underlying financial position enables
us to pursue new opportunities for
the Group within our disciplined
financial framework.
A core pillar of the Group’s strategy
is growth via selected acquisitions.
As an organisation, we endeavour
to drive performance through the
communication of clear objectives and
skills development.
We are committed to continuous
improvement and the Board regularly
reviews and monitors the Group’s
safety, reliability and environmental
performance, with the aim of making
Bodycote safer for our entire workforce
and minimising our impact on
climate change.
In 2023, the Group recorded a TRIR of
2.8 (2022: 2.5). There was an increase
in the number of incidents relating to
the manual handling of parts, slips,
trips and falls, and lifting operations.
We remain focused on delivering
targeted and timely employee
engagement to tackle the occurrence
of these sorts of incidents. The safety,
health and wellbeing of our employees
will always be our highest priority.
This is important to our workforce
and local communities, while strong
operational availability and reliability is
crucial to our partners and customers.
The Board’s oversight ensures
the Group continues to focus on
maintaining financial discipline and
delivering strong earnings, cash flow
and returns to shareholders.
As a service business, it is our
people, their attitude, capabilities
and skills, who are the key to
our success. Our people help us
maintain our strong reputation
for high standards of business
conduct, which is fundamental in
delivering our purpose to support
our customers in producing superior
components. We are committed to
ensuring we have safe and effective
working environments, which
enable everyone to perform to their
true potential.
Bodycote operates divisional
Employee Engagement Groups
which are chaired by a Non-Executive
Director. The feedback from these
forums is reported to the Board, with
Executive Directors charged with
addressing any particular items that
arise. In 2023 these forums were
held virtually. Feedback was generally
positive with no material concerns
expressed by employees during
the year.
The Board believes that strong
governance is essential to the success
of our business and recognises
that the Group’s long-term success
depends on a commitment to good
governance standards. The Board sets
the tone of the Company with regard
to our governance framework.
Our governance framework
underpins good governance practices
and enables the Board to provide
effective stewardship of the Company.
It drives the highest levels of business
standards and best practices, aligning
these with Bodycote’s business
purpose, values, strategy and culture.
The Board assesses and monitors
culture and looks to obtain useful
insight through effective dialogue with
our key stakeholders, taking feedback
into account in the Board’s decision-
making processes.
The Board understands the benefits
of annual performance evaluations
and, in 2023, undertook an internal
evaluation process. The Board
discussed the findings of this review,
with recommendations including the
review of longer-term strategy,
applying greater focus to ESG topics
and their potential role in strategy and
additional emphasis on succession
planning. An external evaluation
process will be conducted during 2024.
Relevant section 172 factors
Decision-making
The Board
(including delegation of authority)
Decision-making
Engagement
Employees
Customers
Investors
Society/Communities
The knowledge, capabilities,
expertise and skills of our employees
are a major part of the Group’s
intangible value. We work to attract,
develop and retain the best talent,
equipped with the right skills for the
future. Our people have a crucial role
in delivering against our strategy and
creating value. Our remuneration
policies have been designed to
support the Group’s strategy, in
alignment with the Company’s
purpose, values and culture to
promote the long-term success
of the organisation.
We provide our services to the
aerospace and defence, automotive
and general industrial markets.
Working closely with our customers,
and seeking their feedback, we
are better able to understand their
evolving needs so we can continually
improve and adapt to meet them,
finding solutions to create value and
improve their overall experience.
Delivering an attractive return
is a core priority for the Board.
Our investment proposition builds
upon our strengths to create value for
shareholders, with capital rewarded
through dividends and share price
increases. We communicate progress
on our financial and non-financial
plans to cultivate the support of our
investors, analysts, banks and proxy
voting agencies.
We are committed to building
positive relationships with the
communities where we operate.
We consult through our plant
network to better understand
and manage the social impacts
of our business and gain valuable
perspectives on the ways in which
our activities could impact the local
community or environment.
£308m
in annual staff costs
>40,000
customers worldwide
£41m
in dividends paid in the year
>165
facilities in 22 countries
20
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Section 172 cross-reference
The Board, in line with its
duties under section 172 of the
Companies Act 2006, must act
in the way it considers, in good
faith, would most likely promote
the success of the Company
for the benefit of shareholders.
Our Directors must also have
regard to the likely long-term
consequences of their decisions,
and the impact that these may
have on the Company’s
key stakeholders.
We believe that by understanding
what matters to our key
stakeholders, we are better able
to secure long-term success
for the Group. We place a
strong emphasis on proactive,
transparent, and open
engagement with our key
stakeholder groups, which in
turn promotes mutually beneficial
relationships and value.
Further information about how
these duties have been applied
can be found throughout this
Annual Report.
Section 172 duties
Key examples
Consequences of decisions in the long-term
Interests of employees
Fostering business relationships with suppliers,
customers and others
Impact of operations on the community
and the environment
Maintaining high standards of business conduct
Acting fairly between members
Strategic progress
Board activities in the year
Financial report
Going concern and viability statements
Principal risks
Chair and Chief Executive statements
Our stakeholders
Sustainability report
Board activities in the year
Our stakeholders
Sustainability report
Board activities in the year
Sustainability report (including TCFD report)
Sustainability report
Corporate governance statement
Shareholder engagement
Page
13, 15-17
20, 57, 59
25-27
27, 33
28-32
10-12
18
35-42
18, 20, 62
10-12, 18
35-42
58-61
35-52
35-42
56
18-20
The table on page 18 sets out our key stakeholder groups and how they were engaged with directly and indirectly by the Board throughout
the year.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Business review
Bodycote has more than 165
facilities around the world, which are
organised into two customer-focused
businesses: the ADE business
and the AGI business.
Our ADE business focuses on aerospace, defence and energy
customers, who typically operate globally. Our AGI business
focuses on automotive and general industrial customers.
These include many multinational companies that tend to typically
operate on a regionally focused basis and numerous medium-sized
and smaller businesses, 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. 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.
The ADE business
ADE revenue by market
sector and geography
£m
Bodycote services all of the major
manufacturers in the aerospace industry as
well as a large portion of their supply chains.
The following review reflects constant currency growth rates
unless stated otherwise.
Revenue in 2023 was £355.5m, an increase of 14% (14% at actual
exchange rates) with strong growth in civil aerospace, oil & gas
and medical revenue.
Headline operating profit increased to £69.5m (2022: £50.8m),
and headline operating margin increased to 19.5% (2022: 16.2%)
and 21.0% excluding the revenue effect of energy-related
surcharges (2022: 16.9%), reflecting higher aerospace volumes
as well as improved pricing and operational performance in our
Surface Technology business. Statutory operating profit increased
to £63.1m (2022: £44.0m).
We spent £13.4m on expansionary capital expenditure, with
significant investment in capacity growth for the North American
Specialist Technologies business.
Return on capital employed increased to 15.5% (2022: 11.9%)
as a result of the improved profitability.
Market sector
Aerospace and Defence
Automotive
General Industrial (including energy)
Total
Geography
Western Europe
North America
Emerging Markets
Total
197.9
13.2
144.4
355.5
185.1
162.8
7.6
355.5
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
The AGI business
AGI revenue by market
sector and geography
£m
Market sector
Aerospace and Defence
Automotive
General Industrial (including energy)
Total
Geography
Western Europe
North America
Emerging Markets
Total
16.0
181.4
249.6
447.0
254.6
102.4
90.0
447.0
Bodycote has a long and successful history
of servicing its wide-ranging customer base.
Our extensive network of facilities enables the business to offer
customers the broadest range of capability and security of supply.
Each of our AGI facilities works with 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 £447.0m, an increase of 4% on the prior year
(4% at actual exchange rates). There was good growth in the first
half of the year, led by automotive sales in Eastern Europe, with a
softening in the second half due to weaker industrial end-markets.
Headline operating profit was £79.3m (2022: £80.8m), and headline
operating margin declined slightly to 17.7% (2022: 18.7%) and
19.6% excluding the revenue effect of energy-related surcharges
(2022: 20.4%), impacted by the low volume levels in the second
half of the year. Statutory operating profit declined to £77.6m
(2022: £78.2m).
We spent £14.4m on expansionary capital expenditure,
with ongoing expansion in Emerging Markets, particularly in
Eastern Europe and China.
Return on capital employed was broadly stable at 17.8%
(2022: 18.2%).
23
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Strategic report
Governance
Financial statements
Additional information
A component journey
Rock solid – Drill bits
Erosion in drill bits presents a serious challenge in mining when productivity is crucial. Rotary blasthole
drills operate in variable ground formations. Bodycote’s carburising treatment increases the wear resistance
of the drill bit parts, thus extending product life and operating efficiencies.
The drill bit components begin life
as casehardening steel forgings.
The bit legs and
rollers are machined to
achieve the design required
for best performance
through difficult terrain.
The parts undergo a painting
operation to prevent hardening
the sections which require
better ductility.
A 3D printed insert is applied
as masking to ensure that
only the unpainted areas
will be treated in the
carburising process.
Carburising increases
the surface hardness,
or wear resistance,
in the drill bit. Oil quench
immediately follows.
Before returning the
parts, Bodycote inspects
and performs quality checks
for hardness.
End application,
rotary blasthole
drilling rigs.
Denotes the parts of the component journey undertaken by Bodycote
24
24
Bodycote plc Annual Report 2023
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Chief Financial Officer’s report
A year of improved margins
and strong cash generation,
which further strengthened
the Group’s financial position.
B. Fidler
Chief Financial Officer
Financial overview
Revenue
Headline operating profit
Amortisation of acquired intangible assets
Acquisition costs
Operating profit
Net finance charge
Profit before taxation
Taxation charge
Profit for the year
2023
£m
802.5
127.6
(8.1)
(0.3)
119.2
(7.5)
111.7
(24.9)
86.8
2022
£m
743.6
112.2
(9.3)
(0.9)
102.0
(6.7)
95.3
(21.0)
74.3
Group revenue increased to £802.5m, growth of 7.9% at actual exchange rates and 8.3% at constant currency.
Headline operating profit for the year increased 13.7% to £127.6m (2022: £112.2m), representing growth of 16.7% at constant currency.
This saw the Group deliver further improvement in headline operating margin to 15.9% (2022: 15.1%) reflecting the benefit of increased
volumes, pricing and improved operational efficiencies. Statutory operating profit increased to £119.2m (2022: £102.0m).
The Group continued to recover cost inflation during the year through a combination of pass through energy surcharges and sustainable price
increases. Excluding the revenue impact of energy surcharges, headline operating margins rose by 120 bps to 17.3% (2022: 16.1%).
25
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Chief Financial Officer’s report continued
Net finance charge
The net finance charge increased modestly to £7.5m (2022: £6.7m),
analysed in the table below:
Interest on loans and bank overdrafts
Interest on lease and pension liabilities
Financing and bank charges
Total finance charge
Interest received
Net finance charge
2023
£m
(2.7)
(2.7)
(2.9)
(8.3)
0.8
(7.5)
2022
£m
(2.3)
(1.8)
(3.0)
(7.1)
0.4
(6.7)
The increase in interest charges during the year was driven primarily
by higher underlying interest rates on the Revolving Credit Facility
drawings and on leases. These were partly offset by an increase in
interest received on cash deposits during the year.
Profit before taxation
Headline profit before taxation
Amortisation of acquired intangibles
Acquisition costs
Profit before taxation
2023
£m
120.1
(8.1)
(0.3)
111.7
2022
£m
105.5
(9.3)
(0.9)
95.3
Headline profit before tax increased by 13.8% to £120.1m
(2022: £105.5m), growth of 17.2% at constant currency. Statutory
profit before taxation increased to £111.7m (2022: £95.3m).
Taxation
The tax charge for the year was £24.9m (2022: £21.0m). The headline
tax rate for the Group was 22.5% (2022: 22.3%), before accounting
for amortisation of acquired intangibles, acquisition costs and
exceptional items. This was in line with our expectations. The Group’s
overall tax rate reflects the blended average of the tax rates in the
jurisdictions around the world in which the Group trades and
generates profit. Looking ahead, the headline tax rate is expected to
moderately increase over the next few years mainly due to growth in
the US business and an increase in the UK corporate tax rate.
The effective statutory tax rate was 22.3% (2022: 22.1%).
Provisions of £26.4m (2022: £28.1m) are carried in respect of
potential future additional tax assessments related to ‘open’
historical tax years. Note 6 of the consolidated financial statements
provides more information.
The OECD Pillar II proposals for a global minimum tax rate are
applicable to the Group from 1 January 2024. The changes are not
expected to have a material impact on the Group’s tax charge in 2024.
Earnings per share
Basic headline earnings per share rose 13.3% to 48.4p (2022: 42.7p)
as a result of the higher headline operating profit. Basic earnings per
share for the year increased to 45.1p (2022: 38.6p). Note 8 of the
consolidated financial statements provides further details of the basis
of these calculations.
Profit before taxation
Taxation charge
Profit for the year
Basic headline EPS
Basic EPS
26
2023
£m
111.7
(24.9)
86.8
48.4p
45.1p
2022
£m
95.3
(21.0)
74.3
42.7p
38.6p
Return on capital employed
Return on capital employed rose by 150 bps in the year to 14.8%
from 13.3% in 2022. The increase reflected improvement in headline
operating profit together with the Group’s ongoing discipline over
capital expenditure projects, focused on delivering the Group’s
strategy and driving attractive returns.
Cash flow
Headline operating profit
Depreciation and amortisation
Other, including impairment and profit
on disposal of PPE
Headline EBITDA1
Net maintenance capital expenditure
Net working capital movement
Headline operating cash flow
Restructuring
Financing costs, net
Tax, net
Free cash flow
Expansionary capital expenditure
Ordinary dividend
Acquisition spend
Own shares purchased less SBP and others
Reduction in net debt
Opening net debt
Foreign exchange movements
Closing net debt
Lease liabilities
Net cash/(debt) excluding lease liabilities
2023
£m
127.6
74.0
(2.7)
198.9
(57.7)
(1.7)
139.5
(1.6)
(6.4)
(9.0)
122.5
(27.8)
(40.6)
(0.1)
(8.1)
45.9
(99.4)
1.8
(51.7)
64.3
12.6
2022
£m
112.2
74.9
3.0
190.1
(52.2)
(25.3)
112.6
(7.4)
(5.8)
(15.4)
84.0
(22.1)
(38.5)
(0.9)
1.7
24.2
(116.4)
(7.2)
(99.4)
66.0
(33.4)
1 Refer to page 153 of the Annual Report for a reconciliation of operating profit to
Headline EBITDA.
Improving cash flow conversion has been a significant focus during
2023 and reflecting this, cash generation improved materially in the
year. Headline operating cash flow rose to £139.5m (2022: £112.6m),
as a result of higher headline operating profit and improved working
capital control through better receivables collection. Headline
operating cash flow conversion improved to 109% (2022: 100%).
The statutory measure, net cash from operating activities, rose to
£191.6m (2022: £142.9m).
The Group generated a strong increase in free cash flow to
£122.5m (2022: £84.0m) for the year with free cash flow conversion
of 96% compared to 75% for 2022. Net tax payments in 2023 were
£9.0m (2022: £15.4m) with the reduction reflecting receipt of tax
refunds relating to prior years.
Closing net debt was £51.7m (2022: £99.4m). Excluding lease
liabilities, the Group moved from a net debt position in the prior year
of £33.4m to a net cash position of £12.6m, an improvement of
£46.0m. This improved balance sheet position was achieved after
paying £40.6m of dividends to shareholders and deploying £13.2m
for the purchase of 2 million shares for the Employee Benefit Trust to
satisfy future share-based payments under the Group’s share incentive
schemes (at an average price of £6.61).
Going forwards from 2024, the Group will amend its definition
for both headline operating cash flow and free cash flow to
include expansionary capital expenditure as well as maintenance
capital expenditure. This will better align the Group with normal
market practice.
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Expansionary capital expenditure
The Group invested £27.8m (2022: £22.1m) in expansionary capital
projects. Over 80% of the expansionary spend was deployed in our
strategic focus areas of Specialist Technologies, Emerging Markets,
civil aerospace and electric vehicles.
Total capital expenditure in the year (including both maintenance and
expansionary) was £85.5m (2022: £74.3m). The Group remains
committed to maintaining its assets to the highest standards of
quality and safety.
Dividend and dividend policy
The Group has a long and stable track record of dividend growth and
aims to pay ordinary dividends so that dividend cover will be at or
above 2.0 times earnings on a ‘normalised’ multi-year basis.
In line with this policy, the Board has recommended a final dividend
of 16.0p (2022: 14.9p), bringing the full year dividend to 22.7p
(2022: 21.3p). The interim dividend of 6.7p, approved by the Board on
27 July 2023, was paid on 10 November 2023 to shareholders on the
register at the close of business on 6 October 2023. Subject to
shareholder approval at the 2024 AGM, the final dividend will be paid
on 6 June 2024 to shareholders on the register at the close of
business on 26 April 2024.
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 financing at a reasonable cost, based on
committed and uncommitted facilities and loans to be procured from
several sources over a spread of maturities. The Group continues to
have access to committed facilities at competitive rates and currently
deems this to be the most effective means of long-term funding.
At 31 December 2023, the facility was drawn as follows:
Facility
Revolving Credit
Facility
Expiry
date
27 May
2027
Facility
£m
Facility
utilisation
£m
Facility
headroom
£m
250.9
32.1
218.8
Post balance sheet events – acquisition
and share buyback
Bodycote announced completion of the acquisition of Lake City
in January 2024 for total gross consideration of £52.2m on a cash
and debt free basis, which was settled through the Group’s existing
cash balances and borrowing facilities.
Reflecting the Group’s strong financial position and demonstrating a
disciplined and balanced approach to capital allocation, Bodycote also
announced in January 2024 its intention to launch a share buyback
programme of up to £60m. This will commence on 15 March 2024.
Alternative performance measures
Bodycote uses alternative performance measures such as revenue
excluding surcharges, organic revenue, headline operating profit,
headline operating margin, headline operating margin excluding
surcharge revenue, basic headline earnings per share, headline profit
before taxation, headline operating cash flow, headline operating cash
conversion, free cash flow, free cash flow conversion, net debt and
return on capital employed together with current measures restated at
constant currency. The Directors believe that these assist users of the
financial statements to gain a clearer understanding of the trading
performance of the business, allowing the impact of restructuring and
reorganisation activities and amortisation of acquired intangible assets
to be identified separately. These alternative performance measures
can be found on page 152.
Going concern
As described on page 104 of the consolidated financial statements,
the Directors have formed a judgement, at the time of approving the
financial statements, that there are no material uncertainties that cast
doubt on the Group’s going concern status and that it is a reasonable
expectation that the Group has adequate resources to continue in
operational existence for at least the next 12 months. In making this
judgement, they have considered the impacts of potential severe but
plausible consequences arising from the Group’s activities. For this
reason, the Directors continue to adopt the going concern basis in
preparing the consolidated financial statements.
In addition to the Revolving Credit Facility, the Group also has access
to an additional committed facility of £9.7m (£0.2m drawn) bringing
total committed facility headroom to £228.3m at 31 December 2023
(2022: £185.8m).
B. Fidler
Chief Financial Officer
15 March 2024
27
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Principal risks and uncertainties
Emerging risk
Bodycote’s emerging risk identification process is based on horizon
scanning. Each emerging risk is assessed based on its potential
impact on the Group on a high, medium or low rating across three
time horizons: 0-2 years; 2-5 years; and more than five years.
This process takes place alongside the annual risk review, with
emerging risks being considered in facilitated risk workshops
conducted with the Executive Committee. This review helps to ensure
that any new and emerging risks are appropriately identified and
ensures close monitoring of any emerging risks to ensure appropriate
mitigating actions are undertaken.
The Board has highlighted geopolitical risk, specifically, the
unpredictable geopolitical landscape and the uncertainty over future
global events as an emerging risk. If tensions in the geopolitical
landscape result in the implementation of aggressive trade barriers
that reduce the movement of goods, this could result in customers
shortening their supply chains and moving them closer to their main
production locations. The emerging risk is mitigated by the fact that
Bodycote has a global network of sites which allow us to service
customers from multiple locations, such that the residual risk
exposure is not considered significant.
No additional emerging risks were identified in 2023. The risk of
global pandemics and their impact on both supply chain issues and
operations are no longer considered as either an emerging nor
principal risk for the Group. Bodycote has demonstrated the ability to
respond to and manage its cost base well through the COVID-19
pandemic. Additionally, the following two risks are no longer
considered as emerging and are now included in our principal risks:
1 the acceleration in the transition to electric vehicles
(markets and customers); and
2 continued environmental activism and increased focus
from both regulators and the investment community around
climate change (environment).
The following tables set out a description of the Group’s principal risks
and related mitigation measures, as agreed by the Board, and describe
how these principal risks may affect Bodycote’s ability to deliver its
strategy. The risk rating sets out the direction of change from 2022.
Refer to page 14 for further information on our strategic priorities.
The Board is responsible for the Group’s risk management,
determining the Group’s risk appetite and ensuring that the Group
risk process and systems of internal control are robust, continuously
monitored and evolve to address changing business conditions and
threats. The Board also provides direction and sets the tone on the
importance of risk management. The review of financial risk has been
delegated to the Audit Committee. The Executive Committee has
taken ownership of specific business risks. Each risk is evaluated
based on its likelihood of occurrence and severity of impact on the
Group‘s strategy. Risks are then assessed at both a gross and net
level, i.e. before and after the effect of mitigation. This approach allows
the identification and consistent evaluation of significant and principal
risks, as well as consideration of the effect of current lines of defence
in mitigation. Internal audit provides independent assurance to help
ensure that the Group’s risk management, governance and internal
control processes are operating effectively. The Executive Committee
also assists in the identification and evaluation of principal risks and
controls as part of the Group’s risk assessment and risk
management processes.
An update is provided at every Executive and Audit Committee
meeting on the Group’s risk activities. A comprehensive review
of the Group’s current and emerging risks is also presented to,
and discussed with, the Board in June and December. The Board
is satisfied that an ongoing process of identifying, evaluating and
managing the Group’s significant risks has been in place throughout
2023 and a robust assessment of both the Group’s principal and
emerging risks has been undertaken.
Details of the Group’s financial risks (liquidity, credit, interest rate
and currency), which are managed by the Group’s treasury function,
are provided in note 18 to the consolidated financial statements.
The mitigating activities described in this report will 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.
Key events in the year
Inflation has remained at a high level leading to further increases in
certain of the Group’s input costs, which have been successfully
recovered through pricing. The Ukraine war continues and geopolitical
tensions intensified in certain regions of the Middle East during the
second half of the year. Bodycote has no direct exposure to any of
the countries involved and has no facilities, customers, or suppliers in
these territories.
There has been a continued increase in interest rates following the
aggressive rate rises implemented during 2022 by numerous central
banks to curb inflation. In the last quarter of 2023, monetary policy
interventions appear to have eased inflation rates, with many
central banks indicating that further rate hikes may not be required.
Bodycote has continued to manage inflationary cost pressures well
through annual price increases to recover rising labour and other
costs and the energy surcharge programme, implemented in 2022,
which has enabled recovery of energy cost inflation in the year.
28
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Risk description
Risk rating
Mitigation and control
Stable
The high proportion of short-term
fixed costs in the business means
that a movement in sales can
have a significant impact on the
Group’s profitability.
High levels of cost inflation exert
pressure on the Group’s profitability
if it is not successfully passed on
to customers.
The Electric Vehicle market
continues to grow strongly, driven
by the general focus on reducing
global GHG emissions resulting in
a shift in consumer spending.
Stable
A number of small and midsized
HIP vessels have been installed
by competitors, but investment in
large HIP vessels has been limited
to date.
The entrance of new competitors
could result in the erosion of
market share with a loss of
revenue and profitability.
Stable
Bodycote is committed to
providing a safe work environment
for its employees.
Market and customer risks
Markets
Bodycote operates in 22 countries.
There is a risk that changes in both
macroeconomic trends and the
economic environment will impact
the end-markets that the Group
serves, and, consequently, the amount
of parts that need to be treated.
These events may result in supply
chain disruptions, rising energy
prices and labour shortages
which can escalate inflationary
pressure on earnings if not passed
on to customers.
The rate of transition from ICE
to Electric Vehicles presents both
a market risk and opportunity to
the Group. Bodycote needs to
maintain progress in building
a strong market position in the
Electric Vehicle supply chain.
Competitor action
The threat of new and existing
competitors into one or more of
the Group’s Specialist Technologies.
Corporate and community risks
Health and safety
The inherent nature of Bodycote’s
activities and the equipment operated
presents safety and health risks.
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.
– Bodycote’s presence in 22 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.
– Bodycote has demonstrated the ability to
manage its cost structure in response to
revenue shocks, supply chain issues and
significant cost inflation, protecting
profitability and returns.
– Restructuring activities in prior years have
been aimed at successfully adapting the
Group’s facilities footprint to respond to
trends in end-markets in order to mitigate
pressure on earnings. Bodycote has a long
track record of passing on cost inflation to its
customers and has acted quickly in the past
to ensure that the surge in cost inflation is
offset by energy surcharges and price
increases to our customers.
– Bodycote continues to focus on increasing
its market share in the Electric Vehicle market
with further new contract awards during
the year.
– The close control of proprietary knowledge.
– Expansion in 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.
– There are high financial barriers to entry.
– Well established Group-wide health and safety
policies ensure continuous improvement of
safety standards, monitoring and investigation
of all events.
– ISO 45001 and ISO 14001 aligned EHS
management systems overseen by the Group
Head of EHS and implemented with support
of divisional environment, safety and
health teams.
– Programme in place to focus on reduction
of incidents which could have a high impact.
– Safety compliance audits at all plants at least
every two years.
Relevance
to strategic
priorities
3
1
4
2
5
2
1
1
Safety and
Climate Change
2
Capitalising on and investing
in our Specialist Technologies
3
Investing in
Emerging Markets
4
Investing in structural
growth opportunities
5
Driving operational
improvement
6
Acquisitions
29
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Principal risks and uncertainties continued
Risk rating
Mitigation and control
Relevance
to strategic
priorities
Risk description
Environment
Climate change
As a thermal processing company,
the Group’s carbon reduction
strategy is of particular importance
to stakeholders, both as a potential
risk and a commercial opportunity.
Climate change poses a range of
potential risks, arising from current
and emerging regulation, technology,
legal, market, reputational, and
physical climate risk drivers,
which could lead to business
disruption, health risks, loss of
reputation and financial costs.
Increasing
Climate change risk continues
to rise in prominence in light of
stakeholders’ expectations,
changing regulations and reporting
requirements, and potential
physical weather-related impacts.
Operational risks
Service quality
The Bodycote brand is reliant on
the repeatable delivery of parts
to agreed specification within
an agreed time period.
There is a risk that Bodycote fails
to meet the needs of customers
in terms of quality, delivery,
innovation and problem-solving.
Stable
The risk of poor quality, poor
service levels or non-compliance
with agreed specifications can
cause serious long-term damage
to Bodycote’s reputation with
financial consequences such as
customer loss or the cost of
damages or litigation
Contract review
There is risk that parts are not treated
according to contractually agreed
specification or additional customers’
amendments.
Stable
Non-compliance with agreed
specifications or failure to update
the process at a plant to comply
with specification changes
requested by the customer may
potentially lead to parts being
rejected or failing, which could
result in material claims against
Bodycote with significant
reputational damage, financial
penalties and a loss of
future revenue.
– Centre of expertise established to drive
climate-related activity. Risk and Sustainability
Committee supports execution of strategy.
1
– SBTi-validated Scope 1 and Scope 2 emissions
reduction target – 28% reduction by 2030.
– A climate scenario process established to
support the identification and mitigation of
potential risks (see the TCFD report on
pages 43 to 52).
– Climate-related stakeholder communications,
in alignment with internationally
recognised standards.
– Adherence to the ISO 14001 standard for
environmental impact management (98%
of the Group’s facilities are accredited).
Remediation of contaminated sites continues.
– Bodycote has stringent quality systems in
place managed by qualified staff.
5
– Quality systems and processes are operated
within our plants with strong oversight by our
divisional quality teams.
– Where necessary, our plants maintain industry
relevant accreditations, such as ISO 9001,
Nadcap and IATF 16949.
– Each facility undergoes regular audits
by quality staff, accreditation bodies
and customers.
– Each facility has a robust quality management
system with regular audits by quality staff,
accreditation bodies and customers.
5
– Bodycote carefully negotiates terms and
conditions associated with the supply of
services to its customers, carefully managing
potential liabilities.
– Certain potential damages resulting from this
risk are fully or partially covered through the
Group’s various insurance policies.
1
Safety and
Climate Change
2
Capitalising on and investing
in our Specialist Technologies
3
Investing in
Emerging Markets
4
Investing in structural
growth opportunities
5
Driving operational
improvement
6
Acquisitions
30
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Risk description
Risk rating
Mitigation and control
Relevance
to strategic
priorities
Stable
Should a number of facilities fail
to maintain their accreditations,
customers could potentially move
work to a competitor resulting in
a loss of revenue to Bodycote.
Stable
Any significant incident at a site
could result in the service to
Bodycote’s customers from the
affected site being disrupted.
Stable
Significant periods of equipment
downtime would impact customer
service and revenue.
Operational risks continued
Loss of key accreditations
Bodycote is required to maintain
specific accreditations in order to
provide heat treatment and thermal
processing services on parts for
certain customers.
Failing to keep such accreditations
would prevent Bodycote from
delivering services to customers
in these markets.
Major disruption at a facility
Bodycote’s facilities are subject to
man-made and natural hazards that
could lead to their potential closure.
Some 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, some
facilities are exposed to natural
hazards, such as earthquakes,
flooding and storms.
Machine downtime
Bodycote relies upon its operational
equipment, across its network of
plants, being available to meet the
requirements of its customers.
Therefore unexpected equipment
downtime would potentially affect
Bodycote’s ability to service its
customers. Moreover, without
an effective preventative maintenance
programme there is a risk that
equipment redundancy plans
would need to be built into facility
management in order to cope
with equipment breakdowns.
– Each facility has a robust quality management
system with regular audits by quality staff,
accreditation bodies and customers.
5
– Should a facility fail an accreditations audit
a remediation plan to fix any non-conformities
is implemented.
– Bodycote has a global network of more than
165 facilities enabling work to be transferred
to another accredited facility.
4
5
4
5
– Business continuity plans are in place
for all plants.
– Independent insurer physical inspections
of facilities to assess hazard and business
interruption risks have been conducted
during the year.
– Insurance cover, including business
interruption cover.
– Scheduled equipment maintenance
and inspections.
– Bodycote’s global network of more than
165 facilities creates a framework to provide
backup capability if required.
– Preventative maintenance programmes
mitigate the risk of downtime occurrence
associated with major breakdowns ensuring
business continuity and customer satisfaction.
– Spare parts replenishment programme
ensures efficient maintenance activities occur
according to plan.
– Bodycote’s global network of facilities with
robust business continuity plans help to
minimise the impact of equipment downtime
on customer service. If required, customer
work can be transferred to another facility
within the network.
1
Safety and
Climate Change
2
Capitalising on and investing
in our Specialist Technologies
3
Investing in
Emerging Markets
4
Investing in structural
growth opportunities
5
Driving operational
improvement
6
Acquisitions
31
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Principal risks and uncertainties continued
Risk description
Risk rating
Mitigation and control
Relevance
to strategic
priorities
Information technology
and cybersecurity
The Group relies upon its IT systems,
including a range of ERP solutions,
to manage its operations. IT systems
interruptions could lead to business
process disruption and interruption
to key business services.
A cyber attack could result in
compromised data, theft, manipulation
or destruction of confidential and
sensitive information and severely
disrupt business operations.
Increasing
There is an increasing global risk
of sophisticated cyber attacks,
including ransomware and phishing
with the complexity of these
attacks rising.
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 and
financial loss.
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, employment
law and import and export controls.
The Group also has to comply with
taxation legislation and the advantages
associated with the UK’s controlled
foreign companies that the Group has
employed in its financing structures.
Stable
Failure to comply with current and
new legislation could lead to
substantial financial penalties,
disruption to business, diversion
of management time, personal
and corporate liability and loss
of reputation.
5
5
– The Group has robust governance processes
to ensure that IT projects are adequately
reviewed and approved to ensure that they
are consistent with the Group’s IT strategy.
– Increased focus on IT security management
processes, including regular testing and
threat assessments.
– Increased training and awareness programmes
are provided for our users.
– Bodycote maintains a focus on improving
information security and has well-protected
data centres supported by effective business
recovery planning and data backup procedures.
– Business processes are supported by Human
Resources policies and the Group Code of
Conduct alongside training and
awareness programmes.
– The ‘Open Door Line’ whistleblower facility
operated by a third-party.
– Engagement of specialists (lawyers,
accountants, tax specialists, trade compliance
consultants and freight forwarders) to support
Bodycote at local, divisional and Group levels.
– Regular audits of the effectiveness of
implemented procedures.
– Regular assessment of the changes required
to comply with the UK Corporate Governance
Code and related potential impacts on
the Group.
1
Safety and
Climate Change
2
Capitalising on and investing
in our Specialist Technologies
3
Investing in
Emerging Markets
4
Investing in structural
growth opportunities
5
Driving operational
improvement
6
Acquisitions
32
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Viability statement
In preparing this statement of viability, the Directors have considered
the prospects of the Group over the five-year period immediately
following the 2023 financial year. This longer-term assessment process
supports the Board’s statements on both viability, as set out below,
and going concern (on page 27). The Directors have determined that a
five-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 five years would not be
meaningful for the purpose of concluding on longer term viability.
The base case forecasts which underpin this assessment are based
on the Board approved 2024 budget and the Board approved five-year
strategic plan. These reflect the acquisition of Lake City and the £60m
share buy-back, which is assumed to be completed over a 12-month
period ending March 2025. These projections reflect ongoing growth in
the Group’s end markets over the forecast period. The performance of
the Group over the period of the assessment has then been assessed
against the covenants that exist in the Group’s Revolving Credit
Facility, as explained on page 27, and the Group’s liquidity.
In conducting the review of the Group’s prospects, the Directors
assessed the five-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 52).
This assessment included consideration 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 limited order backlog. The Directors’ viability assessment
included a review of the sensitivity analysis performed on the five-year
financial forecasts. The assessment included two scenarios designed
to stress-test the Group’s base case forecasts, which were as follows:
– A plausible downside scenario which assumes a slow-down in the
global economy, resulting in a fall in 2024 revenues of 12% versus
2023, and a limited revenue CAGR of only 2% over the five-year
period, representing a 20% reduction in revenues versus the base
case over this period. This downside takes account of short-term
negative shock events which are intentionally more severe than
those used in the Group‘s goodwill impairment assessment (set out
on pages 120-122).
– A break-case scenario designed to establish the decline in revenues
required to result in the Group’s liquidity being exhausted or loan
covenants breached. This scenario shows that 2024 revenues would
need to fall 30% below 2023 levels, and demonstrate zero growth
thereafter, before the Group’s leverage ratio covenant is breached
at the end of the five-year review period. Whilst this scenario is not
considered remotely plausible, it was designed to stress-test the
financial resilience of the Group.
In the plausible downside scenario, capital expenditure was
reduced in 2024 versus the base case and dividends were
maintained at the same level as 2023. In the break-case scenario
capital expenditure was reduced in all years, reflecting the reduced
maintenance capital expenditure required in that scenario due to
sustained lower equipment utilisation, and the lower levels of
growth capital expenditure that would be required in this scenario.
In addition, dividends were reduced significantly. No mitigating
actions such as restructuring were included.
In the base case and plausible downside scenario, there were
no breaches to the Group’s covenants, and substantial headroom
was maintained.
In making this viability statement the Directors considered the
other mitigating actions (including, but not limited to, cost reduction
initiatives, further discretionary capital expenditure reduction and the
reduction of dividends) that may be taken by the Group in the event
that the principal risks of the company become realised but note that
none of these actions were modelled in performing the assessment
since the Group maintained substantial headroom in both scenarios.
The Directors also took into consideration the Group’s financial
position at 31 December 2023, with available liquidity of £273.5m
and a history of strong and resilient cash flow generation.
Uncommitted facilities were not taken into account in performing the
assessment. It is noted that the Group’s RCF matures in May 2027,
before the end of the assessment period, however the Directors have
a reasonable belief that, based on previous experience and ongoing
supportive discussions with our lenders, should any debt facility be
required, the RCF will be able to be refinanced or extended.
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 2028.
33
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Strategic report
Governance
Financial statements
Additional information
A component journey
Touch down – 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 material properties are optimised and to protect it during its
working life. Traditionally, the 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.
Alloy Ti billet is forged
to shape.
The part is heat treated
to desired properties.
A thermally sprayed surface
treatment is applied to replace hard
chrome plate for improved wear and
corrosion resistance.
The component is surface
machined using diamond tools
due to the extreme hardness
of the surface finish.
End application,
aircraft.
Denotes the parts of the component journey undertaken by Bodycote
34
34
Bodycote plc Annual Report 2023
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Sustainability report
Bodycote plays an important role in helping customers meet their
sustainability goals. We are a major enabler of avoided emissions –
CO2 can be reduced by up to 60% per part when processed by Bodycote.
Outsourcing to Bodycote also directly reduces customers’ Scope 1
and Scope 2 emissions. In 2023, we accelerated our work to develop
digital tools to help customers see opportunities to decarbonise their
processes, while also taking action to reduce the Group’s own
carbon footprint in line with our 2030 science-based target.
Delivering our sustainability agenda
The Group has established a clear governance structure to deliver
its sustainability priorities. The Group’s Executive Committee, led by
the Group CEO, is ultimately responsible for the execution of the
Group’s sustainability activity. During the year, the Group appointed
a dedicated Chief Sustainability Officer to the Committee, who has
functional responsibility for supporting the definition, execution and
communication of the Group’s sustainability agenda. The Group CEO,
and the Chief Sustainability Officer, provide regular updates to the
Board on sustainability matters, including through dedicated sessions
at least twice a year. The Group’s Risk and Sustainability Committee
supports the Executive Committee in coordinating the delivery of
sustainability goals. It meets at least three times a year.
Bodycote recognises the benefit of incorporating ESG measures in
executive compensation. ESG metrics are included in the annual
bonus scheme.
Communications and ratings
Bodycote is committed to transparent communication of our
sustainability policies, actions, and results. Our disclosures align
to our priority sustainability topics, and stakeholder and regulatory
expectations and requirements.
We have augmented our sustainability disclosures this year through
the publication of a ‘2023 ESG Supplement’ document, available on
our website. Disclosures within this are aligned with frameworks
such as the Global Reporting Initiative (GRI) Index, SASB and other
ESG ratings.
S.C. Harris
Group Chief Executive
Our approach
Sustainability is integral to our corporate
strategy and has long been part of our purpose
through the contribution that our services
make in reducing industry’s environmental
impact. Indeed, the Group’s ability to provide
sustainable, lower-carbon services that
increase the lifespan of customer components
is among its greatest opportunities to create
shared value.
The Group’s continued progress in managing its own environmental
impact also delivers significant benefits to the Company itself,
in lowering energy consumption, operating costs and exposure to
financial risks.
Our approach to sustainability targets the areas where we have
the greatest potential to create value for our stakeholders, and is
underpinned by our emphasis on responsible and ethical business
conduct. We prioritise the following areas:
– Our people: we are focused on fostering a safe, healthy
environment in which colleagues can thrive and support in the
delivery of our strategic priorities.
– Our customers: Bodycote offers some of the most energy-efficient
processes available on the market. By using our services, customers
can achieve significant carbon reductions.
– Our environment: effective management of climate and
environment-related issues is key to our operational performance.
We have set a science-based carbon reduction target for 2030.
– Ethical business: we are committed to upholding strong
governance standards, aligning our approach to key sustainability
frameworks and standards, and meeting our legal obligations.
This report provides a summary of the Group’s sustainability
performance. Additional information is provided in the ‘2023 ESG
Supplement’, published at the following address: www.bodycote.com.
The Group’s Task Force on Climate-related Financial Disclosures
(TCFD) report is on pages 43-52.
35
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Sustainability report continued
Our people
The Group’s people strategy is focused on nurturing our employees’
passion for their work, while ensuring a safe and healthy work
environment, and providing opportunities for their ongoing professional
development. Our culture is rooted in our core values, which apply
across the Group. In keeping with our philosophy, our values are
straightforward and focused on what matters most:
– Honesty and transparency: Bodycote lives by a culture of honest
and transparent behaviour. 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.
– Respect and responsibility: We manage our business with respect,
applying an ethical approach to all our dealings and being mindful
of the impact of our actions. We show respect for our customers,
our colleagues, our suppliers and the communities around us.
– Creating value: Creating value is the very essence of our business
and is the focus of our endeavours. We create value for our
customers, our employees, and society more broadly. Ultimately,
we create value for our shareholders, as the owners of our business.
These values provide a framework for sustainable progress.
They are reflected in our people policies and systems and in the
Group’s Code of Conduct.
Health and safety
The safety of our colleagues, contractors and visitors is our
utmost priority. We are committed to continuously improving
our environmental, health and safety (EHS) performance.
The Group manages potential hazards and minimises risks to
employees through the deployment of robust safety management
systems and procedures. We are committed to complying with all local
legislative requirements as a minimum. We require all employees to
accept their responsibility to work safety in line with our global
Occupational Health and Safety Policy, which sets out our standards
for safety rules and work procedures, use of safety equipment,
and contribution to the maintenance of a safe working environment.
We actively encourage the reporting of near misses, unsafe acts or
conditions, and ongoing suggestions for improvement.
The Group’s health and safety performance is monitored at least
monthly as a standing agenda item at Board and Executive Committee
meetings. It is also the first agenda item for monthly Operations
performance reviews, chaired by our Group Chief Executive.
Health and safety management
Bodycote’s EHS management system is aligned with the
ISO 45001 standard for occupational health and safety. It includes
a comprehensive suite of EHS Standards that sets out expectations
for health and safety target setting, procedures and practices
across the Group.
The Group holds ISO 45001 certification covering 30% of its
facilities in Europe. External EHS audits are undertaken through
ISO accreditations at sites where we hold them in accordance with
the re-certification process. Additional audits and site visits are
undertaken by Group Internal Audit and members of the EHS team.
Almost 70 plants in total were audited under the EHS management
system during 2023 (around 43% of operational sites). All of the
Group’s operational facilities undergo an internal EHS audit at least
every two years.
The Group engages employees in health and safety through a range
of activities. Employees working in our facilities participate in ‘Toolbox
Talks’ at least twice a month. These cover a wide range of health and
safety topics including manual handling, hazardous substance disposal
and mental health management. Employee involvement in Toolbox
Talks is monitored by the Executive Committee.
We encourage employees to complete ‘T Cards’ in our facilities if they
spot a potential health and safety risk or have a suggestion to improve
safety. We also hold regular safety awareness events as part of our
colleague engagement activities. Depending on their role, employees
are required to undertake onsite and online learning courses to ensure
they display good health and safety behaviours and remain alert to
potential risks.
Measuring performance
The Group monitors leading and lagging health and safety metrics
to track performance and generate insights for improvement.
We encourage the reporting of all incidents to foster a culture of
transparency among employees. Performance reports are reviewed
by management and the Board on a rolling basis, and include all
incidents that result in injury, as well as incidents that are considered
to have had the potential to cause a serious impact but where no one
has been injured.
36
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Lagging indicators
The total reportable incident rate (TRIR)1 and lost time injury rate (LTIR)
are the two key lagging indicators used to track the effectiveness of
our health and safety practices. TRIR and LTIR rates are calculated in
line with OSHA (Occupational Safety and Health Administration)
standards. The TRIR includes all incidents (comprising of injuries and
illnesses) where there is:
– Lost time: a worker is not able to work the following day or shift,
after the day of the incident;
– Restricted work: a worker is not able to do their usual work due
to the incident; and/or
– Medical treatment: a worker requires specialist medical treatment
(not first aid).
In 2023, the Group recorded a TRIR of 2.8 (2022: 2.5). The LTIR was
1.5 for 2023, compared to 1.2 in 2022. There was an increase in the
number of incidents relating to the manual handling of parts, slips,
trips and falls, and lifting operations, particularly following holiday
periods after colleagues had been away from the workplace.
Delivering targeted and timely employee engagement activities
remains a key area of focus to tackle the occurrence of these sorts
of incidents. The Group also continued to make investments in manual
handling and material handling improvements. In 2023, there were
no fatalities from work-related accidents or ill health among
Bodycote employees or contractors (nor in any of the last five years).
See the ‘2023 ESG Supplement’ publication for more information
about the Group’s EHS management plans.
Total Reportable Incident Rate1
(TRIR)
0
9
2
.
2
8
2
.
2
5
2
.
7
7
2
.
0
3
2
.
’19
’20
’21
’22
’23
Leading indicators
Leading indicators are used to measure employee engagement
and identify opportunities for improvement in health and safety
performance and compliance. Among these, the Group tracks near
miss incidents to address risks before they result in accidents.
There were 356 near misses reported in 2023 (2022: 362).
Colleagues also identified 2,454 opportunities for improvement in
2023 (2022: 1,871), showing an encouraging trend in the rate of
awareness and reporting.
1 The Group has re-named the ‘TRC rate’, which has historically been reported, as ‘TRIR’ for
communication purposes only; the calculation of the rate and the basis of preparation of the
data remains unchanged. TRIR represents the number of reportable cases per 200,000 hours
worked. Bodycote includes all workers within the tracking and reporting of incidents, whether
employees or contractors. The LTIR represents the number of lost time injury incidents per
200,000 hours worked.
Supporting employee health
Bodycote promotes an environment that encourages line management
to support the health and well-being of all employees. We recognise
that individuals work best and can achieve high performance over time
when they are healthy and feel valued.
The Group engages occupational health service providers across all
locations. These service providers vary by region but typically provide
health checks; monitoring for employees who may be exposed to
risks such as noise or hazardous materials; and employee assistance
programmes (EAPs).
The Group also has a range of initiatives in place to support
employees’ wellbeing, including through Company-wide fitness
initiatives that keep employees active. In addition, the Group
promotes wellbeing through regular internal communications on
topics such as managing stress and mental wellbeing.
People management
Bodycote seeks to be a fair employer and promote opportunity and
equality for all in our efforts to attract, develop and retain a diverse
range of people. In so doing, we are committed to fostering an
inclusive and open culture, in which colleagues can thrive and support
the delivery of our strategic objectives.
Employee engagement
The Group follows a regular, formal internal communications
programme to ensure colleagues are kept abreast of important topics.
We use several channels to support communications, including a
bi-monthly group-wide newsletter, and weekly news updates on our
intranet. The Group also publishes important updates via email across
the Group.
Every year, the Group conducts employee feedback sessions with
colleagues, hosted by our designated Non-Executive Director for
workforce engagement. In 2023, around 100 colleagues were
engaged in feedback sessions, including operational and management-
level employees representing the Group’s key functions and locations
around the world. See page 56 for further information.
Developing our people
We are committed to providing the appropriate skills and training to
allow our employees to operate safely and effectively in their roles and
deliver results. Bodycote invests in the training and development of
its people at local and Group levels. Employee training is delivered
through a variety of means, including through interactive online
training modules, face-to-face workshops, and hands-on training
in facilities. The Group also encourages cross-functional and cross-
divisional information sharing to support peer-to-peer learning.
Colleagues joining the business in office-based Group functions and
plant-based managerial functions typically undertake at least five
hours of induction training, including on a core set of mandatory
compliance topics. During the year other colleagues are required to
undertake refresher training in mandatory topics such as those
related to compliance and security and cyber awareness, for example.
Training completion rates for employees in-scope are reported
to the Executive Committee, with appropriate escalation for any
training not completed on time.
The Group recognises the importance of supporting employees
in maintaining a good work-life balance, as part of our talent
management strategy. As part of this, in 2022 the Group introduced a
Remote Working Policy. All eligible office-based employees can work
from the office three days a week, and from home for the remainder
of the week. The policy applies across the Group’s offices globally.
37
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Sustainability report continued
Ethnic diversity
Bodycote meets the Parker Review target for all FTSE 250 boards to
have at least one member from an ethnic minority, with two members
who meet the ONS classification of Asian/British Asian and mixed/
multiple ethnic groups, respectively. Further information regarding
the gender balance and ethnic backgrounds of the Group’s Board
and executive management team in accordance with LR 9.8.6 R(9)
and (10) is provided on page 63.
Employment practices
Bodycote believes all colleagues should be appropriately rewarded for
contributing to our success. We review wage levels and employment
practices against local standards and conduct a pay review process
annually, providing a regular opportunity to consider awards of pay
increases. Bodycote is committed to complying with all applicable
local and national minimum wage regulations at a minimum.
The vast majority of our people are employed by permanent or
fixed-term contracts. As at 31 December 2023, 92% of our workers
were permanently employed by the Company, with the remainder
employed on temporary contracts. The Group typically employs
temporary workers to supplement our permanently employed
workforce during busy periods in the operation, when there is a
requirement for flexible resource to fill vacancies, or to support
special projects.
Our permanently employed staff are provided with a range of benefits,
including paid holiday and life insurance, normally immediately upon
joining but in some cases after a certain time. We also offer tuition
reimbursement schemes for colleagues participating in professional
development courses.
Freedom of association
Bodycote upholds employees’ freedom of association and
recognises their right to collective bargaining. We are committed
to open and constructive engagement with our employees and
their representatives. Around 36% of the Group’s employees are
represented by unions and works councils. Where collective
bargaining agreements are in place, they cover topics such as holiday
entitlement, working hours, paid and unpaid absence, grievances,
and local workplace changes.
See the ‘2023 ESG Supplement’ publication for more information
about the Group’s workplace practices at: www.bodycote.com.
Diversity, equity and inclusion
Bodycote recognises the value of a diverse and skilled workforce and
is committed to creating and maintaining an inclusive and collaborative
workplace culture. We regularly review our recruitment and working
practices to identify how we can continue to attract and retain a
diverse workforce.
Our Equality, Diversity and Inclusion Policy outlines our stance on
maintaining equal opportunities and giving full, fair and impartial
consideration to all employment applicants. Recruitment, training,
reward and career progression are based purely on merit. We embrace
a culture of acceptance and inclusion, accommodating part-time,
agile and flexible working requests where appropriate. As set out in
the Group’s Equality, Diversity and Inclusion Policy, harassment of
any kind is not tolerated.
Bodycote supports employees with policies that fortify our culture
and Core Values. Our policies comply with all current legislation to
engender equal opportunity irrespective of age, race, gender,
ethnic origin, nationality, religion, health, disability, marital status,
sexual orientation, political or philosophical opinions or trade union
membership as well as military and veteran status in North America.
Gender diversity
As at the end of October 2023, female representation on the Board
was 37.5%, up from 33% in 2022, and 38.5% of the Group’s executive
management were female. Among the Group’s population of senior
managers, 31% are female (2022: 33%). Across the workforce,
women represent 21% of employees (2022: 21%).
The Group’s 2022/23 Gender Pay Gap report showed that the UK
mean gender pay gap is -8.6% in favour of women, while the median
gender pay gap is also in favour of women (-6.5%). This compares to
a UK national median gender pay gap of 14.3%.
2023
Male
Female
2022
Male
plc Board
5 (62.5%)
3 (37.5%)
6 (67%)
Female
3 (33%)
Executive
Committee
Senior
managers
(Executive
Committee plus
direct reports)
8 (61.5%) 5 (38.5%)
5 (56%)
4 (44%)
44 (69%)
20 (31%)
33 (67%)
16 (33%)
Other
employees
3,793 (80%) 968 (20%) 3,851 (79%) 1,024 (21%)
Total
3,842 (79%) 991 (21%) 3,890 (79%) 1,043 (21%)
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Our customers
Bodycote has an opportunity, and responsibility, to help industry
disconnect growth from carbon emissions through its services and
expertise. With increasing pressure on companies to decarbonise
their activities to meet emissions targets and align with emerging
legislation, Bodycote plays an important role in helping customers
to reduce emissions across the entire manufacturing process –
from services that reduce their direct (Scope 1 & Scope 2) emissions,
indirect emissions (Scope 3) and solutions that avoid emissions
entirely (Scope 4).
Efficient thermal processes for reduced carbon
Sustainability considerations – and carbon reduction in particular –
are continuing to increase in importance to our customers.
By outsourcing to Bodycote, customers can reduce the carbon
footprint of the products they manufacture. Bodycote’s optimised
thermal processing services typically uses less energy compared with
customers’ in-house processes. This enables a significant reduction
in emissions associated with energy consumption, as well as process
gases and other consumables.
Bodycote recently demonstrated the positive impact of our services
on carbon reduction for one of our large customers. Bodycote
processes the customer’s parts in over 40 facilities around the world.
Over the past few years, sales volumes to the customer have
increased, yet carbon emissions have decreased – illustrating our
success in disconnecting growth from carbon emissions. We were
able to demonstrate that since 2019, we have been able to decrease
CO2e emissions by 47% per part processed. Our ability to provide
this data strengthens relationships with customers, while generating
useful insights for the continued refinement of our service offerings
for positive environmental impact.
Digital tools for customer carbon calculations
The Group developed a digital carbon calculator in 2023, which
quantifies the carbon footprint of customers’ thermal processing
compared to Bodycote’s services for the same process. The tool uses
a range of input data – such as the type of furnace, number of parts
processed per cycle, processing time, and type of processing gas
used – compared with ‘real world’ data inputs from Bodycote’s own
operations, tailored to the Bodycote facility and equipment type that
the customers’ parts would be processed in. The results show
the difference in the carbon footprint of having parts processed
in our facilities, compared with customers treating them in theirs.
Bodycote can reduce emissions associated with thermal processing
by up to 60%, compared with customers’ in-house processes.
As customers increasingly request data from Bodycote to input into
their product carbon footprint calculations and product lifecycle
analyses, Bodycote is also developing a tool to automate these sorts
of calculations. Our new digital tools will enable the Group to provide
accurate input data for customers’ calculations for different services
offered by the Group.
up to 60%
Bodycote can reduce emissions
associated with thermal processing
by up to 60%, compared with
customers’ in-house processes.
Driving the green energy transition
As set out on page 13, in 2023, Bodycote began work on a major
new multi-year contract to provide low-carbon heat treatment for
automotive parts destined for hybrid vehicles. Bodycote is providing
heat treatment services for a number of parts in the vehicles’ driveline
system. The win marked another key milestone in the Group’s efforts
to transition customers into adopting newer, lower-carbon heat
treatment technologies.
Instead of quoting for services using traditional processing methods,
Bodycote proposed low pressure carburising (LPC) for the customer’s
parts. This technology uses electricity, as opposed to gas, to enable
a continuous reduction in products’ carbon footprint as the grid
becomes increasingly decarbonised over time.
Most significantly, LPC enables a vast reduction in the amount
of energy required to achieve the same metallurgical properties for
a product. It cuts processing time by around 20% and the amount
of energy required by 50%. Process gas – needed to achieve
carburisation – is also reduced by 99% in LPC technology.
Through the application of our specialist knowledge and expertise
in this area, Bodycote successfully transitioned the customer to
a process that will enable them to achieve significant emissions
avoidance and provide low carbon revenue growth for Bodycote
at the same time.
Coatings with lower environmental impacts
Bodycote’s Surface Technology business provides High-Velocity
Oxygen Fuel (HVOF) coatings for materials such as metals, alloys,
ceramics, plastics, and composites. HVOF is an advanced thermal
spray coating technique that uses a high-speed stream of oxygen
and fuel gas to propel molten particles onto a substrate surface
to create a dense, tightly bonded coating with excellent adhesion
and high-quality mechanical properties.
Importantly, HVOF coatings provide a viable substitute for hexavalent
chrome. Also known as chromium (VI), hexavalent chrome has been
widely used in industry for corrosion resistance and durability.
However, its toxicity poses significant risks to human health and the
environment and it is therefore subject to strict restrictions under
the EU’s Registration, Evaluation, Authorisation, and Restriction of
Chemicals (REACH) regulation.
HVOF coatings technology offers a REACH-compliant alternative
while exceeding customers’ specified performance requirements and
minimising environmental impacts in a wide range of applications,
including aerospace, automotive, and other manufacturing industries.
Bodycote is collaborating with customers to drive uptake of
HVOF coatings, to enable them to enhance workplace safety,
reduce environmental contamination, and contribute to a more
sustainable future.
39
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Sustainability report continued
Our environment
Bodycote offers some of the most energy-efficient processes available
on the market, delivering energy and emissions reductions to provide
benefits to our customers, the Group, and the wider environment.
As well as being integral to our commercial offering, effective
management of climate and environment-related issues is key to
the Group’s operational performance. Through this, the Group
manages its costs and exposure to risks, while minimising its
consumption of resources and environmental impacts.
Energy and GHG emissions performance
Bodycote has set a target to reduce absolute Scope 1 and 2 GHG
emissions by 28% by 2030, compared with 2019 (market-based).
This target has been validated by the Science Based Targets initiative
(SBTi). At the end of 2023, the Group’s emissions were 24% below
2019 levels (market-based). Emissions reductions are driven through
energy efficiency programmes and decarbonisation initiatives.
The Group’s absolute Scope 1 and 2 emissions reduced by 2%
year-on-year (location-based). This reduction was mainly driven by
lower gas consumption compared with the prior year (4.7% lower).
Electricity consumption also reduced, however electricity-related
CO2e emissions (Scope 2 location-based) remained similar to the prior
year due to an increase in the carbon intensity of electricity grids in
most of the Group’s countries of operation. The Group also continued
to improve its emissions intensity in 2023, which reduced by 7%
compared with 2022.
Energy consumption (kWh) reduced by 4.1% in 2023 due to
avoidance and efficiency measures. The Group’s energy intensity
(kWh/£m revenue) reduced by 9% year-on-year, demonstrating
significant progress in reducing energy consumption while growing
revenues. We estimate that at least 20% of the Group’s electricity
consumption comes from renewable sources.
Emissions reduction programme
We are delivering a programme of energy saving and efficiency
measures and climate-related investments in technology to achieve
our SBTi target. Our capital investment programme is overseen by
the Executive Committee. The Group’s portfolio of climate-related
initiatives includes the following:
– Increasing furnace capacity
– Optimising heat treatment cycles
– Improving furnace insulation
– Minimising occurrence of air and process gas leaks
– Reducing energy consumption of lighting
– Reducing process gas consumption
– Reducing furnace pumps’ energy consumption
– Improving buildings’ heating and cooling systems
The Group also works to embed climate-related considerations within
existing business processes. For example, all capital investment
decisions include sustainability reviews to ensure alignment with
the Group’s SBTi commitment.
CO2e emissions intensity
(tCO2e/£m)
Scope 1
2023
2022
(£m sales
at actual
exchange
rate)
(normalised
to constant
currency
rate)
(£m sales
at actual
exchange
rate)
(normalised
to constant
currency
rate)
182.6
184.2
201.2
202.9
Scope 2 (location-based)
178.1
179.7
187.1
188.7
Scope 1 + Scope 2 total
360.7
363.9
388.3
391.6
Energy consumption
(kWh)4
2023
% change
in 2023
2022
Scope 1 Natural gas
604,863,999 634,423,226
-4.7%
Other (LPG, fuel
oils, diesel, petrol)
31,384,309
32,508,292
-3.5%
CO2e emissions (ktCO2e)2,3
2023
2022
% change
in 2023
2019
Scope 2 Electricity
481,577,516 498,776,796
-3.4%
Scope 1 CO2e emissions
134.3
140.3
-4.3%
170.2
131.0
130.4
+0.5%
186.4
145.5
136.2
+6.8%
198.7
265.3
270.7
-2.0%
356.6
279.8
276.5
+1.2%
368.9
Scope 2 CO2e emissions
(location-based)
Scope 2 CO2e emissions
(market-based)
Total Scope 1 + Scope 2
(location-based)
Total Scope 1 + Scope 2
(market-based)
Total CO2 emissions (ktCO2e)
.
6
6
5
3
.
5
4
9
2
.
9
4
8
2
.
7
0
7
2
.
3
5
6
2
’19
’20
’21
’22
’23
40
Total energy
consumption (kWh)
1,117,825,824 1,165,708,314
-4.1%
Scope 3 emissions
The Group’s Scope 3 footprint does not currently meet the materiality
threshold under the SBTi framework to require a science-based
emissions reduction target (under SBTi criteria, if a company’s Scope 3
emissions are 40% or more of total scope 1, 2, and 3 emissions,
a Scope 3 target is required). As such, we are not currently reporting
our full Scope 3 footprint. However, we continue to keep this under
review. See page 51 in the TCFD report for further information.
2 Statutory carbon reporting disclosures required by the Companies Act 2006. The boundary for
reported data has changed materially once in the last five years, following the Group’s
acquisition of Ellison Surface Technologies in 2020. Historical data reported at that time was
also restated to incorporate Ellison Surface Technologies’ CO2e emissions to provide
comparable data across reported years. In addition, as part of the Group’s preparations for
setting an SBTi emissions reduction target, there were minor changes to the boundary in
2022 to incorporate all relevant emissions from refrigerants, fuel oil and transportation and
this was reflected in 2022 and all prior years’ data reported at that time. During 2023, the
Group continued to refine the emissions calculation methodology in line with best practice.
This methodology has been applied to reported data for 2023 and the prior four years
presented here.
3 The Group’s emissions calculation methodology is provided in the document (‘2023 ESG
Supplement’) published on our website at the following address: www.bodycote.com
4 Energy consumption data for prior years has been restated to reflect consumption as actual
data has become available.
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Long-term emissions strategy
Bodycote supports the aims of the Paris Agreement and recognises
the importance of aligning the Group’s emissions reduction strategy
with global net zero goals. Our first step has been to set and drive
progress towards a near-term science-based emissions reduction
target. We recognise the requirement to develop a longer-term
transition plan. See the TCFD report for more information about our
climate strategy.
Environmental management
Bodycote’s Environmental Policy applies to all sites worldwide and
sets out the Group’s minimum standards for environmental
management. It is publicly available on our website and describes the
steps taken by the Group to continuously improve performance and
prevent adverse impacts. Bodycote holds all necessary and relevant
environmental licences and permits in each of the countries in which
we operate. We are committed to complying with legislative
requirements at a minimum.
The Group’s environmental management system is aligned to the
international ISO 14001 standard. As at the end of 2023, 98% of
the Group’s operating facilities had achieved or maintained ISO 14001
certification, covering 82% of the Group’s employees.
The Group’s approach to energy management is aligned to the
ISO 50001 Energy Management Systems Standard. The Group holds
ISO 50001 certification in several countries, covering 18% of
operating facilities. Through this, the Group drives a consistent energy
management approach and meets the Energy Efficiency Directive
2012/27/E.U. requirements. The Group’s UK operations are compliant
with the directive through the Energy Savings Opportunity Scheme.
Bodycote’s UK footprint
In accordance with the Streamlined Energy and Carbon Reporting
(SECR) reporting requirements, emissions and energy consumption
relating to the Group’s UK business operations are identified
separately in the below table.
Energy consumption in the Group’s UK operations was almost the
same year-on-year up 0.3% in 2023; however related carbon emissions
increased by 4.3% compared with 2022 due to a significant change in
UK GHG conversion factors for electricity in 2023.
Bodycote’s UK sites (facilities and offices)5
2023
2022
CO2e
emissions
(tonnes CO2e)
Energy
consumption
(kWh)
CO2e
emissions
(tonnes CO2e)
Energy
consumption
(kWh)
4,250.0 19,988,786
4,201.0 20,009,506
7,768.0 37,664,091
7,325.0 37,514,076
13.2
54,627
9.7
39,253
12,031.2 57,707,504
11,535.7 57,562,835
Scope 1
Scope 2
Scope 3
Total
5 Electricity and fuel consumption information is collected from each facility on a monthly basis.
Scope 3 includes business road travel in vehicles not owned by the Company. Scope 3 is
calculated from mileage and vehicle type. The DEFRA conversion factors are then applied to
calculate the total tonnage of CO2e produced.
6 Normalised water consumption is a thousand m3 per £m sales using closing exchange rates
at 31 December 2023. Water consumption data for prior years has been restated to reflect
consumption as actual data has become available.
Water use
Although the Group’s processes are not water intensive by design,
we recognise that water is a scarce resource and are determined to
safeguard it wherever possible. In 2023, the Group withdrew around
817,533m³ of water, 8% less than in 2022. Water intensity (water
withdrawal m3/£m sales) reduced by 13% compared with 2023.
While the vast majority of water withdrawn is subsequently
discharged, some is lost through evaporation. This is an area of
focus as part of our efforts to minimise water use.
During the year the Group completed improvements to the cooling
process for heat treatment furnaces. Previously these furnaces were
supplied with water from cooling towers, where water was lost
through evaporation. These were replaced by new adiabatic cooling
systems, which are a closed-loop technology that reduce water losses
through evaporation, as well as the amount of energy required for the
cooling process. We initiated installation of eight of these systems in
2023 to reduce our environmental impacts and operational costs,
and improve efficiency.
All water is supplied by relevant municipal suppliers and re-used
and recycled extensively within our operations. When water from
our operations is discharged by the Group, it is controlled using
interception tanks. These allow water to be checked for contaminants
and ensure it is acceptable prior to final discharge. Audits confirm that
the Group’s control methods are in line with ISO 14001:2015 to ensure
compliance with legal obligations.
Water use (m3)
Total water withdrawn
817,533
884,027
Water intensity (m3/£m)
1.12
1.28
2023
2022
% change
in 2023
-8%
-13%
Water intensity
(thousand m3/£m sales normalised6)
7
4
.
0 1
3
.
1
6
3
.
1
8
2
.
1
2
1
.
1
’19
’20
’21
’22
’23
Waste management
Bodycote seeks to minimise waste produced across its locations.
The Group typically re-uses the same packaging or containers that
customer parts arrive in when returning them to customers.
This practice helps avoid unnecessary waste, while providing
efficiency for our customers. As a result, Bodycote minimises the
amount of operational waste produced. Any waste that is created is
segregated into different waste streams as appropriate and disposed
of in accordance with local legislation. Chemicals and hazardous waste
are stored separately and handled in accordance with legislative
requirements. All hazardous waste is disposed with special care by
licensed and authorised contractors in accordance with the applicable
environmental legislation.
41
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Sustainability report continued
Ethical business
The Group strives to meet high standards of ethical and responsible
behaviour in the way we conduct business. We have a robust
governance structure to support business ethics, and a series of
policies that detail our Group wide commitments and standards.
Our Code of Conduct sets out our policy on compliance with
legislation, child labour, anti-slavery and human trafficking, trade
sanctions and conditions of employment, health, safety, and the
environment. The Group prohibits forced, compulsory and underage
labour and any form of discrimination based on age, race, gender,
ethnic origin, nationality, religion, health, disability, marital status,
sexual orientation, gender reassignment, pregnancy, and maternity
or paternity, political or philosophical opinions or trade union
membership. Appropriate mechanisms are in place to minimise
the potential for any contravention of these rules.
We require employees to undertake training in our key policies to
reinforce our expectations and mitigate our exposure to risks.
This training is refreshed every three years.
Anti-bribery and corruption
The Group provides interactive online training courses on Bribery
Prevention, Data Protection, Failure to Prevent Tax Evasion, the Group
Authority Matrix, and Competition Law. As at 31 December 2023,
the completion rate for all interactive courses was 97% among
relevant employees.
In line with our ethos, Bodycote aims to win business in a 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 giving or receiving any gifts or
donations. Bodycote does not make political donations.
Responsible supplier management
Bodycote’s Supplier Code of Conduct sets out the minimum
sustainability, environmental and social standards the Group expects
its suppliers to adhere to, including those relating to the protection
and promotion of human rights. We stipulate that we expect suppliers
to communicate Bodycote’s values and expectations to their
employees, as well as their own suppliers. This policy is supplemented
internally by our Sustainable Procurement Policy. This provides guiding
principles on social, environmental and ethical topics for employees
involved in procurement activities.
The Group manages suppliers with respect, honesty and integrity,
no matter the size of the transaction. We agree fair contracts with
suppliers and pay them promptly and in accordance with our
agreed terms.
Human rights and modern slavery
Bodycote upholds and respects universal human rights. The Group’s
Human Rights Policy is aligned with the Ten Principles of the UN
Global Compact, incorporating the United Nations Universal
Declaration of Human Rights and the International Labour Organization
Fundamental Conventions. Our policy reaffirms the Group’s
commitment to freedom of association, the abolition of forced or
compulsory labour; the elimination of child labour; the elimination
of discrimination; and a safe and healthy working environment.
The Group’s Anti-Slavery and Human Trafficking Statement is published
on our website and reviewed by the Board of Directors annually.
Colleagues working in senior management, human resources and
purchasing roles are required to complete dedicated Modern Slavery
Act training, and participate in refresher training, at least every three
years. Since 2021 over 99% of those colleagues required to undertake
the training have completed it. We plan to re-train all relevant
colleagues during 2024.
Encouraging colleagues to speak up
The Group’s open and transparent culture encourages colleagues to
speak up whenever they have a concern, without fear of reprisal.
We offer a range of channels for colleagues to report suspected
wrongdoing, including a third-party operated whistleblowing helpline.
Our ‘Open Door Line’ is open to anyone who wants to report a
concern in work-related context or in connection with the workplace,
including employees, contractors, and former employees. We promote
the helpline via posters in plants and offices, on our intranet
homepage and on the Group’s website.
The Board and Executive Committee receive reports about any issues
raised via the helpline. All reports made in 2023 were investigated and
resolved without any remedial action necessary.
Community engagement
Bodycote seeks to play a positive role in the local communities in
which it operates. We encourage community involvement through
activities championed by our plants locally.
In the aftermath of the devastating earthquake that struck in
February 2023 along the border region of Turkey and Syria, Bodycote
employees came together to support the Turkish Red Crescent
Association earthquake appeal. Including Bodycote’s matched giving
for employee fundraising, we donated more than €70,000 to the
earthquake recovery efforts. The funds provided vital aid to those in
communities affected by the earthquake, reflecting Bodycote’s core
values of respect and responsibility and our employees’ eagerness to
help the communities in which we operate.
S.C. Harris
Group Chief Executive
15 March 2024
42
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 TCFD report
Task Force on Climate-related Financial Disclosures Report
Bodycote continued to implement the
recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD)
in 2023, with a particular focus on advancing
its climate scenario analysis. We conducted
both qualitative and quantitative scenario
analysis, including modelling the potential
financial impacts of climate-related risks and
opportunities under different scenarios,
to inform the continued development of our
climate-related strategy.
TCFD statement of compliance
This report sets out Bodycote’s climate-related financial disclosures,
consistent with the TCFD framework, and in compliance with the
Financial Conduct Authority (FCA) Listing Rule 9.8.6R(8). The Group’s
disclosures have been prepared to align with guidance published by
the Financial Reporting Council (FRC) and FCA. The main disclosures
are set out in this report, on pages 43-52. There are additional
disclosures on pages 40 to 41.
Governance
Climate-related responsibilities of the Board
Climate-related matters are an integral component of Bodycote’s
business model and strategy. The Board oversees the management
of climate-related matters as part of its responsibility to support the
development of the corporate strategy. The Group Chief Executive
updates the Board about the Group’s climate strategy and related
activity at least quarterly. In 2023 the Board agenda included reviews
of the Group’s SBTi target, climate risk assessment, climate-related
opportunities integral to the corporate strategy, internal controls
for the measurement of carbon emissions and climate-
related disclosures.
The Board monitors the Group’s performance against four financial
and two non-financial key performance indicators. Non-financial
indicators include the Group’s absolute Scope 1 and Scope 2 GHG
emissions (see page 50). The Board and its Committees also consider
climate-related issues when reviewing annual budgets and as part
of other business processes, such as authorisation of capital
expenditures for projects that reduce carbon emissions.
The Audit Committee supports the Board in providing oversight of
the Group’s risk management procedures, including how climate and
environmental risks and opportunities are identified, measured and
managed. The Audit Committee also oversees the Group’s compliance
with climate-related reporting requirements. The Remuneration,
Finance and Nomination Committees have additional responsibilities
in relation to climate and sustainability topics, as described in the
diagram below.
Board members’ sustainability experience
Board members have diverse experience in climate-related issues.
Examples include:
– The Group Chief Executive has practical experience in the
development of SBTi targets, and driving the development and
implementation of energy and carbon reduction projects. He chaired
Mondi’s Sustainability and Social and Ethics Committees during his
tenure as a non-executive director of the company from 2011 to 2021.
– Non-Executive Director, Beatriz García-Cos Muntañola has gained
climate-related experience working in renewable energy and mining
industries and through her current role as Chief Financial Officer of
Ferroglobe plc. This includes developing decarbonisation and capital
expenditure plans, sustainability reporting, and climate regulation
and risk management.
Governance framework for climate and sustainability topics
Oversight of the Group’s management of its climate agenda,
as a component of the Group’s business strategy.
Group Chief Executive: responsible for the execution of
the Group's climate strategy, supported by the Executive
Committee and the Risk and Sustainability Committee.
PLC Board
Audit Committee
Provides oversight of the
effectiveness of the risk
management framework,
including how climate and
environmental risks are
identified and managed.
Remuneration Committee
Responsible for ensuring
climate-related targets
are considered for
appropriate integration into
remuneration arrangements.
Finance Committee
Consideration of climate-
related issues when reviewing
and authorising certain
finance, treasury, tax and
investment matters, including
capital expenditure on carbon
reduction projects.
Nomination Committee
Consideration of candidates’
climate-related knowledge
and experience for new
appointments to the Board.
Executive Committee
Management of climate risks and opportunities, climate-related target setting, and achievement of targets and objectives.
Individual members of the Executive Committee also have specific climate-related responsibilities according to their functions.
Risk and Sustainability Committee
Supports the implementation of the strategy and action plans to reduce our carbon footprint, reporting to the Group CEO and Executive Committee.
43
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 TCFD report continued
Climate-related responsibilities of management
The Group Chief Executive has overall responsibility for the Group’s
climate strategy. The Chief Sustainability Officer, a member of the
Executive Committee, supports the definition and coordination of
the climate strategy. Other members of the Executive Committee
are responsible for implementing the strategy within their
respective functions.
Climate-related topics are a standing agenda item at Executive
Committee meetings. This now includes review of performance
against the Group’s key climate-related metrics (see page 50 for
details). Examples of topics discussed during 2023 include:
– Progress towards the Group’s SBTi target and opportunities
to accelerate.
– New carbon-focused customer communications and carbon
calculator tools.
– Processes for monitoring customer engagement on climate and
sustainability topics.
– Validation of the Group’s processes for calculating GHG emissions.
– Climate risk and opportunity assessment as part of the Principal Risks
management process.
The Group’s actions in each of these areas during the year are
described throughout this report and in the Sustainability Report
on pages 39-41.
Processes for oversight of climate-related issues
The Executive Committee oversees processes for climate risk and
opportunity management. Climate-related issues are considered as
part of strategy, business planning, risk management and budgeting
processes. Examples are as follows:
– Group strategy – climate-related matters influence the development
of the Group’s service offering and the formulation of initiatives that
drive emissions reductions for customers.
– Capital investment – all capital investment decisions include
sustainability reviews to ensure alignment with the achievement
of the Group’s SBTi commitment.
– Major plans of action – environmental impacts and opportunities are
considered as part of decision-making related to our asset and
property portfolio.
– Risk management – climate risk assessment is integrated into our
formal risk management processes (see pages 30 and 50).
– Annual budgets, scenario planning and Going Concern assessments
– the ability to seize opportunities and mitigate potential climate-
related risks is considered as part of the annual budget process and
longer-term financial modelling.
The Risk and Sustainability Committee supports the Executive
Committee in directing and implementing climate-related initiatives,
risk management and reporting; and ensuring the sustainability
strategy is embedded across the Group. See page 50 for
more information.
Management team responsibilities
Responsibilities of individuals:
– Group Chief Executive: overall responsibility for the Group’s
climate-related strategy.
– Chief Financial Officer: evaluating potential financial impacts of
climate-related risks and opportunities, including those considered
as part of scenario modelling and stress testing.
– Divisional Presidents: managing climate-related topics in the
operations, including in relation to employees, assets and property,
implementing carbon reduction projects; developing new business
to support customers’ climate-related goals.
– Chief Sustainability Officer: developing the Group’s climate strategy
and targets, and monitoring and communicating progress.
– Chief Marketing Officer: developing marketing materials to drive
awareness of the Group’s services and tools to support customers’
emission reduction targets.
– Other members of the management team: supporting the delivery of
the climate strategy within their respective areas of responsibility.
Responsibilities of teams:
– Group Finance: supporting the assessment of financial impacts of
climate-related risks, opportunities and investments, and conducting
scenario modelling.
– Group Sustainability: supporting the development and implementation
of the climate strategy, developing emission reduction pathways and
targets, and communicating progress.
– Group EHS: standardising and implementing data collection
processes, including for the calculation of the Group’s operational
GHG emissions and carbon calculator tools.
– Group Internal Audit: ensuring climate-related risks and opportunities
are captured on the Group’s risk registers, and verifying the controls
for the capture of climate-related data.
– Technical Services Operation (TSO): supporting facilities in
implementing carbon reduction projects and new technologies
that enable energy and other resource savings.
– Sales and customer key account teams: engaging with customers
about their climate-related expectations and goals, and facilitating
efforts to reduce their emissions.
– General managers of sites: day-to-day management of facilities,
furnaces and other equipment to optimise efficiency and energy
consumption, with support from the TSO team.
Climate-related incentives
Bodycote recognises the benefit of incorporating ESG metrics in
executive compensation. Climate-related objectives have been linked
to executive directors’ remuneration for several years. ESG metrics
are included in the annual bonus scheme.
44
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 The Group has undertaken a qualitative assessment of all identified
climate-related risks and opportunities under each of these scenarios.
The potential impact of several risks has also been quantified where a
suitable quantification model and data has been available. This has
been done by estimating their potential impact on both the Group’s
annual incremental capital outlay and operating expenditure, as well
as potential annual impacts to revenue in at-risk operating locations.
The management of risks and opportunities is then prioritised
according to their potential impact. Risks and opportunities are
considered to be material when they become sufficiently important
they could significantly impact our strategy. The Group’s approach
to climate risk and opportunity quantification is likely to evolve
going forward.
Physical risks, such as the impact of heatwaves and flooding on
operations, have been assessed using external data sources.
These risks were chosen for assessment as they have been identified
as the most relevant in the Group’s locations of operation.
Heatwave risk has been assessed using data from the IPCC’s Sixth
Assessment Report, available through the World Bank Climate
Knowledge Portal (https://climateknowledgeportal.worldbank.org/).
Flooding risk (coastal and riverine) has been assessed using the same
IPCC data source, together with data from WRI Aqueduct Water Risk
Atlas 4.0. Wildfire risk was also assessed using a combination of IPCC
data and data from MODIS by NASA4 . Other indicators used were
extracted from the IPCC’s Sixth Assessment Report.
The results of the 2023 assessment, presented in the table on
pages 46-49, indicate that the majority of climate-related risks and
opportunities remain broadly unchanged from the 2022 assessment.
Strategy
Climate change has been identified as one of Bodycote’s top strategic
priorities (see page 14 for the Group’s strategy and objectives) and
we take a proactive approach to sustainability and energy efficiency
throughout our operations. Growing awareness of climate change and
sustainability matters continues to be a catalyst for business growth
as we provide services and solutions that decrease our customers’
energy use and carbon emissions.
Our proactive energy and emissions reductions initiatives are
implemented across the Group to improve operational efficiency and
reduce costs. Importantly, the positive impact of our initiatives extends
to our customers through our ability to offer lower carbon processing
services. That is both through our ability to reduce carbon emissions
when comparing like-for-like technology, and our capability to transition
customers onto lower carbon technology for their processing needs,
such as low pressure carburising (LPC), which delivers an even larger
reduction in energy consumption and carbon emissions. Both of these
levers reduce carbon for customers and provide a clear competitive
advantage for the Group.
Climate scenario analysis
The Group regularly re-assesses climate-related risks and opportunities
to inform its strategy, financial planning and investments. Senior
professionals from across the business support the assessment of
risks and opportunities through dedicated workshops. This process is
supported by internal and external subject matter experts.
Outputs from these assessments enable the Group to continually
adapt, refine and update risks and opportunities and associated
mitigation or realisation measures.
In 2023 the Group evolved its climate scenario analysis process.
The Group applied the same time horizons as those used for the
Group’s Principal risks, where short-term refers to 0-2 years,
medium-term refers to 2-5 years, and long-term refers to over 5 years.
While we acknowledge that climate risks tend to present themselves
in a longer timeframe than other risks evaluated in our Principal Risks,
the Group has opted to use the same timeframes to integrate climate
risk assessment more easily into our overall strategy and risk
assessment. Climate-related impacts were assessed by referencing
a wider range of scenarios, including a 2°C or lower scenario as
required under TCFD. The scenarios were modelled based on the
latest assessment of the Intergovernmental Panel on Climate Change
(IPCC), as set out below.
Scenario 1
(<1.5ºC)1
S1
Scenario 2
(<2ºC)2
S2
Scenario 3
(<3ºC)3
S3
Net Zero emissions reached by
2050 globally
– Global temperatures are limited to a
1.5°C increase by 2050 compared to
pre-industrial levels.
Emissions peak and start falling
around 2050
– Policy action is late and disruptive and
while some steps have been taken, it is
largely business-as-usual.
Emissions keep rising
(2x by 2100)
– Limited global action results in
accelerated global warming and
significant physical risks.
– Physical risks are limited, and there has
been a substantial shift in behaviour and
public policy (e.g. higher carbon taxes).
– There are limited public policies before
2025, temperatures continue to rise, and
physical impacts intensify.
– Governments fail to introduce further
policies to address climate change.
1 RCP1.9/SSP1-1.9, PRI IPR: 1.5°C Required Policy Scenario.
2 RCP3.4/SSP2-4.5, PRI IPR: Forecast Policy Scenario.
3 RCP6.0/SSP3-7.0.
4 Extracted through the World Environment Situation Room by the UNEP (2023).
URL: https://wesr.unepgrid.ch/
45
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 TCFD report continued
Climate risk and opportunity assessment
Time horizons: Short (0-2 years); Medium (2-5 years); and Long (5+ years)
Potential impact and mitigation measures
Scenario time frame
Description
Risk of disruption to the Group’s operations and value chain as a result of wildfires and
coastal and riverine flooding, with impacts on the Group’s employees, property and
equipment and surrounding public infrastructure.
Impact assessment
Fewer than 5% of sites are currently assessed as being at high risk of wildfires and
flooding under all three scenarios. The potential impact of operational disruption and cost
of relocation if necessary has been assessed as negligible (see the table on page 49).
Mitigation measures
– Implementation of additional mitigation measures in higher risk sites
(e.g. safety, maintenance, business continuity and shift planning, landscaping etc)
– Automation and remote technologies for continuous operations during disruption
– Regular assessment of climate science and scenarios to monitor risk exposure
Description
Risk of increased frequency and intensity of heatwaves, impacting employees, facilities
and equipment, affecting costs (for example, equipment maintenance) and productivity.
Impact assessment
Higher risk sites have been identified, with a maximum of 20% of sites being high
risk under Scenario 3. The potential financial impact of disruption to operations and
potential investments in cooling measures has been assessed as low. See page 49.
The risk of cold wave/frost has been evaluated as not being relevant currently.
Mitigation measures
– Investment in additional insulation and cooling measures for temperature control
in at-risk sites
– Investment in increased automation in our operations
Description
Increased demand for electricity globally could result in an increased likelihood and
occurrence of power outages, potentially resulting in unplanned downtime. In Scenario 2,
high demand for electricity could impact energy security; in Scenario 3 there could also
be an increase in electricity demand and cost due to additional cooling requirements.
Impact assessment
The potential financial impact of this risk has not yet been assessed. The Group
demonstrated in 2022 and 2023 the ability to recover energy cost inflation through its
energy surcharge policy.
Mitigation measures
– Reduction in energy consumption through energy saving and energy efficiency measures
– Operation during off peak hours with lower energy prices
– Implementation of measures to reduce reliance on grid electricity (e.g. solar panels)
Description
A failure to reduce energy usage and new carbon taxes could increase operating costs.
New regulation or pressure to reduce carbon emissions could accelerate the need to
retrofit or replace technology, requiring additional capital investment.
Impact assessment
The potential financial impact of this risk has been assessed using the estimated cost
of carbon in 2030; see the table on page 49.
Mitigation measures
– Reduction in energy consumption and continued progress towards our SBTi target
– Further development of a decarbonisation roadmap and investment in lower carbon
technology and energy
– The Group demonstrated in 2022 and 2023 the ability to recover energy cost inflation
through its energy surcharge policy
S1
Medium-
term
S2
Medium-
term
S3
Medium-
term
Long-term
Long-term
S1
S2
S3
Medium-
term
S1
Not
applicable
Long-term
Long-term
Long-term
Long-term
S2
S3
S1
S2
S3
Not
applicable
Physical Risks
Extreme weather events
Risk Driver:
Acute physical
– Wildfires
– Flooding
Extreme temperatures
Risk Driver:
Chronic physical
– Heatwaves and
heat stress
– Cold wave/frost
Transition Risks
Impacts to
electricity supply
Risk Driver:
Market
– Uncertainty in
market signals
Technology
– Transitioning to low
emission technology
Increased pricing of
carbon emissions
Risk Driver:
Emerging regulation
– Carbon pricing
mechanisms
Technology
– Transitioning to low
emission technology
46
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Transition Risks (continued)
Potential impact and mitigation measures
Scenario time frame
Reputational risk
Risk Driver:
Reputation
– Stigmatisation of sector
– Increased
stakeholder concern
Description
Ability to attract customers, employees and investors who want to work with and for
companies that are taking action on climate issues and minimising their exposure to risk.
This could impact talent attraction, new business development, investor sentiment and
access to or cost of debt.
Impact assessment
The Group’s carbon reduction strategy positively impacts customer, employee and
investor advocacy. The Group is the only major heat treatment company globally with
an SBTi target, offering a competitive edge for securing new business and talent
where climate action plays a role.
Mitigation measures
– Ongoing tracking of stakeholders’ expectations through direct engagement,
best practice benchmarks and research
– Clear communications about Bodycote’s climate action, alignment to international
standards and its commercial offerings for carbon reduction
Increased regulation of
GHG emissions
Risk Driver:
Emerging regulation
– Mandates on and
regulation
of existing services
Description
Increased regulation of GHG emissions could be disruptive for the Group and its
customers, leading to business disruption, increased costs or taxes, and penalties or
litigation in the event of non-compliance. It could also accelerate the requirement to
invest in lower GHG emissions technologies.
Impact assessment
The Group has evaluated the potential financial impact of increasing deployment of
low emissions technologies and has determined this as being ‘low’. See page 49.
Mitigation measures
– Continued deployment of lower emissions Specialist Technologies processes
– Energy reduction and decarbonisation measures
– Monitoring of regulatory landscape to ensure timely action and compliance
Opportunities
Increased outsourcing
by customers to reach
GHG targets
Opportunity Driver:
Resource efficiency
– Use of more efficient
production processes
Description
Increased revenues resulting from increased outsourcing by customers to Bodycote to
i) reduce their Scope 1 and 2 emissions and decrease exposure to carbon taxes, etc.;
and ii) enable emissions avoidance (Scope 4) – as emissions per part processed by
Bodycote can be up to 60% lower (see page 40).
Impact assessment
The Group has opportunities to support customers in achieving their emissions targets
across all its sectors and markets, leading to increased revenues. Cost reductions may
also be achieved within the Group’s operations as a result of higher efficiencies and
furnace fill rates/utilisation.
Realisation measures
– Current operations are already geared towards the realisation of this opportunity and
support GHG emissions reduction and avoidance
Low carbon
technologies offering for
customers
Opportunity Driver:
Services
– Development and/or
expansion of low
emission services
Description
Offering processing and Specialist Technologies services that have a lower carbon
footprint for competitive advantage: allowing the Group to meet new requirements
from customers and regulations and positioning Bodycote’s services as higher value
(with a premium).
Impact assessment
The Group’s low carbon processing services present opportunities for higher revenues
and increased margins.
Realisation measures
– Monitoring customers’ climate plans and their expectations of suppliers
– Increased revenues would offset capital investment for additional capacity
Short-term
S1
S2
Medium-
term
S3
Not
applicable
Long-term
Long-term
S1
S2
S3
Not
applicable
Short-term
S1
S2
Medium-
term
S3
Not
applicable
Short-term
S1
S2
Medium-
term
S3
Not
applicable
47
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 TCFD report continued
Potential impact and mitigation measures
Scenario time frame
Opportunities (continued)
New volumes for
Bodycote related to low
carbon transition
Opportunity Driver:
Products and services
– Ability to diversify
business activities
Markets
– Access to new markets
Description
Revenue uplift related to increased business from heat treatment services from sectors
that support the transition to a lower carbon world (e.g. ICE to EVs). These sectors
become a more significant revenue stream for Bodycote as a result of higher and new
demand for services.
Impact assessment
Bodycote is able to realise this opportunity via current facilities and technologies.
The Group’s global heat treatment capacity allows us to quickly adapt to customers’
requirements with low capital investment.
S1
Medium-
term
S2
Medium-
term
Realisation measures
– No significant effort or investment is expected to be required to diversify our customer
base due to Bodycote having flexibility to serve both existing and new industries
S3
Not
applicable
Government and
other incentives
Opportunity Driver:
Resource efficiency
– Use of more efficient
production processes
Services
– Development of low
carbon service offering
Description
Positive impact of Government and other incentives, including revenue uplift as a result
of increased customer demand for services that benefit from energy tax exemptions
due to emissions avoidance, incentives for the faster adoption of lower carbon
technologies, and incentives and revenue uplift from the adoption of low emissions
Specialist Technologies.
Impact assessment
The impact of this opportunity has not yet been assessed. The Group will continue
monitoring the opportunity and evaluate quantifying it as information becomes available
that allows a reasonable approach.
Realisation measures
– Continued installation of low carbon technologies across the Group
S1
Medium-
term
Long-term
S2
S3
Not
applicable
48
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Climate risks quantitative impact assessment
Negligible <£1m Low £1m-£5m Moderate £5m-£10m Significant £10m-£20m Severe >£20m
Risk
Value drivers assessed
Chronic
physical risk:
Heatwaves
Acute physical risk:
Flooding, wildfire
Potential cost of mitigation of extreme
heat in sites at risk of frequent and severe
heat waves (installation and operation of
cooling systems) and probability of
potential production losses2.
Potential cost of mitigating flooding and
wildfire risk through relocation, and
potential disruption to production in at-risk
sites3.
Transition risk:
Increased
pricing of carbon
emissions
Future costs of carbon applied to
groupwide Scope 1 and Scope 2
emissions using IPCC estimates for prices
per tonne of carbon under different
scenarios. (Tonnes CO2e x projected cost
per tonne)4.
Transition risk:
Increased
regulation of
GHG emissions
Accelerated decarbonisation of
operational processes through investment
in LPC furnaces (electrically-powered,
low consumption) and retrofitting gas
heated furnaces to be powered by
electricity. Assumed transition time:
25 years to 2050.
1 Costs before current and planned mitigation measures.
2 Site risk assessed using CMIP6 data from the World Bank Climate Knowledge Portal.
3 Probability of risk estimated using WRI Aqueduct, UNEP and NASA data.
Potential annual
impact before
mitigation1
–
–
–
S1
S2
S3
S1
S2
S3
S1
S2
S3
S1
S2
S3
Time horizon Mitigation measures
Long-term
– Investment in additional insulation
Long-term
Medium-term
Medium-term
Medium-term
Medium-term
and cooling measures for temperature
control in at-risk sites
– Investment in increased automation
in our operations
– Implementation of additional measures
in at-risk sites (e.g. safety, business
continuity, landscaping)
– Investment in increased automation
in our operations
– Monitoring risk using climate science
and models
Long-term
– Carbon cost inflation recovery
Long-term
Not applicable
through pricing
– Alignment to SBTi emission
reduction pathways
– Continuous reduction in absolute
energy consumption, decreasing
carbon emissions
– Investment in increased automation
in our operations
Long-term
– Continued deployment of lower
Not applicable
Not applicable
emissions specialist technologies
(LPC furnaces)
– Energy reduction and decarbonisation
measures
– Monitoring of regulatory landscape to
ensure timely action and compliance
4 Cost of carbon based on Intergovernmental Panel on Climate Change (IPCC) projections for 2030 - £100 per tonne of CO2e in Scenario 1; £25 per tonne of CO2e in Scenario 2.
Organisational resilience to climate change
The Group’s climate scenario analysis process supports the
exploration of the Group’s resilience to climate-related issues and
the identification and development of suitable mitigation plans.
As detailed in the risk and opportunities table, mitigation or realisation
measures have been identified for each of the key risks and
opportunities for the Group. The Group’s global presence and the
diversity of applications for its services further provides resilience to
potential risks, as well as possibilities for growth in new areas.
Bodycote operates an indispensable service, which cannot be
substituted, and does so more efficiently than customers in-house
and competitors. Bodycote is the only major heat treatment company
globally to have set an SBTi-approved emissions reduction target.
An increased cost of carbon would be recovered through pricing,
in the same way that higher energy costs in 2022 and 2023 have been
recovered through energy surcharges. At the same time, the Group’s
initiatives to reduce operational energy consumption provides
additional resilience in the event of an increased cost of carbon –
potential exposure to carbon costs reduces in line with lower energy
consumption. Low carbon processing technology also provides
resilience in reducing energy consumption, as well as supporting
the Group’s growth objectives. See page 40 for details about the
Group’s operational initiatives to reduce energy consumption and
carbon. Examples of ways in which the Group supports customers’
environmental sustainability goals are provided on pages 13 and 39.
The Group has determined that scenarios where global warming is
limited to 1.5ºC or less than 2ºC would be most beneficial and
would help the business thrive, even after considering the potential
impact of an increased cost of carbon. This is due to climate-related
opportunities presented in these scenarios – both commercial and
operational – and a likely lower level of disruption to operations from
physical climate-related impacts.
49
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 TCFD report continued
Risk management
Climate risk and opportunity identification and assessment
Climate change is considered to be among the Group’s principal risks.
The potential impacts of climate change include both physical risks to
operations and supply chains as a result of global warming, as well
as transition risks and opportunities related to regulatory and market
developments arising from the shift to a low-carbon economy.
Risk appetite is determined by the Board annually.
Climate-related risks and opportunities most relevant for the Group
are identified through several processes, including benchmarking
and desktop research, consultation with colleagues in key roles, and
customer engagement. Regulatory changes are also considered
as part of the Group’s process to identify and assess risks and
opportunities. External climate data supports the assessment of
identified risks. As described on page 45, the Group ran a series
of climate scenario analysis workshops to refresh its understanding
of climate-related risks and opportunities in 2023. Insights from
these workshops have been incorporated within the Group’s principal
risks register.
The process for determining the potential impact of each of the
climate risks and opportunities, and their relative importance,
includes both qualitative and quantitative evaluation by the Group’s
Sustainability and Finance functions. Members of the Risk and
Sustainability Committee are also engaged to input into assessments
and corroborate outcomes.
Climate risk management
Climate risk and opportunity management is led by the Group Chief
Executive. The Chief Sustainability Officer supports the Group Chief
Executive in ensuring climate-related strategy is aligned to key risks
and opportunities. This involves maintaining the Group’s climate risk
register, and advising on appropriate controls to mitigate climate
risks arising from current and emerging regulation, technology, legal,
market, reputational, and physical climate developments.
Climate risks and opportunities are prioritised according to the
potential strategic and financial impact, the likelihood of occurrence
and the magnitude of potential impacts. Operational activity to
manage priority climate risks and opportunities is overseen by the
Executive Committee. Where necessary, additional human and
financial resources are deployed to support risk mitigation,
or opportunity realisation plans.
The Group’s climate risk and opportunity management plans are being
updated following the climate scenario analysis work undertaken
during the year. Insights from this work will inform the Group’s climate
transition planning and the advancement of efforts to further integrate
climate-related opportunities into the Group’s commercial offering and
operations management. Mitigation and realisation strategies for key
climate risks and opportunities are described on pages 46-48.
Integration of climate risk into overall risk management
Climate risk is assessed alongside other business risks using the
Group’s overall risk management framework. Executive Directors
and Senior Executives are assigned ownership of risk management
as appropriate to their roles, with climate risk sitting with the
Chief Sustainability Officer. The Executive Committee evaluates all
principal risks and their mitigations collectively twice a year.
This process ensures that climate-related risks and opportunities
are incorporated into the Group’s strategic and financial planning in
a timely and appropriate way.
An aggregated principal risk register, which includes climate risk,
is maintained by the Head of Internal Audit at a Group level.
The operational management of risks is facilitated through Group
policies and procedures, training, internal controls, reporting reviews
and approval processes, which are overseen by Group Internal Audit
and the Audit Committee.
Climate risks are monitored throughout the year to identify any
changes in the risk profile. The Risk and Sustainability Committee
supports the identification, assessment, and management of
climate-related risks. Climate risk descriptions, risk scores and
mitigating actions are assessed at least twice a year by the Executive
Committee and reviewed annually by both the Audit Committee
and the Board.
Metrics and targets
Climate-related metrics
Bodycote monitors a range of metrics to support its assessment of
climate-related risks and opportunities, and tracks performance against
targets. The following metrics are currently monitored:
– Scope 1 and Scope 2 emissions (CO2e)
– CO2e emissions intensity (CO2e / £m)
– Energy consumption (MWh)
– Energy intensity (MWh / £m)
These metrics are monitored by the Executive Committee.
Going forward, the Board will also receive a report on energy
usage on a quarterly basis. ESG metrics are included in the
annual bonus scheme.
Climate-related metrics are tracked using an EHS management
platform which is deployed groupwide to capture environmental and
health and safety data. It provides a single, comprehensive source of
EHS data, including energy and carbon data that is reported internally
and externally.
50
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Other climate-related metrics
Given the nature of our business, energy consumption is the Group’s
most material environmental topic. Bodycote’s processes are not
water intensive by design, and the Group does not produce products
to which water is added. However some water is required for some
operational processes and the Group therefore also monitors water
consumption. See page 41 for water use data and performance.
Bodycote uses an operational control approach for reported emissions.
The Group’s emissions calculation methodology is provided in the
Group’s 2023 ESG Supplement published at www.bodycote.com.
The Group’s internal audit function undertook an independent review
of the Group’s GHG emissions calculation processes during the year
and provided assurance to the Board over the operating effectiveness
of the existing controls in place.
Bodycote acknowledges the benefit of climate-related metrics to track
performance and control exposure to risk. We plan to expand our suite
of climate-related metrics in future.
Climate-related opportunity metrics
The Group’s climate strategy presents both commercial and
operational opportunities:
– Commercial opportunities
Bodycote has begun systematically tracking customers’ sustainability
requirements and new business opportunities (particularly concerning
carbon reduction) via our customer relationship management
platform. This provides useful insights into the frequency with which
we are engaging with customers on carbon reduction, and the role it
plays in winning new business.
Scope 3 emissions
Due to the nature of our business and energy consumption of our
operations, the large majority of our emissions are captured in
Scopes 1 and 2. The Group’s Scope 3 footprint does not currently
meet the materiality threshold under the SBTi framework to require a
science-based emissions reduction target (under SBTi criteria, if a
company’s Scope 3 emissions are 40% or more of total Scope 1, 2,
and 3 emissions, a Scope 3 target is required). As such, we are not
currently reporting our full Scope 3 footprint. However, we continue to
keep this under review. Meanwhile, we are working to develop our
measurement approach to support a better understanding of our
influence over value chain emissions, and in preparation for future
reporting. Our climate transition scenario analysis will be updated to
include Scope 3 emissions as appropriate at that stage.
Bodycote has a significant opportunity to support customers in
reducing the energy consumption of their manufacturing processes.
As illustrated in the case study on page 13, Bodycote can reduce
emissions associated with thermal processing by up to 60%
per part.
Climate-related targets
Bodycote has set a science-based emissions reduction target that has
been validated by SBTi. The Group commits to reduce absolute Scope
1 and Scope 2 GHG emissions by 28% by 2030 from a 2019 base year.
In 2023, the Group’s emissions were 24% below our base year.
The Group works towards an annual goal of achieving a 2% reduction
in emissions, in line with the emission reduction trajectory required to
achieve the SBTi target. Our top priority continues to be energy
reduction: improving the efficiency of our operations and reducing the
amount of energy consumed. The Group has established a core
programme of eight key emission reduction initiatives, which are being
implemented across our facilities globally. See page 40.
The Group’s energy efficiency initiatives also support decarbonisation
more widely. By optimising thermal processing for manufacturers,
Bodycote can prevent emissions that would otherwise be released
into the atmosphere. As a result, Bodycote plays a major role in
avoiding emissions and reducing industry’s impact on the climate
overall. During the year, the Group developed a new software tool to
automate the calculation of avoided emissions for customers by
outsourcing work to Bodycote, compared with completing the work
in-house. See page 39 for details.
The Group’s position on carbon offsets
In line with the science-based approach to emissions reductions,
Bodycote focuses on emissions reduction and decarbonisation.
The Group intends to only make use of carbon removal or offsets as
part of a residual emissions strategy if required in the future, or as
part of an additional initiative to compensate for emissions or support
the restoration of nature.
– Operational opportunities
The benefit of the Group’s efforts to reduce carbon emissions is
passed directly on to customers, in that it lowers the Scope 3
emissions associated with the services we provide to them.
At the same time, the Group itself benefits from reduced energy
consumption, and lower operating costs and exposure to financial
risks. See page 40 for details of the Group’s projects to reduce
operational carbon emissions.
GHG emissions and related risks
GHG emissions
2023 CO2e (kt) Associated risks
Scope 1
Scope 2
Total
Scope 1 + 2
134.3
131.0
265.3
– Price volatility of fossil fuels
– Fluctuation in electricity costs
– Increased cost of carbon
– Faster than expected growth
resulting in an increase in
emissions beyond
planned mitigation
The Group’s Scope 1 and Scope 2 emissions decreased by 2% in
2023. CO2e per £m revenue reduced by 7% compared with 2022.
The above table displays location-based emissions. The Group also
reports emissions data according to the market-based methodology
(see page 40).
The majority of the Group’s energy use relates to the consumption of
electricity and gas. A breakdown of the Group’s energy and fuel use by
source is provided on page 40. Emissions decreased in 2023 as a
result of reduced electricity and gas consumption and energy
efficiency measures in our facilities.
Scope 1 and Scope 2 emissions for the last five years are set out on
page 40. Emissions and energy consumption relating to the Group’s
UK operations are provided separately on page 41.
51
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 TCFD report continued
Task Force on Climate-related Financial Disclosures reference table
The table below is a summary of our TCFD reporting and where the relevant information can be found within this Annual Report.
Governance
Describe the Board’s oversight of climate-related risks and opportunities.
TCFD report – page 43
Describe the management’s role in assessing and managing
climate-related risks.
TCFD report – page 44
Strategy
Describe the climate-related risks and opportunities the organisation has
identified over the short-, medium- and long-term.
Describe the impact of climate-related risks on the organisations’ business,
strategy and financial planning.
Describe the potential impact of different scenarios, including a 2°C scenario
on the organisations’ business, strategy and financial planning.
Risk management
Describe the organisation’s processes for identifying and assessing
climate-based risks.
TCFD report – pages 45-49
TCFD report – pages 46-49
TCFD report – pages 46-49
TCFD report – page 50
Principal risks and uncertainties report
– page 28
Describe the organisation’s processes for managing climate-based risks.
TCFD report – page 50
Principal risks and uncertainties report
– page 28
Describe how processes for identifying, assessing and managing climate-based
risks are integrated into the organisation’s overall risk management.
TCFD report – page 50 and Principal risks
and uncertainties report – page 28
Metrics and Targets
Disclose the metrics used by the organisation to assess climate-based risks
and opportunities in line with its strategy and risk management processes.
TCFD report – pages 50-51
Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse
gas emissions and the related risks.
Describe the targets used by the organisation to manage climate-related
risks and opportunities and performance against targets.
TCFD report – page 51
TCFD report – page 51
complete
52
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Non-financial and Sustainability Information Statement
The table below sets out where information relevant to the Non-Financial Reporting Directive can be found in our 2023 Annual Report and on
our website.
Our Core Values, Code of Conduct and Group Policies underpin everything we do at Bodycote. Our Core Values and Code of Conduct ensure we
comply with all applicable international and local rules and regulations. They provide guidance, including through real-life scenarios, to help
colleagues address challenging and ethical issues they may encounter at work. The Core Values and Code of Conduct are available on our
website, and our Group Policies support and enhance our behaviour in line with the principles set out in the Code of Conduct. A description of
our business model can be found on page 15.
The Group’s climate-related disclosures consistent with the Task Force on Climate-related Financial Disclosures (TCFD) framework are on
pages 43–52 of this report. In these disclosures, details are provided about the Group’s climate-related governance, strategy, risk management
and metrics and targets.
Environmental
Standards, policies and actions
which govern our approach
– Environmental Policy
– Carbon footprint and water
consumption statements
– Initiatives to reduce energy
consumption and greenhouse
gas emissions
Social
For further information
visit pages 37, 40-41
Visit bodycote.com
Key metrics
Internal processes to
monitor performance
– Progress on reductions
in carbon footprint and
water consumption
Energy and greenhouse gas
management is tracked per
facility monthly.
Standards, policies and actions
which govern our approach
For further information
visit pages 36 to 38
Key metrics
– Performance Goal
Management System
– Occupational Health & Safety Policy
– Succession Planning Process
– Equality, Diversity and
Inclusion Policy
– Data Protection Policy
– Open Door Policy
Business Governance
Standards, policies and actions
which govern our approach
– Core Values
– Code of Conduct
– Anti-Slavery and Human
Trafficking statement
– Human Rights Policy
– Anti-Bribery and Corruption Policy
– Competition and Anti-Trust Policy
– Control and Compliance Statement
– Supplier Code of Conduct
– Tax Strategy
Visit bodycote.com
– % of female
representation in total
workforce and on
Executive Committee
and Board of Directors
– Lost work case
incident rate
Internal processes to
monitor performance
– The Executive Committee
monitors EHS performance
on a monthly basis
– The Executive Committee
monitors employee turnover
rate performance on a
monthly basis
– Recordable incident rate
– Employee Engagement
– UK Gender Pay
Gap Report
Groups
– Regular Open Door incident
update to the Board and
Executive Committee
For further information
visit page 42
Visit bodycote.com
Key metrics
% of relevant employees
trained on our policies
# of breaches
Internal processes to
monitor performance
The implementation and
effectiveness of training is
overseen by the Group General
Counsel and Group Company
Secretary.
53
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Board of Directors
1
2
3
4
5
6
Executive Directors
Stephen Harris
GROUP CHIEF EXECUTIVE
1
APPOINTED: November 2008
and Group Chief Executive from
January 2009
External roles
Non-Executive Director and Chairman
Designate of Videndum 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 and of Mondi from 2011
to 2021. At Mondi he had been the Chair of
the Sustainability Committee, the Chair of the
Social and Ethics Committee and the Senior
Independent Director.
Qualifications
Chartered Engineer, graduated from the
University of Cambridge, Master’s degree in
business administration from the University of
Chicago, Booth School of Business.
Non-Executive Directors
3
Daniel Dayan
NON-EXECUTIVE CHAIR
APPOINTED: January 2022
External roles
Non-executive Chair of CellMark AB from 2021
(not listed).
Non-executive Chair of Aquaspersions group
from 2021 (not listed).
Non-executive Chair of Trend Networks group
from 2023 (not listed).
Director of Nightingale Hammerson Trustee
Company (not listed) and subsidiary.
Past roles
Chair of Portals International from 2020 to
2022. Chair of Low & Bonar plc from 2018 to
2020, Non-Executive Director and Chair of
the Remuneration Committee of Chemring
Group plc from 2016 to 2018 and Chair of
Nonwovens Innovation & Research Institute
from 2014 to 2015. CEO of Linpac Group and
Klöckner Pentaplast Group from 2015 to 2019
and CEO of Fiberweb plc from 2006 to 2013.
Daniel spent his early career at Novar plc
until 2005 and prior to that worked at ICI and
management consultant, Arthur D Little.
Qualifications
Bachelor’s degree in Engineering from the
University of Cambridge.
5
Patrick Larmon
SENIOR INDEPENDENT DIRECTOR
APPOINTED: September 2016
External roles
Non-Executive Director of Handgards Inc.,
Box Partners LLC, DFS Inc. and Fresh Edge
LLC, none of which are listed companies.
Past roles
Was 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 in December
2018 and retired from Huttig Building Products
Inc. in 2022.
Qualifications
Graduated from Illinois Benedictine University
(major Economics & Business Economics),
is a Certified Public Accountant, completed
an MBA from Loyola University of Chicago
and a Master of International Business from
St. Louis University.
2
Ben Fidler
CHIEF FINANCIAL OFFICER
4
Kevin Boyd
NON-EXECUTIVE DIRECTOR
6
Lili Chahbazi
NON-EXECUTIVE DIRECTOR
APPOINTED: February 2023
APPOINTED: September 2020
APPOINTED: January 2018
External roles
Strategy consultant and a global partner in
the London office of Bain & Company.
Past roles
Lili began her career as an actuary before
joining Bain & Company.
Qualifications
Graduated with a BSc in Mathematics from
Concordia University, Montreal followed
by an MBA from INSEAD, Fontainebleau.
Associate of the Society of Actuaries.
External roles
None.
Past roles
Began his career in strategy consulting
working for the LEK Partnership. He moved
to investment banking in 1997, as an equity
research analyst covering the Aerospace &
Defence sector at Kleinwort Benson and
then Deutsche Bank. Joined Rolls-Royce
Holdings plc in 2017 where he held a number
of senior management positions including
Director of Group FP&A, Vice President
Business Performance and Deputy Group
CFO. Was a Non-Executive director of ITP
Aero engines in Spain and Rolls-Royce SMR.
Qualifications
Masters degree in Biochemistry from the
University of Oxford.
External roles
Non-Executive Chair of Genuit Group plc.
Non-Executive Director of Galliford Try
Holdings plc from March 2024.
Past roles
Held the positions of Chief Financial Officer at
Oxford Instruments plc, Radstone Technology
plc and at Spirax-Sarco Engineering plc
(stepped down in September 2020). He was
Non-Executive Director of EMIS Group plc
from 2014, Chair of the Audit Committee from
2019 and Senior Independent Director from
2022 until October 2023.
Qualifications
Chartered Accountant, Chartered Engineer.
Fellow of the Institute of Chartered
Accountants and the Institute of Engineering
and Technology. BEng, Electronic and
Information Engineering from Queen’s
University Belfast.
54
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
7
8
9
KEY TO COMMITTEES:
Executive
Nomination
Remuneration
Audit
Committee Chair
7
Cynthia Gordon
NON-EXECUTIVE DIRECTOR
8
Beatriz García-Cos Muntañola
NON-EXECUTIVE DIRECTOR
9 Alison Broughton
GROUP COMPANY SECRETARY
APPOINTED: June 2022
APPOINTED: September 2023
APPOINTED: January 2024
External roles
Chair and Non-Executive Director of Global
Fashion Group and Non-Executive Director
of Eutelsat Communications SA.
External roles
Chief Financial Officer of Ferroglobe PLC
(NASDAQ) and director of a number of
its subsidiaries.
Past roles
Began her career at Unilever before moving
to Lloyds Bank. Held the positions of VP
Business Marketing and VP Partnerships
& Emerging Markets at Orange – France
Telecom, was Group Chief Commercial Officer
at Ooredoo Group and former CEO of Millicom
Cellular, Africa.
Non-executive director of Kinnevik AB,
BIMA Mobile, Tele 2 AB and Bayport
Financial Services.
Qualifications
Graduated with a BA from the University of
Brighton in Business Studies.
Past roles
Began her career at Audigest, Spain, before
moving to PPG Industries. She spent several
years at Vestas Wind Systems in Spain and
then at Trafigura in Switzerland. She was Chief
Financial Officer at Bekaert in Belgium, before
being appointed as Chief Financial Officer of
Ferroglobe plc in 2019, based in the UK.
She was also a Non-Executive Director of
Bridon-Bekaert Ropes Group in the UK from
2016 to 2018.
Qualifications
Graduated with a Master’s degree in
Economics and Business Administration from
the University of Barcelona.
Past roles
Began her company secretarial career
with Enterprise Oil plc, before joining Shell
Exploration & Production Limited, part of the
Royal Dutch Shell group, following a takeover
in 2002. She spent eight years with Wolseley
plc (now Ferguson plc) as Deputy Company
Secretary, before joining Petrofac Limited
in 2011, where she was latterly the Head of
Company Secretariat.
Qualifications
A fellow of the Chartered Governance Institute.
Registered office:
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire SK10 2XF
Registered Number 519057
England and Wales.
Tel: +44 1625 505300
Board skills and experience
Strategy
M&A
International
Recent and relevant financial experience
Corporate finance/treasury
Accounting
Customer
Sales and marketing
Service industry
Environmental, including climate change
Governance
Engineering
Leadership
Emerging markets
Manufacturing
Capital-intensive industries
D. Dayan
S. Harris
B. Fidler
P. Larmon
L. Chahbazi
K. Boyd
C. Gordon
B. García-Cos
Muntañola
55
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Corporate governance statement
Chair’s message
Dear shareholders
On behalf of the Board, I am pleased to present Bodycote’s Corporate
Governance Statement for 2023.
During the year, the Board considered ongoing issues around
energy costs, inflation and interest rates, macroeconomic
uncertainties, climate change and major geopolitical events, as well
as the development of Bodycote’s business. The Board, alongside
management, sought to assess the risks and opportunities presented
by these events and to manage their impact. My role has been to
guide the debate at the Board and to ensure that our strategy
remains appropriate and on-course. In addition, I led the Nomination
Committee in the search for a new Group Chief Executive following
the announcement in May 2023 of Stephen Harris’ intention to retire
in 2024, which resulted in the appointment of Jim Fairbairn.
Regular, open and constructive dialogue with shareholders continued
throughout 2023, consistent with the Group’s broader commitment
to meaningful engagement with key stakeholders. I met several
significant shareholders personally during the year to discuss
shareholder views in relation predominantly to the recruitment of a
successor to Stephen Harris. The Group’s key stakeholders and their
various perspectives are identified and taken into account as part of
the Board’s annual strategy and corporate planning discussions and
also in project assessments and many general Board conversations.
These discussions and assessments focus not only on delivering value
for shareholders, but also address the impact of our decisions and
strategies on all stakeholders and this broad approach is a key aspect
of our culture. In relation to good governance, there is a clear
emphasis on setting the tone from the top and leading by example.
In line with the Director’s Duties, the Board’s engagement in 2023
with employees, shareholders, customers and communities is
explained in our stakeholder section on page 18.
The Group’s sustainability agenda has continued to gather pace during
the year, including the addition of further resource and investment.
A detailed report of activities can be found on pages 35 to 42.
The Board provides regular challenge and oversight of the Group’s
sustainability agenda, with environmental, health and safety
performance being reviewed at every meeting. Climate change is
continuing to rise in importance for Bodycote and its stakeholders and
as such, climate-related matters have been discussed in the context
of both the Group’s strategy and risk management during the year.
The Group continues to make good progress towards its science-
based emissions reduction target, having reduced Scope 1 and 2
emissions by 24% since 2019. Bodycote’s greatest opportunity
however lies in its ability to support customers to achieve their
sustainability goals, amplifying its impact across a multitude of
markets and sectors. Emissions per part can be up to 60% lower
when processed with Bodycote, compared with customers’ in-house
processes. The Group is augmenting its communications and
marketing tools to enable emissions savings for customers and play
its fullest role in the transition to a low-carbon economy. The case
study on page 13 provides further details about the Group’s work
to support customers’ sustainability agendas.
Ensuring high standards of business conduct is critical to the success
of the Group. In 2023, in response to employee suggestions, we
moved to a divisional model of Employee Engagement Groups led by
Non-Executive Director Patrick Larmon, with virtual meetings taking
place during the year. The feedback from these forums was reported
to the Board and the Executive Directors charged with addressing any
particular items that arose. Further information is set out on page 62.
Succession planning is a regular topic for Board discussion,
although the outcome of these discussions is only visible when new
appointments are made. For each appointment we look to appoint an
outstanding candidate, with a diverse range of relevant experience,
to maximise Board effectiveness. When considering diversity,
we recognise that this can take many forms including gender,
nationality, social, ethnic background, and cognitive and personal
strengths. Diversity at Board level and throughout the Group is
recognised by both the Board and management as a valuable strength.
The Board continued to ensure that effective Board succession plans
are in place. Ben Fidler was appointed as Chief Financial Officer in
February 2023 to replace Dominique Yates who retired from the Board
in April 2023. Beatriz García-Cos Muntañola was appointed as a
Non-Executive Director in September 2023, with her experience as a
serving Chief Financial Officer of a multinational metals group being
of particular value to Board discussions. Eva Lindqvist stepped down
from the Board at the 2023 AGM after more than nine years of service
and Ian Duncan retired in November 2023 following completion of
nine years of service.
As announced in October 2023, Jim Fairbairn will succeed Stephen
Harris as Group Chief Executive. Jim joined the business in March
2024 and Stephen will retire and step down from the Board after the
Annual General Meeting (AGM) in May 2024, following the
completion of a comprehensive handover. Jim’s track record in
leading and developing specialist global industrial businesses and
teams is outstanding, and we look forward to working with him to
drive the continuing development and growth of Bodycote.
All Directors plan to attend this year’s AGM, which will provide an
opportunity for shareholders to ask questions to the Board. I look
forward to meeting any shareholder who can join us and extend
my thanks to you all for your continued support.
Daniel Dayan
Chair
Governance framework
In respect of the 2023 financial year, Bodycote’s obligation under the
Disclosure and Transparency Rules (DTR) is to prepare a corporate
governance statement with reference to the UK Corporate
Governance Code issued by the FRC in July 2018 (‘the Code’).
The Code underpins the corporate governance framework for
premium listed companies and sets out principles and provisions of
good governance with compliance with the Code resting with the
Board. A copy of the Code is available at www.frc.org.uk. The Board
acknowledges the changes introduced to the revised Code, which
was reissued by the FRC in January 2024, and which will take
effect for financial years beginning on or after 1 January 2025.
During 2024, consideration will be given to determining what
process improvements may be required to enable the Company to
report on a comply or explain basis against this revised Code.
Compliance with the 2018 UK Corporate Governance Code
Bodycote is required to explain how the Company has complied with
the Code and this report details how the Company has applied the
principles and complied with the provisions. In respect of the year
ended 31 December 2023, Bodycote has complied with all provisions
of the Code.
During 2023, Bodycote has complied with all relevant requirements
of the DTR, the UK Listing Rules and narrative reporting requirements.
Taken together with the Reports of the Audit and Nomination
Committees, and the Board Report on Remuneration presented on
pages 67 to 91, this statement explains how Bodycote has applied the
principles of good corporate governance as set out in the Code.
56
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Code principles – Board areas of focus
Area of focus
Board leadership and Company purpose
– Regularly discussing strategy at Board meetings during
Read more on pages 10-12, 25-27
– Approving capital expenditure in excess of £4m
the year
– Receiving presentations from operational management
– Approving the Group’s strategy, budget, tax policy
on performance against the strategy
and dividend
– Considering and approving potential acquisition opportunities
– Considering and approving strategic opportunities,
e.g. acquisitions
Division of responsibilities
Read more on pages 35-53, 56-64
– Review of Board roles and responsibilities
– Modern Slavery review
– Review of Group policies
– Review of schedule of matters reserved for the Board
– Review of corporate governance code and guidelines
– Review of terms of reference of all committees
– Convening the AGM, approval of shareholder materials
– Review of environmental, health and safety updates
at each meeting
– Overview of stakeholder relationship/workforce engagement
– Determining/maintaining the Group’s values and ensuring
– Implementation of sustainability strategy, specifically
that these are reflected in business practice
including climate change
Strategic
priorities
1
4
2
5
3
6
1
5
Composition, succession and evaluation
– Considering proposals on succession planning,
when required, for the Board
– Considering the talent management programme and
the need to develop the managers and executives for
the future
– Approving further terms as Non-Executive Directors for
I.B. Duncan (to November 2023), P. Larmon, L. Chahbazi
and K. Boyd
Audit, risk and internal control
– Approval of 2022 year end and 2023 half-year results
– Recommending the final and interim dividends
Read more on pages 28-32, 67-71
– Reviewing proposals on senior executive succession planning
5
– Reviewing the size, composition and diversity of both
the Board and its Committees
– Ongoing Board training
– Tailored induction, when required
– Reviewing Board and Committee effectiveness and Directors’
conflicts
Read more on pages 72-76
– Review future scenarios and other factors in relation to audit,
risk and internal control
– Review of viability statement
– Annual review of principal and emerging risks,
– Consideration whether the Annual Report and Accounts are
risk management and control systems
fair, balanced and understandable
Remuneration
Read more on pages 77-91
– Remuneration policy review and approval (including
– Chair and independent Non-Executive Directors’ fees review
Executive Directors’ and Senior Management remuneration)
1
5
3
4
2
5
1
Safety and
Climate Change
2
Capitalising on and investing
in our Specialist Technologies
3
Investing in
Emerging Markets
4
Investing in structural
growth opportunities
5
Driving operational
improvement
6
Acquisitions
Core Values
57
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Corporate governance statement continued
Board responsibilities
Chair
Group Chief Executive
Chief Financial Officer
– overall responsibility and leadership of
– maintains strong financial management
– leadership and governance of the Board
and chairs the Nomination Committee
– oversees the Board
effectiveness programme
– ensures Board 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
Group performance
– stewardship of Group assets
– plans, implements and executes
strategies to deliver agreed objectives
– 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
– overall responsibility for the Group’s
with stakeholders
sustainability performance, and
communicates the vision and values of
the Group
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
– manages the Senior Management team
– leads the development of investor
– ensures progress on ESG impact tracking
and reporting
relations strategy and communications
– maintains relationships with key external
stakeholders, including key shareholders,
lenders, banks and credit rating agencies
Senior Independent Director
Non-Executive Directors
Group Company Secretary
– acts as a sounding board for the Chair
– provide support to executive
– secretary to the Board and
– 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
management while providing constructive
challenge and rigour
– monitor strategy and bring sound
judgement and objectivity to the Board’s
decision-making processes
its Committees
– ensures efficient information flows
within the Board and its committees
and between Senior Management
and Non-Executive Directors
– monitor management’s processes to
– facilitates induction of new Directors
ensure financial controls and systems
of risk management are robust
and defensible
– monitor reporting of performance
– scrutinise performance of management
– share skills, experience and knowledge
from other industries and environments
– are available to meet with
major shareholders
and assists with training and
development needs as required
– regularly updates the Board on
governance matters, legislative changes
and regulatory regimes affecting
the Group
– ensures compliance with
Board procedures
– coordinates external Board evaluation
and conducts internal Board evaluation
Matters reserved for the Board
The Board has a formal schedule of matters reserved for its decision-making and approval. These were reviewed during the year and updated
where required. Certain defined powers and issues reserved for the Board to decide are, inter alia:
– strategy;
– investments;
– approval of financial statements and circulars;
– equity and bank financing;
– capital projects, acquisitions and disposals;
– internal control and risk management;
– 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;
– corporate governance;
– key external and internal appointments;
– employee share incentives and pension arrangements;
– whistleblowing and review of whistleblowing arrangements; and
– environmental, social and governance topics.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Governance framework
Directors’ information and training sessions 2023 Board
January
May
June
July
September
October
December
SBTi update, ERP update, HR update
IT security update
Insurance – market overview
Risk update
ERP update, strategy update including ESG and policy reviews
Economist briefing and regulatory and corporate governance updates
Health and safety update, risk review, sustainability update, environmental update and corporate
governance review
Audit Committee
October
May and October
Remuneration Committee
September
BDO Internal Audit Perspectives
PwC updates on regulatory and accounting changes
Remuneration review – market update Deloitte
Accountability
Board information
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 (where
appropriate). They are also supplied with the latest available information on environmental, health and safety and risk management issues and
details of both the Group’s and each division’s health and safety performance, in terms of severity and frequency rates for accidents at work in
addition to the regular briefings from operational and functional management about Group-specific matters such as reports at each Board
meeting from the Group Chief Executive and Chief Financial Officer.
Cybersecurity is covered by annual briefings and ad hoc updates by the Chief Information Officer. The Board also has a programme 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.
Decision
ERP programme
Succession planning
Final dividend for 2022
Acquisition of Lake City
What happened
The Board conducted a deep dive review of the ERP programme to confirm the status and implementation
progress. This enabled the Board to endorse management‘s recommendations in relation to the ERP
programme, with consideration given to capital costs, deployment plans and implementation timelines.
In May 2023, it was announced that Stephen Harris intended to retire from the Board and the Company in
2024, following an orderly transition to his successor. The Board considered the necessary requirements for
this role, delegating the remit and process to identify suitable candidates to the Nomination Committee.
The Board understands the importance of paying dividends whilst taking a prudent view and assuring that
the Group’s cash position is protected during uncertain times.
During 2023, the Board considered the acquisition of two specialist technology-focused businesses in the
US, which were complementary to existing operations and which would expand our geographic footprint
and customer reach. The acquisition of Lake City Heat Treating, a leading HIP and vacuum heat treatment
business was completed on 19 January 2024. The acquisition of the other business did not complete due
to a failure to satisfy all closing conditions to the agreement.
The Board’s areas of focus in 2024 are expected to include:
– Reviewing the new Group Chief Executive’s proposals in relation to organisational structure, strategy and market communication;
– Increased emphasis on the challenges and opportunities arising from climate change, and sustainability and ESG matters more broadly;
– Group culture;
– Board dynamics, diversity and development, aided by an external Board evaluation process;
– Execution of strategic priorities;
– Continued monitoring of financial and operational performance;
– Continued overview of the ongoing ERP implementation programme;
– Continued strong focus on safety improvements;
– Oversight of the share buyback programme, which will commence in March 2024; and
– Principal and emerging risks review.
59
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Corporate governance statement continued
Governance Report
Board and Board Committees meeting attendance
Each year the Board has a full programme of scheduled meetings, which are supplemented with ad hoc meetings, as required. During 2023,
the Board met on nine occasions and Director attendance for meetings held during 2023 is set out below.
All Directors are encouraged to engage actively and effectively during meetings, with scrutiny and constructive debate encouraged.
Non-executive Directors are able to seek clarification on any key points from management when required.
Senior Management from across the Group and advisers are routinely invited to attend and present at meetings to provide updates and context.
This exposure allows specific matters to be brought to the attention of the Board, and for the Board to gain awareness of specific nuances that
may not always be obvious in written reports. 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.
It is also felt this provides the Directors with the opportunity to consider key individuals who have been identified through the succession
planning process.
Meetings held during the year
Executive Directors
Stephen Harris
Ben Fidler1 (appointed 24 February 2023)
Non-Executive Directors
Daniel Dayan
Patrick Larmon2
Kevin Boyd
Lili Chahbazi3
Beatriz García-Cos Muntañola4
Cynthia Gordon
Former Directors
Dominique Yates5
Eva Lindqvist6
Ian Duncan7
Board
Formal meetings
9
Audit
Committee
4
Nomination
Committee
8
Remuneration
Committee
5
Meetings attended Meetings attended Meetings attended Meetings attended
n/a
n/a
n/a
n/a
n/a
n/a
9
8
Meetings attended Meetings attended Meetings attended Meetings attended
n/a
5
5
4
4
5
n/a
4
4
3
1
4
9
9
9
9
4
9
8
7
8
7
3
8
3
3
9
n/a
2
4
n/a
3
7
n/a
2
4
1 Ben Fidler was appointed to the Board with effect from 24 February 2023 and attended all meetings after his appointment.
2 Patrick Larmon was unable to attend one Nominations Committee meeting due to a pre-existing commitment.
3 Lili Chahbazi was unable to attend the Committee meetings on one occasion due to a pre-existing commitment.
4 Beatriz García-Cos Muntañola was appointed to the Board with effect from 1 September 2023.
5 Dominique Yates stepped down from the Board on 30 April 2023.
6 Eva Lindqvist stepped down from the Board following the AGM on 31 May 2023.
7
Ian Duncan stepped down from the Board on 17 November 2023.
The Chair and Executive Directors also attended, by invitation, some parts of the Audit, Nomination and Remuneration Committees meetings,
when relevant.
There were five Employee Engagement Group meetings held during 2023. These meetings are chaired by Patrick Larmon, and are supported
by the Divisional Presidents and the Chief Human Resources Officer.
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 comprised nine members for the majority of 2023 until the retirement of Ian Duncan in November, when the composition dropped to
eight members. On 11 March 2024, the Board composition returned to nine members following the appointment of Jim Fairbairn as Group Chief
Executive designate, now comprising six Non-Executive Directors and three Executive Directors, led by the Group’s Non-Executive Chair,
Daniel Dayan, who also chairs the Nomination Committee. The outgoing Group Chief Executive is Stephen Harris, and the Senior Independent
Non-Executive Director is Patrick Larmon, who took over the role from Ian Duncan from 31 May 2023. Kevin Boyd is Audit Committee Chair
and Cynthia Gordon is Remuneration Committee Chair, having taken over this role from Eva Lindqvist from May 2023. Biographical details of
all Directors in office at 31 December 2023 are given on pages 54 and 55. During the year the Board visited facilities in Surahammar, Sweden
and Izmir, Turkey. Such events involve meeting with local management and the workforce to understand technical and operational performance
more clearly in countries where Bodycote has a significant presence.
60
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Proposals for re-election
The Board has 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 each AGM. In accordance with the Articles of Association, all newly
appointed Directors must submit themselves for election and accordingly, Beatriz García-Cos Muntañola and Jim Fairbairn will stand for election
at the AGM to be held in May 2024 having been appointed in September 2023 and March 2024, respectively.
Non-Executive Directors, including the Chair, are appointed for fixed terms not exceeding three years from the date of first election by
shareholders (maximum of two three-year terms), after which their appointment may be extended by mutual agreement on an annual basis.
The Board recommends to shareholders that they elect and re-elect all Directors. Following completion of the annual evaluation process,
the Board remains satisfied that it continues to operate effectively and, following an assessment of their performance through individual
reviews, the Chair also confirms in respect of each Director that their performance continues to be effective and that each continues to
demonstrate commitment to his or her respective role.
Board evaluation
The Board understands the benefits of annual performance evaluations, both for Directors on an individual basis, as well as for the Board as a
whole. It continually strives to improve its effectiveness and believes these evaluations can provide a valuable opportunity to highlight strengths,
identify any weaknesses and therefore drive continuous improvements.
The Code requires the Board to undertake a formal and rigorous annual evaluation of its performance and that of its Committees, with a
provision requiring that this be externally facilitated every three years. The Board’s last external evaluation was completed in 2021, with the
next scheduled to be undertaken during 2024.
In accordance with the Code and our three-year cycle, the Chair and the Group Company Secretary internally facilitated this year’s review of
the Board’s effectiveness. To ensure that all aspects of good governance were covered by the review, a tailored questionnaire was distributed 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.
The process of the internal Board and Committee evaluation consisted of four steps: a) design and initiation; b) data collection; c) review by
chairs; and d) discussion and actions. The Board evaluation covered the activities of the main Board and each of its Committees. At a meeting
of the Nomination Committee in December 2023, the Directors assessed the conclusions reached and are in the process of implementing
a number of recommendations. Additional emphasis will be placed on succession planning, reviewing longer-term strategy and developing
a wider approach to ESG.
Arising from this exercise, the Board concluded that its focus should remain on divisional growth strategies, risk and sustainability, as well as
continued training. The overall conclusion was that the Board is performing well, with high governance standards adopted. The Executive
Directors are strongly challenged by the Board when appropriate.
Led by the Senior Independent Director, the Directors carried out an evaluation of the Chair’s performance in 2023. The Board was satisfied
with the Chair’s commitment and performance.
Training
Training is provided to employees where and when required, and it is important that Directors continue to develop and refresh their
understanding of the Group’s activities. Every year, the Board, as part of the organised site visits, meets local operational management,
allowing the Directors to familiarise themselves with the technologies used, business dynamics, logistics, health and safety standards and
customers served. Plant visits to Surahammar in Sweden and Izmir in Turkey were undertaken during 2023. The Board is kept informed of
relevant developments in the Group by way of monthly management reports and the progress of capital projects.
It is also essential that Directors regularly refresh and update their skills and knowledge with both external and internal training.
Members of the Board individually attend seminars, conferences and training events to keep up to date on developments in key areas.
Board meetings include presentations from Group experts to ensure the Directors have access to the wealth of knowledge within
the Group, as well as presentations and briefings from external providers.
61
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Corporate governance statement continued
The Board structure
Shareholders
Key responsibilities
Chair
– Effective running of the Board
– Monitors progress of strategy and objectives
– Guidance to Executive Directors
– Safeguards the interests of shareholders
Key responsibilities
– Oversight of the Group’s strategy and the
long-term success of the Group’s business
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Finance
Committee
Monitors the
integrity and
effectiveness of
the Group’s
financial reporting
and performance
of audits and
assesses
financial risks
Ensures an
effective Board
that consists of
individuals with
the right balance
of skills,
knowledge
and experience
Determines
remuneration
policy and senior
executives’
remuneration
packages
Implementation
of treasury and
tax policies and,
within limits
defined by
the Board,
authorises capital
expenditure
and other
financial activities
Employee
Engagement
Groups
Assist the Board
as a workforce
engagement
mechanism and
in understanding
the views
of employees
Group CEO
– Responsible for: Risk &
Sustainability Committee
and Executive Committee
Risk and
Sustainability
Committee
Monitors and
provides insight
on risk and
sustainability
issues, in particular,
climate change
Executive
Committee
Focuses on the
development and
implementation
of the Group’s
strategy,
financial structure,
organisational
development and
policies as well
as reviewing
financial
performance
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.
In addition, the Board and the Executive Committee each take every
opportunity to meet with local employees when visiting different
business locations. During 2023, the Board visited the Surahammar
site in Sweden, the Executive Committee visited the Rodengo and
Madone sites in Italy and the Board and Executive Committee both
visited the Izmir site in Turkey.
The Employee Engagement Groups
We currently have five Divisional Employee Engagement Groups,
organised along divisional lines in Europe and North America,
which meet either in person or virtually at least annually. The Groups
are chaired by Patrick Larmon, the designated Non-Executive
Director, with meetings facilitated by Divisional Presidents.
Representatives from across the business are members of the
Groups, and participation is rotated at certain intervals to allow a
variety of opinions and voices to be heard and to ensure continued
effectiveness. The Board feels that these Employee Engagement
Groups assist them in understanding the views of employees and
act as a conduit of information from employees directly to the Board.
Main activities of the Employee Engagement Groups
Participants are encouraged to discuss all aspects of the business
including views, motivations and conditions of employees of
Bodycote. This applies to all levels and activities across the Group.
However, individual grievances or employment conditions of
individual employees are not part of the remit of the Employee
Engagement Groups.
The minutes of meetings are submitted with Board meeting
papers and are presented to the Board by the designated
Non-Executive Director.
As a global business with operations in over twenty countries,
diversity is an integral part of our culture and how we do business.
The Group recognises the benefits of diversity in its broadest sense
in strengthening the Board and its decision-making, and appoints
Directors on the basis of relevant skills, knowledge, personality,
diversity, and experience. The Group’s intention is always to appoint
the most suitably qualified candidate to complement and balance the
current skills, knowledge, experience and diversity of the Board, and
who will be best able to lead the Company in delivering its long-term
strategy. The Nomination Committee also considers an individual’s
capability and capacity to commit the necessary time to the role in
its recommendations to the Board.
Bodycote acknowledges the changes introduced by the FCA Listing
Rules (LR 9.8.6R(9)) relating to diversity at board and executive
management levels, which require enhanced information to be
reported and disclosure against targets on the representation of
women and ethnic minorities. These changes recommend that at
least 40% of the board are women; at least one of the senior board
positions of chair, chief executive, senior independent director or
chief financial officer is held by a woman; and that at least one
individual on the board is from an ethnic minority background.
Bodycote has achieved the target of having at least one individual on
the Board from a minority ethnic background but while representation
of women on the Board increased from 33% in 2022 to 37.5% as
62
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 31 December 2023, the Company has yet not met the updated
gender diversity targets. The Nomination Committee acknowledges
the improvements achieved in our Board diversity figures to date and
will continue to consider gender and ethnic diversity requirements
as part of its succession planning discussions, especially in relation to
any vacancies that arise in the senior Board positions over the
coming years.
Details of female representation at senior management level and
across the workforce as a whole are provided in the Sustainability
Report on page 38, where we also disclose further details about
the Group’s approach to diversity, equity and inclusion.
In accordance with LR 9.8.6(10) of the FCA’s Listing Rules,
the following tables detail the diversity profile of the Board and
the Executive Committee as at 31 December 2023:
Board and Executive Management diversity
Gender categories
ONS gender category
Men (including those self-identifying as men)
Women (including those self-identifying as women)
Non-binary
Not specified/prefer not to say
Ethnicity categories
ONS ethnicity category
White British or White Other
Mixed/Multiple ethnic groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group
Not specified/prefer not to say
No. of Board
members
5
3
0
0
% of Board
62.5%
37.5%
n/a
n/a
No. of Board
members
6
1
1
0
0
0
% of Board
75.0%
12.5%
12.5%
n/a
n/a
n/a
No. of senior
positions on
the Board
(CEO/CFO,
SID or Chair)
4
0
0
0
No. of senior
positions on
the Board
(CEO/CFO,
SID or Chair)
4
0
0
0
0
0
No. in
executive
management
8
5
0
0
% of
executive
management
61.5%
38.5%
0
0
No. in
executive
management
12
1
0
0
0
0
% of
executive
management
92%
8%
0%
0
0
0
The data was collected by asking the individuals concerned. The reference date used was 31 October 2023, in line with the reference date used
for completion of the FTSE Women Leaders Review submission. Our Equality, Diversity and Inclusion Policy is available on our website at the
following address: www.bodycote.com/investors/governance/our-policies.
Shareholder relations
Stakeholder engagement enables the Board to better understand what matters to each stakeholder group, and recognising their differing
interests is integral to Board discussions and central to the execution of our strategy. The engagement with our stakeholder groups is discussed
in more detail on pages 18 and 20.
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. Additional sessions
are also held with stakeholders following the publication of our full-year and half-year financial results. In addition, up-to-date news on the Group
and its share price, including copies of recent announcements and results presentations, are available to all stakeholders at www.bodycote.com.
Our Chair, Daniel Dayan, engaged with the top 10 shareholders during 2023 following the announcement of Stephen Harris’ retirement and
again on the announcement of Jim Fairbairn’s appointment as Group Chief Executive designate. Where requested, meetings took place during
June, July, October and November 2023.
We have communicated with existing and potential shareholders in a number of different ways during the year:
March 2023
– Full year results announcement and results presentations
– UK shareholder roadshow
– Annual Report and Accounts and Notice of AGM posted to shareholders and placed on the website
May 2023
– Trading Update
– Annual General Meeting
July 2023
– Half-year results announcement and results presentation
September 2023
– UK shareholder roadshows
– Update on Group Chief Executive appointment with major shareholders
November 2023
– Trading Update
63
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Corporate governance statement continued
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, enabling them to better understand investor sentiment.
The Chair and Senior Independent Director (SID) are also available
to discuss any issues not able to be resolved by the Group Chief
Executive and Chief Financial Officer. On specific issues, such as
the review of remuneration packages or elevated levels of votes
against a resolution, the Group has sought, and will continue to seek,
the views of certain investors.
Director support
All Directors have access to Executive Management and to additional
information, as is needed, to discharge their duties and responsibilities
fully and effectively. In addition, the Company also has procedures in
place for Directors to seek independent professional advice, the cost
of which is reimbursed by the Group, where they judge it necessary to
discharge their responsibilities. All Directors have access to the Group
Company Secretary, and they may also address specific issues with
the SID. A statement of the Directors’ responsibilities is set out on
page 92.
Business ethics and culture
A healthy culture is one in which the Group has a purpose, values
and strategy that are respected by the Group’s stakeholders and an
operating environment that is inclusive, diverse and engaging;
encouraging employees to make a positive difference for stakeholders.
Corporate culture is guided by the principles against which the Board
monitors how the culture exists and is viewed by employees.
These are:
– Core Values as explained in the Sustainability section on
pages 35 to 42
or indicate a need for more extensive monitoring. The Audit
Committee assists the Board in discharging these responsibilities.
The emerging risk review, based around horizon scanning, has
explored what the future might look like and seeks to identify early
warning signals. Emerging 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 emerging
risks that have been considered by the Board include geopolitical
risk, more specifically, the unpredictable geopolitical landscape and
uncertainty over future global events. More information on emerging
risk reviews can be found on page 28.
The Board is satisfied that the Group maintains an effective system
of internal controls and that there were no significant failings or
weaknesses in the system. The system was in operation throughout
2023 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 include:
– Key financial, legal and compliance policies that apply across the
Group including: Detailed Financial Policies, Group Authority Matrix,
Anti-Bribery and Anti-Corruption, Anti-Slavery and Human Trafficking,
Core Values and Code of Conduct. There are also procedures
in place for the identification, reporting and resolution of potentially
fraudulent activities.
– A comprehensive financial planning, accounting and
reporting framework.
– Financial control self-assessments (CSAs) have been developed and
implemented throughout the Group. The CSAs provide confirmation
that key internal controls are operating effectively throughout the year.
The CSAs are verified by IA on a periodic basis and the findings and
any recommendations from IA are reported to the Executive and
Audit Committees on a regular basis.
– Attitudes as summarised in the Group Policies
– An annual internal control self-assessment, with management
– Behaviours as stated in the Group’s Code of Conduct
The ongoing implementation of key messages and expectations is
driven through initiatives overseen by the Executive Committee and
the divisions. This includes targeted communications and mandatory
training, with the output reported back to the Board.
The role of the Board in relation to purpose, strategy, long-term goals
and stakeholder engagement is key in supporting a healthy corporate
culture. The Board’s Committees support this role and the Board
recognises that this continues to be an evolving area.
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 risk management
and internal control systems. These systems have 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 Audit Committee
assists the Board in the effective discharge of its responsibilities
for financial reporting, risk management and internal control, with
the Audit Committee well-placed to challenge the performance of the
Group‘s financial reporting, risk management and internal control
systems to safeguard the interests of shareholders,
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 failings or weaknesses are promptly remedied
64
certification, are also undertaken at every Bodycote plant.
The assessments cover the effectiveness of key financial, compliance
and selected operational controls. The results are validated by IA
through audit sampling and are reported to the Executive and
Audit Committees.
Bodycote has engaged BDO to monitor and assist in improving the
Group’s internal control system. IA reviews are conducted on the
basis of a risk-based plan approved annually by the Audit Committee.
During 2023, in compliance with Provision 29 of the Code,
the Executive Committee performed an assessment of its risk
management processes by holding risk reviews which were
conducted via an internally facilitated risk workshop and an externally
facilitated workshop with BDO. Management’s assessment, which
has been reviewed by the Board, included a review of the Group’s
key strategic, operational and emerging risks. As a result of the risk
reviews, it was concluded that there would be no changes to the
principal risks as at December 2023. Refer to pages 28 to 32 for
further information on principal risks and uncertainties affecting
the Group.
Annual General Meeting
The 2024 AGM will be held on 30 May 2024 in accordance with
the notice being sent to shareholders under separate cover.
All resolutions to be considered during the AGM will be conducted
on a poll, with the results announced to the market as soon as
practicable after the meeting.
By order of the Board:
A. Broughton
Group Company Secretary
15 March 2024
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Directors’ report
Directors’ report
The Directors are pleased to submit their report and the audited
financial statements for the year ended 31 December 2023.
Capital structure
Details of the issued share capital are shown in note 22 of the
consolidated financial statements.
The Chair’s statement, the Group Chief Executive’s review on pages
10 to 12, the Chief Financial Officer’s report and all the information
contained on pages 25 to 27, together comprise the Directors’ report
for the year ended 31 December 2023. For going concern, please see
the Chief Financial Officer’s statement on page 27 and pages 104
and 105 of the consolidated financial statements.
Strategic report
The Strategic report is provided on pages 1 to 53 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 2023,
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. Such statements should be regarded with caution due
to the inherent uncertainties in economic trends and business risks.
Since the end of the financial year, no significant events affecting
the business of the Group have occurred.
Dividends
The Board has recommended a final dividend of 16.0p (2022: 14.9p)
bringing the full year dividend to 22.7p per share (2022: 21.3p).
If approved by shareholders, the final dividend of 16.0p per share
will be paid on 6 June 2024 to all shareholders on the register at
the close of business on 26 April 2024.
Share capital
The Company’s issued ordinary share capital as at 31 December 2023
was £33.1m. No shares were issued during the year. At the Annual
General Meeting on 31 May 2023, the shareholders authorised
the Company to purchase up to 19,145,617 of its own shares.
This authority will expire at the conclusion of the forthcoming
Annual General Meeting to be held on 30 May 2024, at which time
a further authority will be sought from shareholders.
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 24 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 2006, 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 pages 56 to 64. Under the
Articles of Association, the Company has authority to issue ordinary
shares with a nominal value of £11,023,234.
There are 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 Directors in office as at 31 December 2023 and their biographies
are listed on pages 54 and 55 and all apart from Ben Fidler and
Beatriz García-Cos Muntañola served throughout the year. In line with
the UK Corporate Governance Code, all Directors retired at the Annual
General Meeting (AGM) held in 2023 and, save for Eva Lindqvist,
stood for re-election by the shareholders. All Directors who were in
office at the year end will retire at the AGM to be held in 2024 and,
if they wish to continue to serve as Directors of the Company, will
stand for re-election by the shareholders. Stephen Harris announced
his retirement on 31 May 2023 and will retire and step down from the
Board on 30 May 2024. He will therefore not stand for re-election at
the 2024 AGM. Beatriz García-Cos Muntañola having joined the Board
on 1 September 2023 will stand for election, having been appointed
to the Board since the last AGM. Jim Fairbairn was appointed to
the Board with effect from 11 March 2024 as Group Chief Executive
designate, to succeed Stephen Harris from 31 May 2024.
Jim will stand for election at the 2024 AGM.
Dominique Yates retired from the Board as Chief Financial Officer
on 30 April 2023 and Eva Lindqvist and Ian Duncan each stepped
down as Non-Executive Directors on 31 May 2023 and 17 November
2023 respectively.
65
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Employee and stakeholder engagement
Information relating to engagement with employees and other
stakeholders, including customers and suppliers, can be found in
the Strategic report on page 18 and in the Corporate Governance
report on pages 62 and 63.
Greenhouse gas emissions
Details of greenhouse gas emissions and Streamlined Energy
and Carbon Reporting (SECR) are included within the Sustainability
section of this report on pages 40 and 41.
Donations
There were no political contributions made during 2022 or 2023.
Shareholders
An analysis of the Company’s shareholders and the shares in issue
as at 29 February 2024 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 159.
External auditor
In accordance with the provisions of section 489 of the
Companies Act 2006, a resolution for the reappointment of
PricewaterhouseCoopers LLP (PwC) as external 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:
– as 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 2024 Annual General Meeting will be held on 30 May 2024
in accordance with the notice being sent to shareholders under
separate cover.
By order of the Board:
A. Broughton
Group Company Secretary
15 March 2024
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 within the Directors’ report on remuneration on pages 77
to 91. No Director has had any dealings in any shares or options in
the Company since 31 December 2023. 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.
Qualifying third-party indemnity provisions (as defined by section 234
of the Companies Act 2006) have remained in force for the Directors
for the year ended 31 December 2023 and, as at the date of this
report, remain 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. To ensure all
Directors have complied with these duties, each Director provided the
Company with a formal declaration to disclose what, if any, Situational
Conflicts affected him or her. The Board reviewed these declarations
and approved the existence of each declared Situational Conflict up to
September 2024 and permitted each affected Director to attend and
vote at Bodycote Directors’ meetings, on the basis that each Director
continued to ensure Bodycote’s information remained confidential,
and provided overall that such authorisation remained appropriate and
in the interests of shareholders. Where such authorisation becomes
inappropriate or are no longer in the interests of Bodycote’s
shareholders, either 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 on the performance and progress
of the Group, the contribution to the Group made by their site,
and are advised of any safety and health issues. Employees can
voice any concerns through the Group’s anonymous and confidential
Open Door Whistleblowing Helpline, a phone line that can be
accessed in the local language.
Approximately 3,000 Bodycote employees are connected to
the Bodycote intranet, which aims to improve knowledge of
Group activities, and assists greatly with technology exchange
and coordination.
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.
Should an employee become disabled, the Group will endeavour to
seek to continue the employment, arranging appropriate retraining
and adjusting the employee’s work environment where practical.
An equal opportunities policy is in operation across the Group.
66
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Report of the Nomination Committee
Committee membership
Chair
D. Dayan
Members
K. Boyd
L. Chahbazi1
B. García-Cos Muntañola
(appointed 1 September 2023)
C. Gordon
P. Larmon1
Former
Members
I.B. Duncan
(resigned 17 November 2023)
E. Lindqvist
(resigned 31 May 2023)
Dear Shareholders,
Attendance
Main committee responsibilities
8/8
8/8
7/8
3/3
8/8
7/8
7/7
3/3
– Regularly review the structure, size and composition (including the skills,
knowledge, experience, and diversity) of the Board and make
recommendations to the Board with regard to any changes.
– Give full consideration to succession planning for Directors and other
senior executives.
– Be responsible for identifying and nominating for the approval of the Board,
candidates to fill Board vacancies as and when they arise.
1 Ms. Chahbazi and Mr. Larmon were each unable to attend one Nomination Committee meeting due to
pre-existing appointments.
I am pleased to introduce the Nomination Committee report for 2023, which provides an overview of the work of the Committee and its
activities during the year.
Board composition is a key focus for the Committee, to ensure that the Board has the right skills and experience to direct the Company
in the successful execution of its strategy.
Succession planning remained the focus for the Committee during the year, with the appointment of Jim Fairbairn as Group Chief Executive-
designate to succeed Stephen Harris being the most significant piece of work undertaken. Stephen Harris will step down from the Board at
the 2024 AGM. On behalf of the Board, I would like to thank Stephen wholeheartedly for his remarkable stewardship of Bodycote over the past
16 years, marked by his definition of new strategies, determined execution, drive for excellence and leadership of the senior management team,
all of which have contributed to significant value creation over an extended period.
Ben Fidler was appointed as Chief Financial Officer designate in February 2023 to replace Dominique Yates, who retired from the Board in
April 2023. Beatriz García-Cos Muntañola was appointed as a Non-Executive Director in September 2023 to succeed Ian Duncan, who stepped
down from the Board in November 2023 after his nine years’ service as a Non-Executive Director. In May 2023, following the conclusion of the
AGM, Eva Lindqvist also stepped down from the Board after more than nine years‘ service as a Non-Executive Director. We thank Eva, Ian and
Dominique for their service and wise counsel. The Committee will continue to focus on ensuring that the composition of the Board remains
appropriate and that all relevant UK Corporate Governance Code requirements continue to be met.
I am pleased to confirm that, following an internal review of the effectiveness of our Board and its committees, the Committee continues
to operate effectively.
Daniel Dayan
Chair of the Nomination Committee
67
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Report of the Nomination Committee continued
Role of the Nomination Committee
The Nomination Committee is a sub-committee of the Board, the principal purpose of which is to review the structure, size and composition
of the Board, which includes advising on the appointment and, if necessary, removal of Directors. The Committee’s terms of reference,
which can be found on the Group’s website, include all matters required by the UK Corporate Governance Code (‘the Code’). The terms of
reference are reviewed annually, with any required changes referred to the Board for approval. No changes were made to the terms of
reference during the year.
Recruitment Process
Succession
planning
Board
composition
Recruitment
Selection
Interview
Balance
of skills
– Vacancy for a Director is identified when one of the existing Directors confirms his/her
intention to resign or retire, or when it is decided to add another NED to the Board
– The need for specific knowledge, skills and role behaviours is identified during
discussions at Nomination Committee meetings
– External search consultancies with international reach are appointed to assist
with any search
– A sub-committee examines a 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 are carefully
considered ensuring that the Board has the right skills and experiences
Appointment
– The new Director is announced as joining the Board
Induction
– The Committee and the Group Company Secretary play an active part in an induction
programme, which is tailored to the needs, skills and experiences of the new Director
Key activities
Board composition/succession planning
Non-Executive Directors
– Recruited a new Group Chief Executive during 2023, to join
– Reviewed continued independence of the Non-Executive Directors
the Board in March 2024
– Reviewed the Non-Executive Director time commitments and risk
– Reviewed and updated succession plans for the Board and
of over-boarding
Senior Management
– Recruited a new Non-Executive Director in September 2023
to succeed a Director retiring from the Board
Diversity
Governance and evaluation
– Considered the updated diversity requirements required following
– Reviewed the Committee’s Terms of Reference
the changes to the UK Listing Rules
– Evaluated the Committee’s effectiveness
– Reviewed the performance of Executive Directors
Director appointment policy
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, knowledge, experience and diversity of the Board, determines the qualities and
experience they require and then prepares a detailed description of the role with a view to appointing the most appropriate candidate.
The Committee uses open advertising and the services of independent external advisers to facilitate the search, as appropriate.
A long list of candidates is drawn up, from which an appropriate number will be selected for interview. Upon completion of the process,
the Committee will recommend to the Board the appointment of the preferred candidate.
68
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Board tenure (years)
Board diversity
Board composition
3
2
2
<2
2-3
5-7
1
>10
Female
Male
White
BAME
3
5
6
2
Executive
Directors
2
Non-executive
Chair
1
Independent
Non-Executive
Directors
5
Composition of the Nomination Committee
As recommended by the Code, the Chair of the Board acts as the Chair of the Committee whose members comprise our Non-Executive
Directors. The Chair cannot chair the Committee when it is dealing with either the succession to the Chair 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.
Board changes
During 2023, we welcomed Ben Fidler, who joined the Board as Chief Financial Officer designate on 24 February 2023, succeeding Dominique
Yates, who retired from the Board on 30 April 2023. Ben joined the Group from Rolls-Royce Holdings plc, where he had held a number of senior
management positions, most recently as Deputy Chief Financial Officer. We also welcomed Beatriz García-Cos Muntañola, who joined the Board
as an independent Non-Executive Director on 1 September 2023. Beatriz is an experienced Chief Financial Officer, with significant international
and sector experience, including extensive experience in capital markets. The retirement of Stephen Harris was announced on 31 May 2023 and
the appointment of his successor, Jim Fairbairn, who joined the Board on 11 March 2024, was announced on 18 October 2023. Stephen will
retire from the Board on 30 May 2024 after the completion of Jim Fairbairn’s induction and the conclusion of a comprehensive handover process.
Each of these recruitment processes was led by the Chair, who was advised by two international search consultancies. In relation to Ben Fidler‘s
appointment, Russell Reynolds were appointed, and for the appointments of Beatriz García-Cos Muntañola and Jim Fairbairn, Egon Zehnder
were appointed. As part of each search process, the respective search consultancies were instructed to identify candidates who met the skills,
experience and leadership behaviours required for the relevant roles, recognising that the Committee remains committed to ensuring that any
Board appointment is filled by the best available candidate, with complementary skills, capabilities, experience and background to address the
Board’s needs, irrespective of any other consideration. Both Russell Reynolds and Egon Zender were briefed on our diversity policy and were
required to reflect the policy in the long list submitted to the Committee. Neither Russell Reynolds nor Egon Zehnder have any other
connections to Bodycote plc that extend beyond executive searches for the Board.
Directors’ induction and training
On appointment to the Board, all Directors undertake a tailored and comprehensive induction programme, which is intended to account
for each individual’s differing requirements, concentrating on key focus areas. This ensures Directors are fully prepared for their new role,
taking their background and experience into consideration. Each programme also considers existing expertise and any prospective Board
or Committee roles.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Report of the Nomination Committee continued
In advance of Jim Fairbairn’s appointment to the Board in March 2024, arrangements were made for him to gain a thorough understanding of
the Group with plant visits, introductions and briefings organised to ensure he was provided with the opportunity to ask questions relating to
strategic, financial and operational matters.
Details of the Board induction programmes undertaken by the three newly appointed Directors are set out below:
Board induction programme
Topic
Business strategy
Finance
Governance
Legal
IT
Operations
Facilities
Ben Fidler
undertaken during 2023
Meetings with Group Chair,
Group Chief Executive and
Senior Managers
Beatriz García-Cos Muntañola
undertaken during 2023
Jim Fairbairn
undertaken since December 2023
Meetings with Group Chair,
Group Chief Executive and
Senior Managers
Meetings with Group Chair,
Group Chief Executive and
Senior Managers
Meetings with Group Finance teams,
including Head of Internal Audit,
Director of Finance, Group Financial
Controller and Head of Tax & Treasury.
Meetings with top shareholders and
house analysts
Meetings with Chief Financial Officer.
Meetings with Head of Internal Audit,
Director of Finance, Group Financial
Controller and Head of Tax & Treasury
to be arranged
Meetings with Chief Financial Officer,
with top shareholders and house
analysts. Meetings with key members
of the Group Finance team to be
arranged
Meeting with Group Chair,
Company Secretary and the
Non-Executive Directors
Meetings with the Group Chair
and Company Secretary
Meeting with Group Chair,
Company Secretary and the
Non-Executive Directors
Meeting with General Counsel
Meeting with General Counsel
Meeting with General Counsel
Meeting with Chief Digital Officer
Meeting with Chief Digital Officer
Meeting with Chief Digital Officer
Meetings with the Group Chief
Executive, Executive Committee
members and Presidents
Meetings with the Group Chief
Executive and Executive Committee
members
Meetings with the Group Chief
Executive, Executive Committee
members and Presidents
11 visits have taken place – in the UK,
US, Sweden and Turkey, with further
site visits scheduled during 2024
Two visits have taken place, one in
Turkey and one in Czech Republic,
with further site visits scheduled
during 2024
Nine visits have taken place – in the
US, Czech Republic, Hungary and
Slovakia. This also included working on
the shop floor at a plant in California.
Further site visits have already been
scheduled during 2024
The Board believes that continuous training and development supports Board effectiveness. The Company is therefore committed to offering
tailored training to provide each Director with the necessary resources to refresh, update and enhance their skills, knowledge, and capabilities.
As part of the mandatory training programme, all Directors are required to complete courses which address areas most pertinent to
Bodycote and their roles on the Board. This covers both statutory obligations and ethical considerations and includes topics such as the legal
duties of a director, competition law, anti-bribery and corruption, anti-tax evasion, the share dealing code, data protection, IT security,
and anti-slavery regulations.
Board succession planning
The Committee spent time throughout 2023 considering succession planning across the business. The Committee received papers on
Executive Director and Senior Management succession, which includes members of the Executive Committee and all Senior Management
roles within the business. The plans identify immediate successors for these roles as well as the candidates as potential successors to roles
in the longer-term. The Committee was satisfied that these 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 diversity in its widest form. 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.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Nomination Committee – allocation of agenda time
Board composition and succession planning
Performance of Chairman and Group Chief Executive
Governance and reporting
Independence and re-election
53%
25%
17%
5%
Main activities of the Nomination Committee
In 2023 the Committee met formally eight times, reviewing the composition and skills of the Board, with a view to considering the current
and future experience that the Board might require.
During the year, and in accordance with Provision 23 of the Code, the Committee discussed Board diversity and the diversity pipeline and
reviewed the performance of the Group Chief Executive and other senior executives. In particular, the Committee discussed the Board
membership with consideration given to gender, ethnicity and age. 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 63 as part of the Corporate governance statement. At the date of the
report, female representation on the Board was 33% due to the overlap of the retiring and incoming Group Chief Executives, however this
will return to 37.5% following the 2024 AGM.
Following the external Board evaluation undertaken in 2021, the Board evaluation process this year was internally facilitated. Further details
on the actions arising from this review can be found on page 61 in the Corporate governance statement of the Annual Report.
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.
In December 2023, 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 training and induction programmes for the Directors.
The terms of reference of the Committee were reviewed, with a copy available on the Company’s website. The biographical details of the
Directors in office at 31 December 2023 can be found on pages 54 and 55. The Committee, having reviewed its independence and contribution
to Board matters, confirms that the performance of each of the Directors standing for re-election at this year’s Annual General Meeting
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 with
the exception of Stephen Harris who will retire from the Board in May 2024, be proposed for election and/or re-election at the forthcoming
Annual General Meeting.
As Chair of the Committee, I will be available at the Annual General Meeting on 30 May 2024, to answer any question relating to the work
of the Committee. Questions can be submitted in advance of the meeting either to the registered office address or to agm@bodycote.com.
Representative answers will be published on the Company website in due course.
On behalf of the Nomination Committee:
D. Dayan
Chair of the Nomination Committee
15 March 2024
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Report of the Audit Committee
Committee membership
K.J. Boyd
Chair
P. Larmon
Members
L. Chahbazi1
C. Gordon
B. García-Cos Muntañola
(appointed 1 September 2023)
Former
Members
I.B. Duncan
(retired 17 November 2023)
E. Lindqvist
(retired 31 May 2023)
Attendance
4/4
4/4
Main committee responsibilities
– Encourage and safeguard the highest standards of integrity, financial
reporting, financial risk management and internal controls.
3/4
4/4
1/1
4/4
2/2
– Monitor the integrity of the financial statements including annual and
half- yearly reports, trading updates and any other formal announcements
relating to financial performance. Review and report 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.
– 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.
– Oversee the relationship with the external auditor including approving the
remuneration, audit scoping and terms of engagement, reviewing outcomes
of the external audits, ensuring compliance with the policy for the provision
of non-audit services, conduct the tender process and make
recommendations to the Board, subject to the approval by shareholders,
on the appointment, reappointment or removal of the external auditor.
– Monitor policy on the engagement of the external auditor to supply non-audit
services, ensuring there is prior approval of non-audit services, considering
the impact this may have on independence, taking into account the relevant
regulations and ethical guidance in this regard and report to the Board on any
improvement or action required.
– Review and monitor the external auditor’s independence, effectiveness
and objectivity.
1 Ms. Chahbazi was unable to attend one meeting due
to a pre-existing commitment.
The full terms of reference for the Committee can be found on the
Group’s website.
Chairman’s introduction
I am pleased to present the Audit Committee report for the year end 31 December 2023. This report provides an overview of the Committee’s
key activities and focus areas during the year and the framework within which it operates.
The Committee fulfils an important oversight role providing 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, the management of financial risks, the performance
of Internal Audit as well as the appointment and evaluation of the external auditor. During the year, the Committee continued to focus on the
integrity of Bodycote’s financial reporting, financial risk management, internal controls and on the quality of the external and internal audit
processes and will continue to keep its activities under review as the regulatory environment changes.
Kevin Boyd
Chair of the Audit Committee
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The Committee is comprised entirely of independent Non-Executive Directors. Their biographical details are shown on pages 54 and 55,
and their remuneration on page 86. The Group Company Secretary is the secretary to the Audit Committee.
Kevin Boyd is Chairman of the Audit Committee. Mr. Boyd is a Chartered Accountant and a Chartered Engineer with substantial experience in
senior finance roles. The Board considers that Mr Boyd has extensive recent and relevant financial, accounting and sector experience required
to chair the Committee.
All Committee members have significant and widespread experience in executive and non-executive capacities from either multinational or
industrial companies and are considered to have competencies relevant to their duties. The expertise the Committee utilises, together with
their independence, provides good challenge to management as well as the internal and external auditors.
The Committee met four times during 2023 and in March 2024; all members, while in office, attended all of the meetings. The Committee
Chairman also invited the Board Chair, Group Chief Executive, Chief Financial Officer, Group Director of Finance, Group Financial Controller and
Group Head of 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. Furthermore, the external auditor PricewaterhouseCoopers LLP (PwC)
attended every meeting, and BDO LLP, which provides internal audit services, also attended one meeting. As part of the process of working
with the Board to carry out its responsibilities and to maximise effectiveness, regular meetings of the Committee generally take place just prior
to Board meetings.
Mr Boyd also held preparatory meetings separately with the external auditor, the Chief Financial Officer, the Group Director of Finance, Group
Financial Controller and the Group Head of Internal Audit before regular Committee meetings to review their reports and discuss issues in detail.
PwC, the Group Head of Internal Audit and the Internal Auditors (BDO LLP) also met with the Audit Committee without the executives present.
Main activities of the Committee during the year
The Committee supports the Board in fulfilling its responsibilities regarding financial reporting and assessing the effectiveness of the Group‘s
financial risk management and internal control systems. The Committee is also responsible for reviewing the Interim results for the half-year
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 results for the half-year 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 a significant discussion with the
external auditor;
– compliance with regulatory and governance requirements;
– the clarity of disclosures and compliance with the relevant accounting standards for the consolidated financial statements;
– the key points of disclosure and presentation to ensure the adequacy, clarity and completeness in the annual report and financial statements;
– consideration of the appropriateness of alternative performance measures and the classification of certain costs and revenues as exceptional
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;
– 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; and
– considering progress over the Group’s readiness for any changes required by the revised UK Corporate Governance Code, which will include an
annual declaration on the effectiveness of material internal controls.
Reports from management were reviewed on significant matters, including outstanding litigation and claims, accounting judgements and issues,
UK and overseas pension reports, business combinations, 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 2023 consolidated financial statements is set out in
the table on pages 74 and 75.
Going concern, viability statement and financial resilience
The Committee receives regular updates from management on the underlying performance of the business, the strength of the Group’s liquidity
and its operational and financial resilience. The Committee has reviewed the 2023 going concern and viability statements and challenged the
assumptions, risk assessments, forecasts for profits and cash generation, liquidity, available borrowing facilities and covenant compliance that
were modelled as part of the scenarios and stress testing undertaken.
The Committee challenged assumptions related to current and future inflation and changes in energy costs on cash flows ensuring that these
cash flows include the cost of actions to be undertaken within the time frame under review consistent with the carbon reduction initiatives
agreed with the Science Based Targets initiative. Sensitivity analyses were undertaken to understand the impact of changes to key variables and
included severe but plausible downside scenarios and stress testing. The Committee was satisfied that these represented accurate
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Report of the Audit Committee continued
assessments of the Group’s financial position at the date of the consolidated financial statements. For further detail on the going concern and
viability statements please refer to pages 27 and 33, respectively.
Fair, balanced and understandable
The Committee has reviewed the form and content of the interim results for the half-year and the annual report and financial statements and a
paper prepared by management setting out the approach taken in their preparation. The review included the consideration of oversight
throughout the year based on review of regular financial results and reports from both Senior Management and PwC, consideration of regulatory
and governance requirements for reporting, the process of planning and preparing the annual report and ensuring it contains complete, accurate
and balanced information, a collaborative approach between all parties required to contribute to the report and the reviews performed to ensure
feedback was appropriately reflected (including internal and external reviews).
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:
Area of focus
Actions
Valuation of assets
As set out in the accounting policies, the Group
performs an impairment test over the carrying amounts
of goodwill at least annually, whilst tangible and other
intangible assets are considered for impairment
indicators. Refer to note 9 of the consolidated
financial statements.
Restructuring, reorganisation and
environmental provisions
Assumptions and judgement are exercised in the
development of restructuring, reorganisation, legal
and environmental provisions.
Taxation
The Group operates in a number of tax jurisdictions
and is subject to increasing reviews by different tax
authorities across the Group in the ordinary course
of business.
A number of judgements are involved in calculating tax
provisions and the level of deferred tax assets/liabilities
to be recognised.
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 and other
tax assets is dependent on future profitability and
performance of the underlying business.
Refer to notes 6 and 19 of the consolidated
financial statements.
The Committee considered reports from management describing potential
impairment indicators for tangible and intangible assets and the outcome of related
tests as performed at year end. The annual impairment test was performed for all cash
generating units with a goodwill balance, as required by accounting standards.
The Committee reviewed these reports and challenged the results including the future
forecasts underlying the value-in-use calculations, and the assumptions, particularly
the discount rate and the assessment of future inflationary impacts and growth
factors used in the discounted cash flow calculations for each cash generating unit
and the sensitivity analysis applied.
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 consolidated financial statements.
The Committee was satisfied with the carrying value of assets and goodwill and the
related disclosures and that no impairment was required as of 31 December 2023.
The Committee received reports from management and reviewed provision utilisation,
the basis and the completeness of the assumptions used to calculate the provisions
and the appropriateness of disclosures in the financial statements and concluded that
the basis of presentation was appropriate. The Committee discussed and challenged
with management the key judgements behind the provisions, taking note of the range
of possible outcomes, and was satisfied with the accounting treatment and
corresponding disclosures on these matters.
The Committee receives regular reports from management about new legislative
developments that may impact the Group’s tax positions as well as the results of
both internal and external reviews.
The Committee has focused on reviewing, understanding and challenging the
Group’s critical tax risks and management’s assessment and valuation of these risks.
Regular reports have been reviewed from management outlining the Group’s most
significant tax exposures, including ongoing tax audits and related tax provisions
recognised by management. The Committee has supported transparency over the
Group’s tax risks and strategy in external reporting. Key risks, notably in the internal
cross-border funding arrangements, have been reviewed and challenged including
management’s views on the future profitability of the relevant businesses.
The Committee has received and challenged reports over the Group’s preparation for,
and impact of, the introduction of the global minimum tax rate in 2024 and the work
on assessing the impact.
The Committee was satisfied with the Group’s tax approach and with the accounting
treatment and disclosure in respect of tax exposures.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Area of focus
Actions
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 including discount rates, mortality and inflation
(see note 26 of the consolidated financial statements).
These variables can have a material impact in calculating
the quantum of the defined benefit pension liability.
Management obtained independent external specialist advice in determining pension
liabilities. The Committee reviewed reports prepared by management and key
assumptions used from external advisers and is comfortable that the fundamental
assumptions are reasonable.
The Committee agreed to the treatment and the corresponding disclosures on these
matters. See note 26 of the consolidated financial statements.
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, replacing Deloitte LLP.
The Group requires the lead partner to change every five years in order to protect independence and objectivity and provide a fresh challenge to
the Group. The 2023 audit was Mr. Simon Morley’s fifth and final year as the lead audit partner. As Mr. Morley has reached his maximum tenure,
he will rotate off the Bodycote audit after the 2023 audit in line with rotation requirements. A successor has been appointed and transition
commenced during the 2023 audit.
At the October Committee meeting, PwC presented its audit plan for the 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 the scope carefully in respect of smaller
and more remote locations as well as emerging market locations and noted that the majority of the Group’s local audits are performed by PwC.
Audit fees for the year were agreed at £2.3m.
Key audit matters and the audit approach to these matters are discussed in the Independent Auditors’ Report (pages 93 to 99), highlighting 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 quality, technical skills and experience of the engagement partners and the audit team;
– audit approach and scope, including identification of risk areas;
– quality of reporting to the Committee, the level of challenge and professional scepticism and the understanding demonstrated by PwC
of the business of the Group;
– execution of the audit;
– interaction with management;
– communication with, and support to, the Committee;
– insights, management letter points, added value and reports; and
– independence and objectivity.
An assessment questionnaire was completed by each member of the Committee, the Chief Financial Officer, the Group Director of Finance
and the Group Financial Controller as well as other senior personnel involved in the audit at both the corporate and divisional levels.
Senior management received answers and comments from all questionnaires and consolidated them into a report. The Committee used this
report to assist in its assessment of the level of external audit effectiveness. Feedback from the process was discussed and considered by the
Committee and provided to the external auditor and management. The key outputs of this assessment were:
– No issues were raised concerning the quality of both the audit partner and team in the feedback received.
– The audit had been well planned and delivered, with work completed and management comfortable that any key findings had been raised
appropriately, there was active engagement on misstatements and appropriate judgements on materiality.
– PwC’s reporting to the Committee was clear and included explanations supporting its conclusions.
– It was considered that there was an appropriate level of challenge during the audit over management’s judgements and assertions of matters
including critical accounting judgements and key sources of estimation uncertainty.
– PwC demonstrated a good understanding of the Group and identified and focused on areas of greatest financial reporting risk.
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 UK Financial Reporting Council’s (FRC) 2022/23 report on Audit Quality Inspections which included a review of
audits carried out by PwC. If the Bodycote audit is selected for quality review, the Committee understands that any resulting reports will be sent
to the Committee by the FRC – no such review occurred in 2023. After considering all of the relevant matters, the Committee concluded that the
external audit had been effective and objective. During 2023, 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.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Report of the Audit Committee continued
Safeguarding independence and objectivity
The Committee recognises that the independence of the external auditor is an essential part of the audit framework. The independence of the
external auditor was formally confirmed by PwC at the March 2023 Audit Committee and was confirmed again in March 2024. The Committee
considered PwC’s presentation and confirmed that it considered the auditor to be independent.
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 the proposed services are permissible in the context of the Ethical Standard in the first instance,
and where it is work that it must, or is clearly best suited to, perform. Non-audit services, regardless of scope, cannot be awarded to the
external auditor without prior approval from the Committee Chairman, on behalf of the Committee. In addition to the Group’s policy, the auditor
runs its own independence and compliance checks, prior to accepting any engagement, to ensure that all non-audit work is compliant with the
FRC’s Ethical Standard and that there is no conflict of interest. The only non-audit fees paid to the auditor in 2023 were for the half-year interim
review and a subscription to a generic accounting and reporting website and are shown in note 2 of the consolidated financial statements
representing 5% (2022: 5%) of the audit fee.
Internal audit
The internal audit plan for 2023 was presented to the Committee in October 2022. The plan took into account the Group’s strategic objectives
and risks and provided 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. The internal audit approach for 2023 was focused on providing assurance over the
Group’s principal risks and key financial and operational controls. The 2023 plan included an audit of the key reporting controls for Group Finance.
An internal audit and risk update was provided at each meeting during the year.
At each regular meeting, the Group Head of Internal Audit 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.
The Group Head of Internal Audit provides independent assurance over the key financial processes and controls in operation across the Group.
The Group engaged BDO LLP to provide co-sourced internal audit services.
Internal Audit has provided additional financial control assurance through a number of control self-assessments. Internal auditors have received
self-certification from every plant that internal controls have been complied with, or noting any non-compliance. The accuracy of returns was
monitored by Internal Audit by verification visits to a sample of sites. A control self-assessment has also been obtained from each of the
divisional finance teams, financial shared services, Group IT services and Group finance team. Internal Audit performed audits over a sample
of returns to confirm their accuracy.
The effectiveness of Internal Audit is reviewed and discussed annually with the Group Head of Internal Audit and the BDO LLP engagement
partner. Audit quality is assured through a detailed review of each report being carried out by the Group Head of Internal Audit, 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.
Risk management
The Committee reviewed the Group’s financial risk management and internal control systems’ effectiveness through regular updates from the
Group Head of Internal Audit who has responsibility for monitoring the Group’s risk management and internal controls framework. The Executive
Committee is responsible for developing the risk framework.
The Committee reviewed changes to the principal financial risks and mitigating actions identified by management and also monitored the
emerging risk identification process and provided its support to the Board in concluding that a robust assessment of the principal and emerging
risks has been undertaken in 2023. Refer to the Principal Risks and Uncertainties report on pages 28 to 32.
Internal control
The Board has overall responsibility for the effectiveness of the Group’s internal controls framework and is satisfied that the Group maintains an
effective system of internal controls in relation to the financial reporting process, and that there were no significant failings or weaknesses in the
system. At each regular meeting, the Committee considered and challenged reports from the internal auditors on internal controls’ effectiveness
and noted no significant failings or weaknesses. The Committee also performed an annual review of the Group’s internal control processes
and remains satisfied that management places a strong focus on closing out internal audit actions and ensuring their timely completion.
The Committee has concluded the internal control 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). Refer to page 64 for further information.
Committee evaluation
The Committee’s activities formed part of an internal review of Board effectiveness which was undertaken in October 2023 and approved by
the Board in December 2023. The Committee considered it had operated effectively during the year and the 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:
Kevin Boyd
Chair of the Audit Committee
15 March 2024
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Directors’ report on remuneration
Committee membership
Attendance
Main committee responsibilities
Chair
C. Gordon (from 31 May 2023) 5/5
Members
K. Boyd
L. Chahbazi1
B. García-Cos Muntañola
(appointed 1 September 2023)
P. Larmon
Former
Members
I.B. Duncan
(retired 17 November 2023)
E. Lindqvist
(retired 31 May 2023)
5/5
4/5
4/4
5/5
4/4
2/2
1 Ms. Chahbazi was unable to attend one
meeting due to a pre-existing commitment.
– Responsibility for setting and reviewing the remuneration policy for
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 alignment
of incentives and rewards with culture, taking these into account when
setting the policy for Executive Directors’ remuneration.
– Approve the design of and determine targets for Executive Directors’
and other senior executives’ incentive arrangements.
– 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.
– Appoint remuneration consultants.
Chair’s letter
On behalf of the Board of Directors, and as your new Chair of the Remuneration Committee (‘the Committee’), I am pleased to present our
Directors’ remuneration report for 2023. Firstly, I would like to express sincere thanks to my predecessor, Eva Lindqvist, for her work with the
Committee over the last 10 years. She led the Committee through a number of regulatory changes during her tenure and I now look forward
to taking this position forward over the coming years.
This report is split into the following sections:
– This letter, which provides an overview of the key decisions made on Directors’ remuneration during the year (pages 77 and 78).
– The Annual Report on Remuneration, which describes how our Directors’ Remuneration Policy was applied during 2023 and the remuneration
outcomes for the year (pages 79 to 91).
The Directors’ Remuneration Policy was approved by shareholders at the 2022 Annual General Meeting and became effective from that date.
There are no proposals to amend the Policy at the Annual General Meeting to be held on 30 May 2024, however we intend to hold a policy
review during 2024, where input from shareholders will be sought, ahead of submitting our Remuneration Policy for shareholder approval at
the AGM to be held in 2025. The Committee has addressed the principles prescribed in Provision 40 of the 2018 UK Corporate Governance Code
(UK Code) when determining the Policy (see page 90).
The full Policy is available on our website at www.bodycote.com/wp-content/uploads/2022/03/Bodycote-annual-report-2021.pdf on page 76.
Executive Director changes
Group Chief Executive
Stephen Harris will step down as Group Chief Executive and retire from the Board and the Company on 30 May 2024, following an orderly
transition to his successor. The treatment of Stephen Harris’ remuneration arrangements, which have been agreed in accordance with our
Remuneration Policy, are set out on page 85.
Jim Fairbairn was appointed as Group Chief Executive designate and as a member of the Board with effect from 11 March 2024, and will take
up the role as Group Chief Executive on 31 May 2024. Having consulted with our remuneration advisors to ensure the approach taken was in
accordance with our Remuneration Policy, while being consistent with industry benchmarks and shareholder expectations, the Committee
agreed the following remuneration arrangements for Jim Fairbairn:
– An annual salary of £620,000. This has been positioned at the median compared with FTSE 250 companies and is competitively positioned
compared to industry peers.
– A one-off relocation allowance of £30,000.
– A pension opportunity equal to 10% of base salary, which is in line with the level available to the majority of the UK workforce.
– A maximum annual bonus opportunity of 175% of base salary and a maximum Bodycote Incentive Plan (‘BIP’) opportunity of 175% of base salary,
which is in line with our Directors’ Remuneration Policy. The 2024 annual bonus will be pro-rated for time served during the year. The 2024 BIP
award will be pro-rated for time served during the vesting period.
The Committee also agreed to buy out Jim Fairbairn’s in-flight long-term incentive awards, which were forfeited by him on leaving his previous
employer. Details of the proposed buy-out awards are set on page 80.
Chief Financial Officer
Dominique Yates stepped down as Chief Financial Officer and retired from the Board and the Company on 30 April 2023. The treatment of
Dominique Yates’ remuneration arrangements were disclosed in the 2022 Directors’ Remuneration Report.
Ben Fidler was appointed as Chief Financial Officer designate and as a member of the Board on 24 February 2023. He assumed the role of
Chief Financial Officer on 1 May 2023. As disclosed in the 2022 Directors’ Remuneration Report, the Committee agreed to buy-out Ben Fidler’s
2022 annual bonus (deferred proportion) and in-flight share incentives, which had been forfeited by him on leaving his previous employer.
The buy-out awards were granted on 31 March 2023 and details are set out on page 85.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Directors’ report on remuneration continued
Business performance and incentive outcomes for 2023
The Group delivered good growth in 2023, with further progress in our target end-markets and another year of outperformance in Specialist
Technologies. Good revenue progress was delivered in the structural growth areas of civil aerospace and medical contributing to strong revenue
performance. Significant operating profit margin improvement was delivered, helping to drive Group margins to 17.3%, excluding surcharges.
Headline EPS increased by 13% to 48.4p and return on capital employed rose by 150 bps in the year to 14.8% from 13.3% in 2022.
Bodycote returned to the strong levels of cash conversion which are more typical for the business with headline operating cash flow of
£139.5m (2022: £112.6m). The cash generation further strengthened the Group’s balance sheet, achieving a net cash position at year end.
This provides flexibility for a balanced approach to capital allocation in order to drive growth and deliver shareholder value.
We believe that the incentive payouts we have made to our Executive Directors are aligned with the overall performance of the Group.
As such, the Committee determined that no discretionary adjustments (either upward or downward) would be required from the formulaic
outcomes of the annual bonus and BIP.
Annual bonus
Headline operating profit and cash flow are currently the key internal financial metrics and therefore form the core annual bonus metrics.
The Group achieved headline operating profit at constant currency of £130.9m and headline operating cash flow at constant currency of
£143.7m. The personal scorecard element of the bonus primarily reflects how Executive Directors have delivered on our strategic goals and
specific critical initiatives. Further details on the outcomes of the personal scorecards are set out on page 83.
Stephen Harris, Ben Fidler and Dominique Yates earned a bonus equal to 98.2%, 98.6% and 96.1% of maximum respectively. Dominique Yates’
bonus was pro-rated for the time served as Chief Financial Officer during 2023. See page 82 for details on the application of the bonus deferral.
For 2024, the Committee has amended the annual bonus structure, by introducing a new ESG metric. This change recognises the importance
placed by the Board on the Group’s long-term sustainability goals and takes into consideration the feedback received from stakeholders.
Bodycote Incentive Plan (BIP)
The 2021 BIP awards were based on performance against return on capital employed (ROCE) (50%) and headline earnings per share (EPS)
(50%) targets over a three-year period ended 31 December 2023. This award vested at 26.9% of the maximum. Further details are set out on
page 84.
Employee engagement
We operate Employee Engagement Groups (see page 62 of the Corporate Governance Statement), where a wide range of topics are
actively discussed with employees, including the remuneration and employment conditions of all employees. Feedback from these
Employee Engagement Groups, alongside information provided by the Human Resources function, on pay and conditions across the Group,
in addition to employee satisfaction surveys, are considered by the Committee as part of its discussions and decision-making process in
relation to executive remuneration.
Annual General Meeting (AGM)
Our Annual Report on Remuneration, which summarises the remuneration outcomes for 2023 and explains how we intend to apply the policy
during 2024 and beyond, will be subject to an advisory shareholder vote at the AGM to be held on 30 May 2024. I will look forward to receiving
your support at this meeting, where I will be pleased to answer any questions you may have on this report or any of the Committee’s activities.
Conclusion
I trust the information presented in this report enables our shareholders to understand both how we have operated our Directors’ Remuneration
Policy over the year and the rationale for our decision-making. We believe that the Policy operated as intended and we consider that
the remuneration received by Executive Directors during the year was appropriate, taking into account Group and personal performance,
and the experience of shareholders and employees.
Cynthia Gordon
Chair of the Remuneration Committee
15 March 2024
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Implementation of the Policy in 2024
Set out below is a summary of the key elements of the Policy for Executive Directors, together with how the Policy is intended to be
implemented in 2024.
Salary
– Base salaries are reviewed in January every year
– Stephen Harris will receive a salary of £696,181, an increase
Key features
Implementation for 2024
– Salary reviews are based on role,
experience, performance, internal increases
and the external market
of 4.5% (2023: £665,245).
– Ben Fidler will receive a salary of £522,500, an increase of 4.5%
(2023: £500,000).
– In determining the salary increases for Stephen Harris and
Ben Fidler, the Committee had regard to the average increases
awarded to employees across the Czech Republic and United
Kingdom (the respective countries where they each live and work)
and Western Europe. The average budgeted increases awarded to
employees was 5% across the Czech Republic, 4.5% across the UK
and 4.14% across Western Europe. With these increases in mind,
the Committee considered a 4.5% increase for Stephen Harris and
Ben Fidler to be appropriate. The Committee also considered
Stephen Harris’ commitment to ensure a successful transition of the
Group Chief Executive role, including agreeing to stay in role until
30 May 2024, when determining his salary increase.
– Jim Fairbairn was appointed on a salary of £620,000.
Benefits
– A range of cash benefits and benefits-in-kind
– In line with benefits provided in 2023.
Pension
– Contribution to the Company’s defined
contribution scheme, or cash equivalent
Annual bonus
– Maximum opportunity of 200%, 175% and
150% of base salary for the current Group Chief
Executive, the Group Chief Executive designate
and Chief Financial Officer respectively
– At least 70% of the bonus will be based on
financial performance with the remainder based
on non-financial strategic and/or
personal metrics
– 35% of any bonus earned is ordinarily deferred
into shares for three years, conditional on
continued employment
– The annual bonus is subject to malus and
clawback provisions as set out in more detail
in our Remuneration Policy
– Jim Fairbairn will receive a one-off relocation allowance of £30,000
following his appointment.
– Stephen Harris receives a cash equivalent equal to 23.5% of base
salary. This is aligned with the Company pension contributions of the
Czech Republic workforce, the country where he lives and works.
– Jim Fairbairn and Ben Fidler will receive a cash equivalent equal to
10% of base salary. This is aligned with the Company pension
contributions of the United Kingdom workforce, the country where
they each live and work.
– Maximum opportunity of 200% of base salary for Stephen Harris,
pro-rated for the time served as Group Chief Executive Officer
during the year.
– Maximum opportunity of 175% of base salary for Jim Fairbairn
pro-rated for the time served as Group Chief Executive (including as
designate) during the year.
– Maximum opportunity of 150% of base salary for Ben Fidler.
– The annual bonus will be split 65% in respect of headline operating
profit, 10% in respect of headline operating cash flow, 5% in
respect of ESG targets and 20% on personal strategic objectives.
– Performance targets are considered commercially sensitive and will
be fully disclosed in the 2024 Directors’ Remuneration Report.
Bodycote Incentive
Plan (BIP)
– Annual grants up to 200% of base salary,
– Maximum opportunity of 175% of base salary for all Executive
subject to a three-year performance period and
two-year holding period
Directors. Stephen Harris’ and Jim Fairbairn’s opportunity will be
pro-rated for time served as Group Chief Executive (including as
designate) during the vesting period.
– Awards are based on performance against ROCE (50%) and
headline EPS (50%) targets over a three-year period ending
31 December 2026.
– Performance targets are set out on page 84.
Shareholding
requirement
– Executive Directors are required to build up a
holding of 200% of base salary over five years
– Stephen Harris has met the shareholding requirement.
– Jim Fairbairn and Ben Fidler will work towards building
– Post-employment shareholding requirements
their shareholdings.
also apply
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2024 BIP awards
The targets for the 2024 BIP awards are disclosed below. The Committee considers the targets to be appropriately stretching taking into account
internal and external forecasts, the challenging market conditions, and the continued level of uncertainty.
Threshold performance
Target performance
Maximum performance
ROCE for 20261
Headline EPS for 2026
Performance target
15%
19%
21%
Vesting of element
(% of maximum)
25.0%
57.1%
100.0%
Performance
target
61.0p
65.0p
69.0p
Vesting of element
(% of maximum)
25.0%
57.1%
100.0%
1 For the purposes of the BIP, 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 2024) only.
If headline EPS at the end of the performance period is below 51.8p, then no awards will vest. BIP awards are subject to malus and clawback
provisions as set out in more detail in our Directors’ Remuneration Policy. Furthermore, the Committee has discretion to amend the vesting
outcome where it considers that it is not a fair and accurate reflection of business performance, which will include consideration of any potential
‘windfall gains’ at the point of vesting.
Buy-out awards to be granted to Jim Fairbairn
As noted on page 77, the Committee has agreed to buy out Jim Fairbairn’s in-flight long-term incentive awards which were forfeited by him
on leaving his previous employer. The Committee, with the support of its remuneration advisors, carried out a detailed review of the in-flight
long-term incentive awards which were forfeited, including obtaining award certificates and confirmation of values forfeited. Jim Fairbairn
was due to receive a cash payment of over £1,000,000 in April 2024 from a proportion of his in-flight long-term incentive awards based on
performance achieved against targets. The expected value of his remaining in-flight long-term incentive awards (based on expected performance
against targets) was circa £400,000, which were scheduled to vest in April 2025 and April 2026. The Committee has agreed to grant the
following buy-out award, which will be granted as conditional shares, to Jim Fairbairn:
Tranche 1
Tranche 2
Tranche 3
Total
Grant date face value of award
£620,000
£155,000
£155,000
£930,000
Vesting date of award
11 March 2025 (first anniversary of appointment)
11 March 2026 (second anniversary of appointment)
11 March 2027 (third anniversary of appointment)
The Committee considers that the value and structure of the buy-out award is appropriate and has been determined in accordance with the
terms of the Directors’ Remuneration Policy (see page 82 of the 2021 Annual Report), noting that the grant date face value of the buy-out award
is considerably less than the value of the in-flight long-term incentive awards forfeited and the vesting periods of the buy-out award are longer
compared to the in-flight long-term incentive awards forfeited. This buy-out award will be made in March 2024, following his appointment and
subject to the Company’s share dealing code restrictions.
Jim Fairbairn will be expected to retain the shares following vesting (net of tax) to support the build-up of his shareholding towards the
Company’s shareholding requirement. The vesting of awards will be subject to his continued employment. No dividend equivalents will be
payable in respect of those shares that vest.
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This section provides details of remuneration outcomes for Directors who served during the financial year ended 31 December 2023.
Total single figure table
Fixed pay
Variable pay
Financial
year
Salary/
fees
(£000)
Pension
(£000)
Taxable
benefits9
(£000)
Subtotal
(£000)
Annual
bonus10
(£000)
BIP
(£000)
Buy-out
award
(£000)
Subtotal
(£000)
Total
(£000)
Executive Directors
S.C. Harris
B. Fidler1
Non-Executive Directors
D. Dayan
P. Larmon2
K. Boyd3
L. Chahbazi
C. Gordon4
B. Muntañola5
Former Directors
D. Yates6
I.B. Duncan7
E. Lindqvist8
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
665
634
422
–
289
275
83
73
79
71
65
62
73
36
22
–
149
425
62
77
33
75
156
149
42
–
–
–
–
–
–
–
–
–
–
–
–
–
35
100
–
–
–
–
41
41
14
–
–
–
–
–
–
–
–
–
–
–
–
–
10
29
–
–
–
–
862
824
478
–
289
275
83
73
79
71
65
62
73
36
22
–
194
554
62
77
33
75
1,306
767
630
–
23111
1812
–
–
–
–
1,03613
–
1,537
785
1,666
–
2,399
1,609
2,144
–
–
–
–
–
–
–
–
–
–
–
–
–
212
374
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12411
1312
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
336
387
–
–
–
–
289
275
83
73
79
71
65
62
73
36
22
–
530
941
62
77
33
75
Notes accompanying the total single figure table:
1 Ben Fidler was appointed as Chief Financial Officer designate and as a member of the Board on 24 February 2023. He became Chief Financial Officer on 1 May 2023.
2 Patrick Larmon was appointed as Senior Independent Director on 31 May 2023 in succession to Ian Duncan.
3 Kevin Boyd was appointed Chair of the Audit Committee on 25 May 2022 in succession to Ian Duncan.
4 Cynthia Gordon was appointed to the Board on 1 June 2022. She was appointed as Chair of the Remuneration Committee on 31 May 2023 in succession to Eva Lindqvist.
5 Beatriz García-Cos Muntañola was appointed to the Board on 1 September 2023.
6 Dominique Yates stepped down as Chief Financial Officer on 30 April 2023.
7
Ian Duncan stepped down from the Board on 17 November 2023.
8 Eva Lindqvist stepped down from the Board on 31 May 2023.
9 Taxable benefits consist of company car (or allowance), family level private medical insurance, life insurance cover and sick pay.
10 See page 82 for the application of bonus deferral.
11 The BIP awards granted on 15 April 2021 with a performance period ending on 31 December 2023 will vest in March 2024 at 26.9% based on the outcome of the performance targets.
The estimated value at vesting is based on the average share price from 1 October 2023 to 31 December 2023. Dividend equivalents are included in the estimated value at vesting (S.C. Harris:
£22,621, D. Yates: £12,137).
12 The value relating to the BIP awards granted on 23 March 2020 and which vested on 23 March 2023 have been revised from the figures included in the 2022 report from £16,000 to £18,000 in
relation to the award granted to S.C. Harris, and from £12,000 to £13,000 in relation to the award granted to D. Yates, which are now based on the mid-market closing share price on the vesting
date of £6.29. The share price at the grant date was £5.32, reflecting a share price increase of £0.97 between the grant date and vesting date. The proportion of value at vesting attributable to share
price appreciation is therefore 15%. The Committee did not exercise discretion to adjust the vesting outcome in respect of the share price appreciation.
13 As disclosed on page 68 of the 2022 Directors’ Remuneration Report, the Committee agreed to buy out the deferred portion of Ben Fidler’s 2022 annual bonus and in-flight share incentives which
were forfeited by him on leaving his previous employer. The value of his buy-out award was based on the number of shares subject to the buy-out award (162,417) multiplied by the three-day
volume weighted average share price for 22, 23 and 24 February 2023 of £6.376. These shares will vest between March 2023 and March 2025.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Directors’ report on remuneration continued
Pension
Stephen Harris and Dominique Yates received a pension contribution or salary supplement in lieu of pension at a rate of 23.5% of base salary.
Ben Fidler received a pension contribution of 10% of base salary. This is aligned with the Company pension contributions of the workforce
where the Executive Directors work and live.
Taxable benefits
The Group provides other cash benefits and benefits-in-kind to Executive Directors as well as sick pay and life insurance. These include the
provision of company car (or allowance) and family level private medical insurance.
Executive Director
S.C. Harris
B. Fidler
D. Yates
Car/car allowance
£13,600
£10,138
£4,000
Fuel
£2,400
£1,014
£400
Healthcare
£24,525
£2,516
£5,320
Incentive outcomes for 2023
Annual bonus
The maximum annual bonus opportunity for Stephen Harris, Ben Fidler and Dominique Yates was 200% of salary, 150% of salary and 150% of
salary, respectively. As disclosed in the 2022 Directors’ Remuneration Report, Dominique Yates was eligible to receive a bonus pro-rated for the
time served as Chief Financial Officer during 2023.
The annual bonus for 2023 was split 77% in respect of headline operating profit, 10% in respect of 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 challenging market conditions. Following strong performance in 2023, Stephen Harris, Ben Fidler
and Dominique Yates earned a bonus equal to 98.2%, 98.6% and 96.1% of maximum respectively.
For Stephen Harris and Ben Fidler, 35% of the amount earned will be deferred into shares. Ben Fidler’s deferred share award will vest in three
years subject to continued employment. Stephen Harris’ deferred share award will vest at the time he steps down as Group Chief Executive and
retires from the Board (see page 85).
Dominique Yates stepped down as Chief Financial Officer and retired from the Board on 30 April 2023. The Committee agreed to pay any bonus
earned by him fully in cash at the usual time in 2024.
The performance targets and actual performance are set out below.
% of
award Threshold
Target Maximum
Actual
performance
achieved1
% of
max
% of
salary
% of
max
% of
salary
% of
max
% of
salary
S.C Harris
B. Fidler
D. Yates2
Headline
operating profit
Headline operating
cash flow
Personal
score card
Total
77%
£107m £115m
£123m
£130.9m
100%
154%
100% 115.5%
100% 115.5%
10% £110.5m £118.5m
£118.5m
£143.7m
100%
20%
100%
15%
100%
15%
13%
see page 83
86% 22.4%
98.2% 196.4%
89%
17.4%
98.6% 147.9%
70% 13.7%
96.1% 144.2%
1 Figures quoted are at constant currency rates.
2 Payout is pro-rated between threshold, target and maximum as follows: Headline operating profit (threshold 0%, target 60%, maximum 100%) and Headline operating cash flow (threshold 0%,
target and maximum 100%).
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S.C. Harris
Overview
Key achievements
in the year
Rating
B. Fidler
Overview
For 2023, the Group Chief Executive’s objectives were set with focus on continuing to drive Group
strategy implementation forward. He was also charged with the development and retention of the
Group Executive team, including recruitment, on-boarding and training of executives. Leadership of
the Enterprise Resource Planning (ERP) project was to continue, in addition to systematically
improving asset management and capital investment implementation.
Following the announcement that he would be stepping down from the Board, the Group Chief
Executive continued to ensure the management team remained focused throughout the year,
resulting in the delivery of strong revenue and profitability growth in 2023. He continued to
strengthen the executive management team, with recruitment of new members completed
successfully and the new executives successfully onboarded during the year. The focus on driving
the implementation of Group strategy resulted in expansionary capex increasing by 11% compared
to 2022, with 80% of this capex focused on the strategic priorities of Emerging Markets, Specialist
Technologies, Electric Vehicles and Aerospace. Substantial new Electric Vehicle projects were
secured in the Emerging Markets. Double digit growth was achieved in Aerospace and Specialist
Technologies. Progress was made on the ERP implementation programme. Overall, he achieved or
made significant progress on all of his objectives.
After reviewing his scorecard performance and, in particular taking into consideration the additional
achievements completed during the year, the Chairman and the Committee agreed with an overall
rating, which equated to a bonus outcome of 86%.
For 2023 the Chief Financial Officer’s objectives included the development of the Enterprise
Resource Planning (ERP) project; the establishment of a new London based corporate office; the
delivery of improvements in Group cash conversion year-on-year; the strengthening of the Group
Finance function; and the establishment of a revised energy hedging policy.
Link to strategy
3
1
4
2
5
Key achievements
in the year
The ERP programme was strengthened during 2023, with completion dates advanced, reductions
in both capex and opex expenditure achieved and a new pilot programme well underway. A new
London office has been established. Cash flow and cash conversion were substantially improved.
The bench strength of the Group Finance function was improved and the implementation of a
revised energy hedging policy framework that better suits increased volatility in the energy markets
is well underway.
4
5
Rating
D. Yates
Overview
Mr Fidler’s detailed scorecard was reviewed by the Group Chief Executive and the Committee,
assessing the achievement of each scorecard objective. Following this review, the Committee
agreed with the rating, which equated to a bonus outcome of 89%.
For 2023, prior to his departure, objectives set were for Mr Yates relating to the on-boarding of a
successor which would result in a successful transition. He was charged with the continued
leadership of the Group Finance function during the transition period and the ongoing leadership of
the ERP programme, including progress on cost accounting and data warehousing.
Key achievements
in the year
The new Chief Financial Officer designate joined the Company in February 2023 and following an
orderly and successful transition process, formally took over the role on 1 May 2023. The ERP
programme was strengthened during 2023, with implementation progressed.
5
Rating
The Committee assessed achievement for all personal scorecard objectives, this equated to a bonus
outcome of 70%.
1
Safety and
Climate Change
2
Capitalising on and investing
in our Specialist Technologies
3
Investing in
Emerging Markets
4
Investing in structural
growth opportunities
5
Driving operational
improvement
6
Acquisitions
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Bodycote Incentive Plan (BIP)
BIP awards vesting during the financial year
BIP awards granted on 15 April 2021 had a three-year performance period ended 31 December 2023, with 50% of the award subject to ROCE
targets and 50% subject to headline EPS targets. Furthermore, if headline EPS at the end of the performance period was below 36.0p, then no
awards would vest. The underpin target of 36.0p together with the ROCE threshold target were achieved. The threshold, target and maximum
targets along with performance achieved and the vesting outcome are set out in the table below.
Threshold performance
Target performance
Maximum performance
Performance achieved
ROCE for 20231
Headline EPS for 2023
Performance
target
13.0%
17.0%
19.5%
14.8%
Vesting of element
(% of max)2
0%
57.1%
100%
12.9%
Performance
target
42.00p
55.00p
64.00p
48.40p
Vesting of element
(% of max)2
0%
57.1%
100%
14.1%
1 For the purposes of the BIP, 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 2021) only.
2 Figures have been rounded to one decimal place.
The table below sets out the 2021 BIP outcome for Stephen Harris and Dominique Yates.
S.C. Harris
D. Yates
Number
of shares
granted
131,106
70,3442
End of
performance
period
31 Dec 2023
31 Dec 2023
% award
vesting
26.9%
26.9%
Number
of shares
vesting
35,297
18,938
Dividend
equivalents
£22,621
£12,137
Total
estimated
value of
awards on
vesting
End of
holding
period
£231,1061 15 Mar 2024 March 2026
£123,9961 15 Mar 2024 March 2026
Vesting
date
1 The estimated value at vesting is based on the average share price from 1 October 2023 to 31 December 2023 (£5.9066). The share price at the grant date was £7.972.
2 Dominique Yates’ award was pro-rated for time served as Chief Financial Officer during the vesting period.
BIP awards granted during the financial year
Awards consisting of conditional shares were granted to Stephen Harris, Ben Fidler and Dominique Yates on 23 March 2023 equivalent in value
to 175% of their base salaries. The performance period will end on 31 December 2025. As disclosed in the 2022 Directors’ Remuneration
Report, Dominique Yates award will be pro-rated for the time served as Chief Financial Officer during the vesting period.
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 considered the targets to be appropriately stretching taking into account internal and external forecasts at the
time, the challenging market conditions and the continued level of uncertainty faced by the business over the next three years.
Threshold performance
Threshold performance
Maximum performance
ROCE for 20251
Performance target
14.0%
18.9%
20.0%
Vesting of element
(% of maximum)
0.0%
57.1%
100.0%
Headline EPS for 2025
Performance
target
56.0p
64.0p
70.0p
Vesting of element
(% of maximum)
0.0%
57.1%
100.0%
1 For the purposes of the BIP, 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 2023) only.
If headline EPS at the end of the performance period is below 47.5p, then no awards will vest. Furthermore, the Committee has discretion to
amend the vesting outcome where it considers that it is not a fair and accurate reflection of business performance.
Dividend equivalents are payable in respect of those shares that vest. Shares that vest are subject to a two-year post-vesting holding period.
The number of awards that were granted to the Executive Directors during the year is set out below:
S.C. Harris
B. Fidler
D. Yates2
Grant date
23 March 2023
23 March 2023
23 March 2023
Number of
shares granted
177,625
140,179
119,235
Market price
at grant date1
£6.242
£6.242
£6.242
Face value
at grant date
£1,108,735
£874,997
£744,265
1 The three-day volume weighted average share price following the announcement of results for 2022 (20, 21 and 22 March 2023).
2 Dominique Yates was granted a BIP award of 119,235 shares equivalent to 175% of his salary. This 2023 BIP award was pro-rated for time served as Chief Financial Officer. The number of shares
granted after the application of the time pro-rating was 13,248, which will remain subject to the achievement of performance conditions.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Buy-out awards granted to Ben Fidler during the financial year
As disclosed in the 2022 Directors’ Remuneration Report, the Committee agreed to buy out Ben Fidler’s 2022 annual bonus (deferred proportion)
and in-flight share incentives which had been forfeited by him on leaving his previous employer. The buy-out awards were granted on 31 March
2023 and have been structured on a like-for-like basis to reflect the value and the remainder of the vesting periods for incentives which were
forfeited, in accordance with the terms of the Directors’ Remuneration Policy (see page 82 of the 2021 Annual Report). The Committee carried
out a detailed review of the incentives which had been forfeited, including obtaining award certificates and confirmation of values forfeited.
Details of the buy-out are as follows:
Forfeited remuneration
Deferred proportion of 2022 annual bonus that would have vested in
March 2025 subject to continued employment
2017 performance shares that would have vested in March 2023 subject to
continued employment
2017 restricted shares that would have vested in March 2023 subject to continued employment
2022 restricted shares that would have vested in March 2024 subject to continued employment
Total
Number of Bodycote
shares subject
to the award1
Vesting date
of award6
63,9062
31 March 2025
2,4373
1,7064
94,3685
162,417
31 March 2023
31 March 2023
8 March 2024
1 The number of shares subject to award was calculated based on a share price of £6.376 being the three-day volume weighted average share price for 22, 23 and 24 February 2023.
2 The grant date face value is £407,465, which reflects the value of the deferred proportion of the 2022 annual bonus forfeited.
3 The grant date face value is £15,538, which reflects the value (taking into account performance achieved against targets) of the 2017 performance shares forfeited.
4 The grant date face value is £10,877, which reflects the value of the 2017 restricted shares forfeited.
5 The grant date face value is £601,690, which reflects the value of the 2022 restricted shares forfeited.
6 The vesting of awards is subject to continued employment. No dividend equivalents will be payable in respect of those shares that vest.
Ben Fidler will be expected to retain the shares following vesting (net of tax) to support the build-up of his shareholding towards achievement
of the Company’s shareholding requirement.
Executive Director changes
Stephen Harris will step down as Group Chief Executive and retire from the Board and the Company on 30 May 2024, following an orderly
transition to his successor. The treatment of Stephen Harris’ remuneration arrangements is set out in the table below. This has been agreed by
the Committee, in accordance with the terms of the Directors’ Remuneration Policy (see page 84 of the 2021 Annual Report), taking into
account his significant contribution to the Group over the last sixteen years and his commitment to ensure a successful transition of the Group
Chief Executive role.
Element
Base salary, benefits and pension Will continue to receive his salary, benefits and pension until he steps down as Group Chief Executive.
Annual bonus
Agreed treatment
Deferred bonus awards
BIP awards
Other
Will be eligible to receive a bonus equal to 200% of salary for the year ended 31 December 2024 pro-rated
for time served as Group Chief Executive during the year. Any bonus earned will be paid fully in cash at the
usual time in 2025, following the assessment of the Group’s performance for the full 2024 year.
Unvested deferred bonus awards will vest in full following him stepping down as Group Chief Executive on
30 May 2024.
Will be granted a BIP award in 2024 equal to 175% of salary pro-rated for time served as Group Chief
Executive during the vesting period.
Unvested BIP awards will:
– continue to vest in accordance with their normal vesting timetable, subject to the achievement of the
relevant performance metrics; and
– be pro-rated for time served as Group Chief Executive during the relevant vesting periods.
Any shares that vest will be subject to a two-year post-vesting holding period.
Will be paid a contribution to his legal fees in respect of him stepping down as Group Chief Executive up to
a maximum of £20,000.
The Committee considers that paying the 2024 annual bonus fully in cash and vesting deferred bonus awards in full following Stephen Harris
stepping down as Group Chief Executive is appropriate, noting that he has agreed to hold shares equivalent to at least 200% of salary for two
years following him stepping down as Group Chief Executive. This is in excess of the number of shares that he is required to hold under the
post-employment shareholding requirement, as this requirement only applies to shares which have been acquired pursuant to deferred share
awards or BIP awards granted on or after 1 January 2022.
Loss of office
Dominique Yates stepped down as Chief Financial Officer and retired from the Board and the Company on 30 April 2023. The treatment of his
remuneration arrangements were disclosed in the 2022 Directors’ Remuneration Report. As set out on page 84, Dominique Yates was granted
a BIP award in March 2023 of 119,235 shares equivalent to 175% of his salary. This award was subsequently pro-rated for time served as Chief
Financial Officer during 2023. The number of shares granted after the application of the time pro-rating was 13,248 shares, which will remain
subject to the achievement of performance conditions.
Payments to past Directors
No payments to past Directors were made during the year.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Directors’ report on remuneration continued
Chair and Non-Executive Directors’ fees
Chair of the Board and other Non-Executive Directors fees were as follows:
Base fee for Non-Executive Chair
Base fee for Non-Executive Directors
Remuneration Committee Chair/Audit Committee Chair
Senior Independent Director
Chair of Employee Engagement Groups
Fee for 2023
£288,750
£65,477
£13,650
£10,805
£10,805
Fee for 2022
£275,000
£62,359
£13,000
£10,291
£10,291
% increase
5%
5%
5%
5%
5%
At 31 December 2023 the aggregate annual fees for all Non-Executive Directors, including the Chair, was £744,172, which is below the
maximum aggregate fee allowed by the Company’s Articles of Association of £1,000,000 p.a.
Directors’ shareholdings and scheme interests
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 unvested share awards which are not subject to performance conditions will be counted.
The shareholding requirement for the Executive Directors is 200% of salary.
The interests in ordinary shares of Directors and their connected persons as of 31 December 2023 (or date of stepping down from the Board
if earlier), including any interests awarded under the annual bonus or BIP and buy-out awards granted to Ben Fidler, are presented below along
with whether Executive Directors have met the shareholding guidelines.
Executive Directors
S.C. Harris (200% of salary min. holding
requirement)
B. Fidler (200% of salary min. holding
requirement)2
Non-Executive Directors
D. Dayan
P. Larmon
L. Chahbazi
K. Boyd
C. Gordon
B. Muntañola3
Former Directors
D. Yates (200% of salary min. holding
requirement)4
I.B. Duncan5
E. Lindqvist6
Counted towards the
shareholding requirement
Not counted towards the
shareholding requirement
Beneficially
owned
Deferred shares
granted
under the
annual bonus1
Unvested
buy-out
awards1
Shares
subject to
performance
conditions BIP2
Shareholding
requirement
met
485,085
102,0367
–
461,9299
–
61,500
15,000
–
8,800
1,708
–
351,317
–
12,200
–
–
–
–
–
–
–
51,4747
–
–
158,2748
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
130,5629
–
–
Yes
No
n/a
n/a
n/a
n/a
n/a
n/a
Yes
n/a
n/a
1 Vesting of the deferred shares granted under the annual bonus and unvested buy-out awards are subject to continued employment only.
2 Ben Fidler was appointed as Chief Financial Officer designate and as a member of the Board on 24 February 2023 and became Chief Financial Officer on 1 May 2023.
3 Beatriz García-Cos Muntañola was appointed to the Board on 1 September 2023.
4 Dominique Yates stepped down as Chief Financial Officer on 30 April 2023.
5
Ian Duncan stepped down from the Board on 17 November 2023.
6 Eva Lindqvist stepped down from the Board on 31 May 2023.
7 Figures relate to deferred shares granted in 2022 and 2023.
8 Ben Fidler was granted 162,417 shares under a buy-out award (see page 85). 4,143 shares vested during 2023 and these are currently held by the Employee Benefit Trust. 158,274 shares
remain unvested.
9 Figures relate to unvested awards granted under the BIP in 2021, 2022 and 2023. For Dominique Yates, the outstanding awards have been prorated to his date of leaving. The BIP awards granted
on 15 April 2021 will vest at 26.9% of maximum in March 2024.
As at 15 March 2024, the Company has not been advised of any changes to the interests of Directors and their connected persons as set out
in the above table.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 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 plans as at 31 December 2023 (or date of stepping down from the Board if
earlier) are as follows.
BIP
Deferred
bonus shares
Buy-out awards
S.C. Harris
B. Fidler1
D. Yates2
S.C. Harris
B. Fidler1
D. Yates2
B. Fidler1
Interests as at
1 January 2023
467,915
–
328,610
96,077
–
50,196
–
Granted in
year
177,625
140,179
119,235
42,9884
–
21,0064
162,417
Vested
in year
2,623
–
1,892
37,029
–
19,728
4,143
Interests
as at
31 December
2023
461,9293
140,179
130,5623
102,036
–
51,474
158,274
Lapsed
in year
180,988
–
315,3912
–
–
–
–
1 Ben Fidler was appointed as Chief Financial Officer designate and as a member of the Board on 24 February 2023 and became Chief Financial Officer on 1 May 2023.
2 Dominique Yates stepped down as Chief Financial Officer on 30 April 2023. All outstanding BIP awards have been pro-rated for time served as Chief Financial Officer during the relevant
vesting periods. The number of shares lapsed in the year included in the table is after the application of time pro-rating.
3 The BIP awards granted on 15 April 2021 will vest at 26.9% of maximum in March 2024.
4 The grant date face value of the deferred bonus shares granted on 23 March 2023 is £268,331 for Stephen Harris and £131,119 for Dominique Yates. This is based on a share price of £6.242,
being the three-day volume weighted average share price following the announcement of the 2022 year-end results (20, 21 and 22 March 2023).
End of auditable section
Comparison of overall performance and pay
The chart below shows the value over the last 10 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 the Group operates. The points plotted represent the values at each financial year end.
Historical TSR performance
Growth in the value of a hypothetical £100 holding over 10 years
£300
£250
£200
£150
£100
£50
£0
Dec 13 Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Dec 19
Dec 20
Dec 21
Dec 22
Dec 23
Bodycote TSR
FTSE All Share
Industrial Index
The table below shows how total remuneration for the Group Chief Executive, Stephen Harris, developed over the last 10 years.
Single figure of remuneration (£000)
Annual bonus (% of max)
Long-term incentive (% of max)
2014
1,803
73%
44%
2015
771
20%
0%
2016
875
19%
0%
2017
2,280
98%
48%
2018
2,728
68%
89%
2019
1,862
50%
84%
2020
783
0%
0%
2021
1,969
96%
0%
2022
1,608
61%
1%
2023
2,399
98%
27%
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Directors’ report on remuneration continued
Percentage change in remuneration
The table below sets out the annual percentage change in remuneration for each of the Directors compared to that for an average employee.
% change in salary/fees
% change in benefits
2019/20 2020/21 2021/22 2022/23 2019/20 2020/21 2021/22 2022/23 2019/20 2020/21 2021/22 2022/23
% change in annual bonus
Executive Director
S.C. Harris
B. Fidler1
D. Yates2
Non-Executive Directors
D. Dayan3
P. Larmon4
L. Chahbazi
K. Boyd5
C. Gordon6
B. Muntañola7
I.B. Duncan8
E. Lindqvist9
Average employee10
7.0% 2.0% 4.0% 5.0%
–
1.2% (65%)
–
2.3% 2.0%
–
–
2.8% 0.1%
–
0.8% (0.5)%
–
1.6% 3.9% (100%)
–
(100%)
–
0% (65%)
–
100% (35%)
–
100% (35%)
–
70.4%
–
(43%)
–
–
–
–
–
–
5.0%
3.0% 2.0% 3.0% 14.0% (83.2%) 1,935% (100%)
19% (100%)
3.0% 2.0% 3.0% 5.0% (70.6%)
(100%)
2.0% 17.3% 11.0%
–
5.0%
–
–
–
–
–
–
(61.5%)
3.0% 2.0% (4.4%)
23.4% (100%)
(19%)
3.0% 2.0% 6.8% (56%)
(93.3%) 3,985% (100%)
5.7% 6.9%
4.1% 2.9%
–
–
–
–
–
–
–
–
10% 9.8% 10.8% (100%)
(8.3%)
–
–
–
–
–
–
–
–
–
–
2.4%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100% (9.2)% 6.9%
–
–
–
–
–
–
–
–
1 Ben Fidler was appointed as Chief Financial Officer designate and as a member of the Board on 24 February 2023 and became Chief Financial Officer on 1 May 2023.
2 Dominique Yates stepped down as Chief Financial Officer on 30 April 2023.
3 Daniel Dayan was appointed as Chair to the Board on 1 January 2022.
4 Patrick Larmon was appointed as Senior Independent Director on 31 May 2023 in succession to Ian Duncan.
5 Kevin Boyd was appointed to the Board on 1 September 2020. He was appointed as Chair of the Audit Committee on 25 May 2022 in succession to Ian Duncan.
6 Cynthia Gordon was appointed to the Board on 1 June 2022. She was appointed as Chair of the Remuneration Committee on 31 May 2023 in succession to Eva Lindqvist.
7 Beatriz García-Cos Muntañola was appointed to the Board on 1 September 2023.
8
Ian Duncan stepped down from the Board on 17 November 2023.
9 Eva Lindqvist stepped down from the Board on 31 May 2023.
10 The annual percentage change of the average remuneration of the listed parent entity employees (excluding Directors), calculated on a full-time equivalent basis.
11 Percentage change in Benefits is calculated on unrounded figures.
12 No bonuses were paid to Executive Directors or the Company’s employees in respect of 2020.
Pay ratio of Group Chief Executive to UK average employee
The table below sets out the Group Chief Executive’s remuneration as a ratio against the full-time equivalent remuneration of the 25th, 50th
(median) and 75th percentile UK employees.
Year
2023
2022
2021
2020
2019
Method
Option A
Option A
Option A
Option A
Option A
25th percentile
pay ratio
71:1
52:1
69:1
28:1
70:1
Median
pay ratio
56:1
41:1
52:1
21:1
55:1
75th percentile
pay ratio
39:1
28:1
36:1
15:1
40:1
The Group Chief Executive’s remuneration is calculated on the same basis as the single figure of remuneration table set out on page 81.
A substantial proportion of the Group Chief Executive’s total remuneration is performance-related and delivered in shares. The ratios will
therefore depend significantly on the Group Chief Executive’s annual bonus and BIP outcomes, which may fluctuate year to year.
The calculations for the representative employees were performed as at the final day of the relevant financial year.
Option A methodology was selected on the basis that it is considered to be a robust approach and is aligned with best practice and
investor expectations.
2023 pay ratios have increased from 2022, returning to a more normal level, due to an increase in the Group Chief Executive’s total
remuneration. The increase in 2023 is primarily explained by the higher bonus outcome achievement of 98.2% of maximum opportunity
(2022: 61%) and higher BIP outcome achievement of 26.9% of maximum opportunity (2022: 1%). In 2023 the proportion of the Group Chief
Executive’s bonus and BIP was 64% of total remuneration, in 2022 the Group Chief Executive’s bonus and BIP remuneration equated to
49% of total remuneration.
Our broad remuneration policy reflects the diversity of cultures, legislative environments and employment markets of our geographical spread.
However, in line with the UK reporting regulations we have reported solely on the UK employee population. The Board believes that the median
pay ratio is consistent with the pay, reward and progression policies for the UK employee population.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Total pay and benefits used to calculate the ratios
The table below sets out the UK employee percentile pay and benefits used to determine the above pay ratios and the salary component for
each figure.
2023
Total pay and benefits
Salary component
Group Chief
Executive
(£)
2,399,484
665,245
25th percentile1,2
(£)
Median1,2
(£)
75th percentile1,2
(£)
33,712
32,147
42,542
40,355
61,294
54,612
1 The UK employee percentile total pay and benefits has been calculated based on the amount paid or receivable for the relevant financial year. The calculations are on the same basis as required for
the Group Chief Executive’s remuneration for single 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 calculations and no remuneration components have been omitted.
2 For employees employed on a part-time basis, their remuneration has been annualised to reflect the full-time equivalent.
Relative importance of pay spend
The table below sets out the total expenditure in relation to staff and employee costs and distributions to shareholders in 2022 and 2023.
Staff and employee costs
Distribution to shareholders
2023
(£m)
307.5
40.6
2022
(£m)
276.5
38.5
%
change
11.2%
5.5%
Committee membership
The Committee was chaired by Eva Lindqvist from 1 January to 31 May 2023. Cynthia Gordon was appointed Chair from 31 May 2023.
The Committee also comprised Patrick Larmon, Kevin Boyd, Lili Chahbazi, Beatriz García-Cos Muntañola (from the date of her appointment
to the Board on 1 September 2023) and Ian Duncan (to the date he stepped down from the Board on 17 November 2023). The Committee’s
full terms of reference are available on the Group’s website. No Committee members have any personal financial interest (other than as a
shareholder), conflict of interest, cross-directorships or day-to-day involvement in the running of the business.
Committee activities
During 2023 the Committee met five times to consider, amongst other matters:
Theme
Best practice
Agenda items
– Consideration of feedback from shareholders and proxy agencies following the 2023 AGM
Executive Directors’ and senior
executives’ remuneration
CEO succession
Reporting
– Update on market practice and corporate governance
– Base salary increases
– Granting annual bonus and BIP awards, including the setting of targets
– Assessment of annual bonus and BIP outcomes
– Remuneration decisions in relation to CEO succession
– Consideration and approval of the Directors’ Remuneration Report
Service contracts and letters of appointment
Executive Directors are employed under service contracts of employment, the principal terms of these service contracts are set out below:
Name
B. Fidler
D. Yates
Position
Chief Financial Officer
(with effect 1 May 2023)
Chief Financial Officer
(retired 30 April 2023)
Effective date
of contract
28 October 2022
Notice period
From Company
12 months
From Director
12 months
1 November 2016
12 months
12 months
Termination
Company has right to terminate on payment
of a termination payment
Company has right to terminate on payment
of a termination payment
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Directors’ report on remuneration continued
The Chair and Non-Executive Directors have letters of appointment that set out their duties and responsibilities. They do not have service
contracts. The key terms of the appointments are set out below:
Position
Name
Chair
D. Dayan
Senior Independent Director
P. Larmon
Non-Executive Director
K. Boyd
Non-Executive Director
L. Chahbazi
C. Gordon
Non-Executive Director
B. Muntañola Non-Executive Director
Date of original appointment
1 January 2022
13 September 2016
1 September 2020
1 January 2018
1 June 2022
1 September 2023
Date of last reappointment at AGM Notice period
2023
2023
2023
2023
2023
–
6 months
6 months
6 months
6 months
6 months
6 months
In accordance with the Code, all Directors will seek annual reappointment by shareholders at each AGM. Service contracts and letters of
appointment are available for inspection at the Company’s registered office during normal business hours.
Addressing the factors in Provision 40 of the 2018 UK Corporate Governance Code
Our Policy is designed to support an effective pay-for-performance culture which enables the Company to attract, retain and motivate Executive
Directors who have the necessary experience and expertise to execute our strategy and deliver value to shareholders. Below is an explanation
of how the Committee has addressed the principles prescribed in Provision 40 of the UK Code when determining the Remuneration Policy.
Principle
How the Committee has addressed the principle
Clarity and simplicity
The Committee ensures that remuneration arrangements are transparent, comprising a simple incentive structure
made up of fixed, short-term and long-term variable pay, that is commonplace in the market and best practice
remuneration provisions. These elements provide a clear line of sight for both executives and shareholders with the
variable pay elements providing stretching targets to drive the success of the business.
Risk
Predictability
Proportionality
The Committee promotes long-term sustainable performance through sufficiently stretching performance targets,
whilst ensuring that the incentive structure does not encourage Executive Directors to take inappropriate risks.
Executive Directors are subject to within-employment and post-employment shareholding guidelines to further
support sustainable decision-making.
The Committee has recourse to recover incentive payments in certain circumstances.
The ‘illustration of application of remuneration policy’ charts included on page 80 of our 2021 Annual Report indicate
the potential values that may be earned through the remuneration arrangements to provide transparency around
overall opportunities.
The Committee believes that the Remuneration Policy table clearly sets out how each element of remuneration
links to the delivery of strategy. The disclosure of BIP performance targets provides a clear link between incentives
and the long-term performance of the Company and the shareholder value created.
The Committee has discretion to adjust incentive outcomes so that they fairly and accurately reflect the performance
of the Company over the relevant performance period.
Alignment to culture
The Committee believes that the incentive arrangements are consistent with the Company’s values:
Honesty and Transparency: The incentive arrangements are simple, transparent
and in line with market practice, facilitating understanding by all stakeholders.
Respect and Responsibility: The Committee has recourse to recover incentive payments in certain circumstances.
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.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Advisers to the Committee
During the year, the Committee received independent advice on executive remuneration matters from Deloitte LLP (Deloitte), which was
formally appointed as Committee advisers from 1 January 2020, following a competitive tender process. Deloitte is a founder member of the
Remuneration Consultants Group and as such, voluntarily operates under its Code of Conduct in relation to executive remuneration in the UK.
The Committee reviews the objectivity and independence of the advice it received from its remuneration consultants at a private meeting
each year. The Committee is satisfied that the advice provided by Deloitte on executive remuneration is objective and independent, and that
no conflict of interest arises as a result of these services.
The fees paid to Deloitte for its services to the Committee during the year, based on time and expenses, amounted to £47,750 excluding VAT.
Deloitte also provided employee share plan advisory services, business tax services and financial advisory services to the Company during
the year.
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 consulted with the Group Chief Executive and received
recommendations from him in respect of his direct reports.
Statement of shareholder voting and shareholder engagement
The table below sets out the voting results of the advisory vote of the 2022 Directors’ remuneration report received at the AGM held on
31 May 2023.
Annual Report on Remuneration including within the Directors’ remuneration report
Number of votes cast (excluding abstentions)
163,835,669
For
97.1%
Against
2.9%
Abstentions
7,715
The table below sets out the voting results in respect of the resolution to approve the Directors’ Remuneration Policy at the 2022 AGM.
Remuneration Policy report
Number of votes cast (excluding abstentions)
120,988,831
For
77%
Against
23%
Abstentions
11,802,612
The Committee recognises that more than 20% of votes were cast against this resolution at the AGM held in 2022. As a result, and in
accordance with Provision 4 of the Code, engagement with key investors and proxy advisors was undertaken to better understand the views
expressed. It was recognised that while the majority of shareholders were supportive of the key remuneration recommendations, the concerns
raised primarily related to the Committee’s approach to enshrining localised salary increases and pension positioning for Executive Directors
within the Remuneration Policy. The context and rationale taken by the Committee was explained and it was confirmed that the approach taken
remained fully consistent with typical market practice, with all amounts made in accordance with policy and in line with the Code.
As noted on page 77, ahead of submitting our Remuneration Policy for shareholder approval in 2025, a policy review will be undertaken,
with input sought from shareholders during 2024.
Cynthia Gordon
Chair of the Remuneration Committee
15 March 2024
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Directors’ responsibilities statement
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 UK-adopted international accounting standards and the 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, 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 Company and of the profit or loss of the Group 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 UK-adopted international accounting standards 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 Company will continue
in business.
The Directors are responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that
the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the 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’s and Company’s position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Governance Report, confirm that, to the best of their knowledge:
– the Group financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit of the Group;
– the Company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101,
give a true and fair view of the assets, liabilities and financial position of the Company; and
– the Strategic report includes a fair review of the development and performance of the business and the position of the Group and Company,
together with a description of the principal risks and uncertainties that it faces.
In the case of each Director in office at the date the Directors’ report is approved:
– so far as the Director is aware, there is no relevant audit information of which the Group’s and Company’s auditors are unaware; and
– they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information
and to establish that the Group’s and Company’s auditors are aware of that information.
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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 2023 and of the Group’s profit and the Group’s cash flows for the year
then ended;
– the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards as applied in
accordance with the provisions of the Companies Act 2006;
– the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, including 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.
We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated balance sheet and the
Company balance sheet as at 31 December 2023; the Consolidated income statement and the Consolidated statement of comprehensive
income, the Consolidated cash flow statement, and the Consolidated and the Company statements of changes in equity for the year then
ended; the Group and the Company accounting policies; and the notes to the financial statements.
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.
Other than those disclosed in note 2 to the consolidated financial statements, we have provided no non-audit services to the Company or
its controlled undertakings in the period under audit.
Our audit approach
Context
Bodycote plc is a global business operating in the thermal processing sector. The business operates in a number of countries around the
world and provides services primarily to the automotive, general industrial, aerospace, defence and energy markets.
Overview
Audit scope
– The Group’s financial statements are a consolidation of a number of reporting units (each of which were deemed to be components)
representing the Group’s trading entities around the world, its centralised functions and consolidation adjustment reporting units. The reporting
units vary in size, and our approach to scoping considers those entities which are of most significance to the Group as a whole, in particular in
North America and Europe. We also requested certain component teams to perform full scope audit procedures over additional components
to ensure we achieved an appropriate level of audit coverage.
Key audit matters
– Valuation of goodwill (Group)
– Valuation of uncertain tax positions (Group)
– Valuation of the UK defined benefit pension scheme (Group and Company)
Materiality
– Overall Group materiality: £6,200,000 (2022: £6,000,000) based on professional judgement considering a number of potential benchmarks
(specifically revenue and profit based benchmarks, both for the current year and over a number of years).
– Overall Company materiality: £4,300,000 (2022: £4,700,000) based on approximately 1% of total assets.
– Performance materiality: £4,650,000 (2022: £4,500,000) (Group) and £3,200,000 (2022: £3,525,000) (Company).
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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.
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.
The key audit matters below are consistent with last year.
Key audit matter
Valuation of goodwill (Group)
Refer to note 9 of the consolidated financial statements and the
areas of focus in the Report of the Audit Committee.
For the cash generating units (“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
volumes 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. Notwithstanding the apparent
decline in the impact of the COVID-19 pandemic, there remains
ongoing uncertainty around the timing of recovery for many key
sectors in which the Group operates, in particular due to the
uncertainty associated with the impact on global supply chains,
energy availability and prices, and broader cost inflation following
the Russian invasion of Ukraine. Therefore, given the resulting effect
of this area on the overall audit strategy, the allocation of resources
in the audit and directing the efforts of the engagement team,
we considered the impairment assessment of goodwill to be a key
audit matter.
Management’s assessment also included a “mid-term” growth
period from years 6 to 10, reflecting their view that the business
would not be at a steady state of growth by year 5 based on
internal forecasts.
Specifically, we identified the valuation of the North America ADE
and North America AGI goodwill balances as significant audit risks
due to their lower level of headroom relative to the carrying value of
the CGUs and the material goodwill balances held in those CGUs.
How our audit addressed the key audit matter
We tested the integrity of management’s impairment calculation and
corroborated the 2024 forecast to the Board approved budget and for
2025 to 2028 inclusive to the Group’s latest Board approved Financial
Plan. We also assessed the assumptions made by management in
the budget and understood management’s process for forecasting
longer term cash flows, in particular focusing on the assumptions
used through to 2028, and the expected ongoing improvement in the
Group’s revenues and operating margin performance.
We agreed the underlying carrying values of the CGUs to audited
financial information.
We challenged management’s key assumptions for revenue,
profit and cash flow forecasts by comparing them with third party
industry market data, where available, and considered the allocation
of central costs to the CGUs. We also performed look back
testing to understand how accurate management has been in its
forecasting historically.
We assessed management’s growth assumptions beyond year 5,
using our valuations experts to compare management’s long-term
growth rate with economic forecasts. We also used our valuations
experts to assess the reasonableness of the discount rates used
by management, by independently calculating a range for this rate,
and considered whether the rate used by management was within
a supportable range. We used this independently calculated discount
rate and our estimate of the long-term growth rate, alongside our
view of certain other assumptions, to calculate our view of the
recoverable amount.
We specifically considered management’s application of a mid-
term growth rate to years 6 to 10 in its impairment assessment,
and performed analysis by removing this assumption and applying
a long-term growth rate to determine the terminal value from the
fifth year of management’s cash flow forecasts. This did not result
in a different conclusion to that of management. We obtained
management’s sensitivity analyses, which showed the impact of
its view of reasonably possible changes to key assumptions and
performed our own sensitivity analyses. Our sensitivity analysis
sought to cover the potential risks associated with climate change,
inflationary pressures and geopolitical risks. Whilst we did not
identify specific sensitivities for each item, we modelled what we
considered to be suitably severe overall assumptions impacting
margins and growth that took these factors into account.
We considered the appropriateness of the disclosures in note 9 to
the consolidated financial statements. Based on the procedures
performed, we noted no material issues from our work.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Key audit matter
How our audit addressed the key audit matter
Valuation of 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. Refer to note 6
and 19 of the consolidated financial statements and the areas of
focus in the Report of the Audit Committee.
In particular, the interpretation of complex tax regulations and the
unknown future outcome of pending rulings 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. These transactions result in the recognition
of material provisions for tax of £26.4 million (2022: £28.1 million),
which have, therefore, been treated as a key audit matter.
Valuation of the UK defined benefit pension scheme
(Group and Company)
The Group operates a number of defined benefit pension schemes
across different territories. Accounting for these schemes can
be complex, and necessitates a higher level of audit effort.
See the Group’s accounting policies, note 26 of the consolidated
financial statements and the areas of focus in the Report of the
Audit Committee.
The Group’s net retirement benefit obligation is £11.1 million
(2022: £10.9 million). This net position also includes the UK
scheme, which had an accounting surplus of £4.9 million as
at 31 December 2023, which (consistent with prior years)
was unrecognised.
The assets of the UK scheme total £67.6 million. Auditing the
valuation of assets can be complex given the scheme invests
in Pooled Investment Vehicles (“PIVs”), which may not have
coterminous year ends with the Group’s financial statements,
or may contain underlying assets that are more complex to value.
The obligations of the UK scheme total £62.7 million. The Group
relies on management’s experts to determine the valuation of the
obligations, which involves estimation and judgement in selecting
appropriate actuarial assumptions.
Whilst the UK surplus remains unrecognised, an immaterial
misstatement could lead to this surplus being eroded and result in
pension balances needing to be recognised on the consolidated
balance sheet in respect of the UK scheme.
On this basis we identified the risk in relation to the valuation of
the associated obligations for the UK pension scheme as elevated
for the audit. Since this audit area in relation to the UK pension
scheme involves relatively high audit effort for both the Group and
the Company we have included it as a Key Audit Matter.
Our audit work, which involved taxation audit specialists at the Group
level, included the assessment of the Group’s uncertain tax positions.
Our assessment included considering the current status of new
and historical tax assessments and investigations to monitor
developments in ongoing disputes, in addition to reviewing
correspondence with tax authorities. We considered 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. Where no advice was
available, we understood management’s rationale based on internal
analysis and other supporting information. We also considered
significant transactions to identify uncertain tax positions that may
arise from those transactions.
In assessing the adequacy of the tax provisions, we considered
interest that could be applied by the local tax authorities. We also
determined whether the tax provisions were recognised and
measured in accordance with the relevant accounting standards.
We considered the appropriateness of the related disclosures in
notes 6 and 19 to the consolidated financial statements. Based on
the procedures performed, we noted no material issues from
our work.
With respect to the UK scheme, which is our elevated audit risk in
relation to the valuation of the associated liabilities, the following
procedures were performed.
We assessed the pension assumptions used to derive the scheme
obligations, including discount rates, inflation and mortality, using
our actuarial experts where necessary. We also considered and
challenged the appropriateness of the actuarial assumptions against
our internally developed benchmark ranges, finding them to be within
an acceptable range.
We performed testing to ensure that the obligations were consistent
with the most recent funding valuations and that the movement in
the obligations during the year was reasonable.
While the valuation of the associated UK pension scheme assets was
not part of our elevated audit risk, independent investment manager
confirmations were obtained for all material PIVs and bank letters
obtained for all scheme bank accounts. Where PIVs were determined
to be more complex additional audit procedures were performed,
including over year end transactions and assessing the latest internal
controls report for the relevant investment manager.
While also not part of our elevated risk, we assessed management’s
rationale for not recognising the surplus on the UK scheme, in line
with accounting standards. We ensured that there had been no
changes since previous years when the appropriateness of this
judgement had been confirmed with our internal actuarial and
accounting experts.
We also considered the appropriateness of the related disclosures
in note 26 of the consolidated financial statements. Based on the
procedures performed, we noted no material issues from our work.
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Independent auditors’ report to the members
of Bodycote plc continued
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 (2022: one) as financially significant (as defined within ISAs (UK)). We obtained full scope audit reporting
from a further fifteen components (2022: twelve), where we concluded that the component engagement leader is a Key Audit Partner, and
an additional seven (2022: seven) components where full scope audits were also performed. Together, these components were in twelve
countries, representing the Group’s principal businesses, and provided audit coverage of 78% of the Group’s revenue (2022: 75%) and
77% of consolidated absolute profit before tax (2022: 73%).
Specified procedures over specific financial statement line items were performed at one further component (2022: one) and central
testing was performed on selected items, such as goodwill, uncertain tax positions and the consolidation, primarily to ensure appropriate
audit coverage.
The components included within our audit scope were determined based on each 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 on 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. The audit was conducted in a hybrid working environment, through remote
working and virtual meetings, as well as in-person meetings with certain Key Audit Partners. The Group engagement team also reviewed
selected audit working papers for certain in-scope component teams, including those where the engagement leader was determined to be 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.
The impact of climate risk on our audit
In planning our work, including identifying areas of audit risk and determining an appropriate response, we were mindful of the increased focus
on the impact of climate change risk on companies and their financial reporting, and also that the Group has identified climate change as a
principal risk. Climate change risk is expected to have an impact on the Group’s business as the operations and strategy of the Group evolve
to address the potential physical and transition risks that could arise and the opportunities associated with climate change, including from its
customer base. Climate change-related initiatives and commitments impact the Group in a variety of ways, as described within the Annual
Report. We challenged the completeness of management’s climate risk assessment by considering the appropriateness of extending the cash
flows as modelled in the Group’s impairment assessment into perpetuity and assessing how management had considered the impact of the
Group’s sustainability initiatives on the cash flows included in this assessment.
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
Financial statements – Group
Financial statements – Company
£6,200,000 (2022: £6,000,000).
£4,300,000 (2022: £4,700,000).
Professional judgement considering a number of potential
benchmarks (specifically revenue and profit based benchmarks,
both for the current year and over a number of years).
Approximately 1% of total assets.
We considered a range of acceptable benchmarks for
determining materiality. We selected a level of materiality
that was within the range of outcomes suggested by these
alternative benchmarks and reflected an appropriate increase
on the prior year materiality level given the increased level
of revenue and profit before tax. The materiality selected is
equivalent to approximately 6% of current year profit before
tax (2022: 6%).
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 is less than our overall Group materiality. The range of
materiality allocated across components was between £500,000 and £3,800,000.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the
nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes.
Our performance materiality was approximately 75% (2022: 75%) of overall materiality, amounting to £4,650,000 (2022: £4,500,000)
for the Group financial statements and £3,200,000 (2022: £3,525,000) for the Company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £310,000 (Group
audit) (2022: £300,000) and £215,000 (Company audit) (2022: £235,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis of
accounting included:
– Obtaining the directors’ assessment and understanding the assumptions used in the base case scenario and the severe but plausible
downside scenario over the next twelve months;
– Agreeing the budget for 2024 used in the base case scenario to the Board approved budget and evaluating the appropriateness of key
assumptions used in determining these cash flows. For the period of the assessment not covered by the budget, we agreed the forecasts to
the Group’s latest Board-approved Financial Plan and analysed the forecasts projected by management and considered these in the context of
wider market data; and
– We assessed the appropriateness of the severe but plausible downside scenario adopted by management, including considering the relevant
downside risks that the Group may face over the next twelve months.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group‘s and the Company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the Company’s
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt
the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this 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 and the Directors’ report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as
described below.
Strategic report and the Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and the Directors’ report
for the year ended 31 December 2023 is consistent with the financial statements and has been prepared in accordance with applicable
legal requirements.
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 the Directors’ report.
Directors’ Remuneration
In our opinion, the part of the Directors’ report on remuneration to be audited has been properly prepared in accordance with the Companies
Act 2006.
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of Bodycote plc continued
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate
governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our
review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting
on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material
to add or draw attention to in relation to:
– The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
– The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and
an explanation of how these are being managed or mitigated;
– The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
– The directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers and why the
period is appropriate; and
– The directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the Group and Company was substantially less in scope than an
audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement
is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with
the financial statements and our knowledge and understanding of the Group and Company and their environment obtained in the course of
the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
– The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy;
– The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
– The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when 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.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities in respect of the financial statements, 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to breaches of environmental regulations and health and safety regulations, 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
financial statements such as the Companies Act 2006. 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 they 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:
98
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 – 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;
– Substantive testing of journal entries which met a defined risk criteria, focusing on where and how fraud could arise; and
– Challenging assumptions and judgements made by management in its accounting estimates or judgements, in particular in relation to the
valuation of goodwill.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance
with laws and regulations that are not closely related to events and transactions reflected in the financial statements. 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.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to
target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw
a conclusion about the population from which the sample is selected.
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/
auditorsresponsibilities. 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 obtained 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’ report on remuneration 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. The period of total uninterrupted engagement is
five years, covering the years ended 31 December 2019 to 31 December 2023.
Other matter
In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements
will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in
accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual
financial report will be prepared using the single electronic format specified in the ESEF RTS.
Simon Morley (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
15 March 2024
99
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Consolidated income statement
For the year ended 31 December 2023
Revenue
Cost of sales and overheads1
Other operating income1
Other operating expenses1
Net impairment losses on financial assets
Operating profit prior to exceptional items
Exceptional items
Operating profit
Finance income
Finance charge
Profit before taxation
Taxation charge
Profit for the year
Attributable to:
Equity holders of the Parent
Non-controlling interests
Earnings per share
Basic
Diluted
1 Excludes exceptional items.
All activities have arisen from continuing operations.
Note
1
2
2
2
1,2
4
2
5
5
6
8
2023
£m
802.5
(694.4)
12.6
(1.3)
(0.2)
119.2
–
119.2
0.8
(8.3)
111.7
(24.9)
86.8
85.6
1.2
86.8
Pence
45.1
44.8
Consolidated statement of comprehensive income
For the year ended 31 December 2023
Profit for the year
Items that will not be reclassified to profit or loss:
Actuarial (losses)/gains on defined benefit pension schemes
Tax on retirement benefit obligations 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
Movements on hedges of net investments
Movements on cash flow hedges
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
Note
26
19
18
2023
£m
86.8
(0.1)
–
(0.1)
(29.7)
1.5
0.4
(27.8)
(27.9)
58.9
58.5
0.4
58.9
2022
£m
743.6
(646.2)
9.2
(4.5)
(0.1)
102.0
–
102.0
0.4
(7.1)
95.3
(21.0)
74.3
73.7
0.6
74.3
Pence
38.6
38.5
2022
£m
74.3
5.8
(0.2)
5.6
57.2
(3.1)
(0.3)
53.8
59.4
133.7
133.3
0.4
133.7
100
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Consolidated balance sheet
At 31 December 2023
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
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
Derivative financial instruments
Provisions
Net current assets/(liabilities)
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
19
14
13
14
15
16
20
17
12
18
21
12
26
19
21
20
22
2023
£m
221.5
111.2
504.9
58.5
2.6
1.3
900.0
29.5
13.1
148.4
45.2
0.5
236.7
1,136.7
122.7
46.0
32.6
11.8
–
12.0
225.1
11.6
52.5
11.1
51.8
3.0
0.9
119.3
344.4
792.3
33.1
177.1
(15.6)
139.9
52.3
404.0
790.8
1.5
792.3
2022
£m
227.8
116.9
516.3
59.6
1.5
1.5
923.6
27.8
24.4
154.4
37.2
0.3
244.1
1,167.7
124.9
42.8
70.6
12.3
0.3
10.2
261.1
(17.0)
53.7
10.9
51.0
7.9
1.1
124.6
385.7
782.0
33.1
177.1
(5.2)
134.9
81.2
359.8
780.9
1.1
782.0
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue on
15 March 2024. They were signed on its behalf by:
S.C. Harris
B. Fidler
101
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Consolidated cash flow statement
For the year ended 31 December 2023
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Proceeds on disposal of property, plant and equipment, right-of-use and intangible
assets
Purchases of other intangible assets
Interest received
Net cash used in investing activities
Financing activities
Interest paid
Dividends paid
Principal elements of lease payments
Drawdown of bank loans
Repayments of bank loans
Own shares purchased
Net cash used in financing activities
Net increase/(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
Note
23
7
23
2023
£m
191.6
(74.1)
10.4
(8.3)
0.8
(71.2)
(7.2)
(40.6)
(13.1)
25.7
(61.8)
(13.2)
(110.2)
10.2
36.2
(1.7)
44.7
2022
£m
142.9
(57.2)
4.7
(9.8)
0.4
(61.9)
(6.2)
(38.5)
(13.8)
50.7
(75.0)
–
(82.8)
(1.8)
37.9
0.1
36.2
102
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Consolidated statement of changes in equity
For the year ended 31 December 2023
Share
capital
£m
33.1
–
Share
premium
account
£m
177.1
–
Own
shares
£m
(6.2)
–
Other
reserves
£m
137.5
–
Translation
reserves
£m
23.8
–
Retained
earnings
£m
319.4
73.7
Equity
attributable
to equity
holders of
the parent
£m
684.7
73.7
Non-
controlling
interests
£m
0.7
0.6
Total
equity
£m
685.4
74.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
33.1
–
–
–
177.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
33.1
–
–
177.1
–
–
–
–
–
1.0
–
–
–
(5.2)
–
–
–
–
–
–
(13.2)
2.8
–
–
–
(15.6)
–
57.4
(3.1)
(0.3)
–
(3.4)
(0.9)
1.7
–
–
134.9
–
–
–
–
–
–
–
–
81.2
–
–
(28.9)
1.5
0.4
–
1.9
–
(2.0)
5.1
–
–
139.9
–
–
–
(28.9)
–
–
–
–
–
52.3
–
–
–
5.6
57.4
(0.2)
57.2
(3.1)
(0.3)
5.6
–
–
–
(3.1)
(0.3)
5.6
57.4
79.3
133.3
0.4
133.7
(0.1)
–
(0.3)
(38.5)
359.8
85.6
–
–
–
(0.1)
85.5
–
(0.8)
–
0.1
(40.6)
404.0
–
1.7
(0.3)
(38.5)
780.9
85.6
–
–
–
–
1.1
1.2
–
1.7
(0.3)
(38.5)
782.0
86.8
(28.9)
(0.8)
(29.7)
1.5
0.4
(0.1)
58.5
(13.2)
–
5.1
0.1
(40.6)
790.8
–
–
–
0.4
–
–
–
–
–
1.5
1.5
0.4
(0.1)
58.9
(13.2)
–
5.1
0.1
(40.6)
792.3
1 January 2022
Profit for the year
Exchange differences on translation
of overseas operations
Movements on hedges of net
investments
Movements on cash flow hedges
Actuarial gains on defined benefit
pension schemes net of deferred tax
Total comprehensive income for
the year
Acquired in the year/settlement of
share awards
Share-based payments
Deferred tax on share-based
payment transactions
Dividends
31 December 2022
Profit for the year
Exchange differences on translation
of overseas operations
Movements on hedges of net
investments
Movements on cash flow hedges
Actuarial losses on defined benefit
pension schemes net of deferred tax
Total comprehensive income
for the year
Shares acquired in the year
Settlement of share awards
Share-based payments
Deferred tax on share-based
payment transactions
Dividends
31 December 2023
Included in other reserves is a capital redemption reserve of £129.8m (2022: £129.8m) and a share-based payments reserve of £9.7m
(2022: £6.7m). 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 2023, 2,292,243
(2022: 639,125) ordinary shares of 173/11p each were held by the Bodycote International Employee Benefit Trust to satisfy share-based
payments under the Group’s incentive schemes (see note 24). In the period ending 31 December 2023, 2,000,000 shares were purchased
for the Bodycote International Employee Benefit Trust to satisfy future share-based payments under the Group’s share incentive schemes,
for an average price of £6.57 (excluding costs) at a cost of £13.1m plus purchase costs of £0.1m.
Certain subsidiaries in the UK have taken an exemption to be audited. Refer to page 148 for further information.
103
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Group accounting policies
Year ended 31 December 2023
Basis of preparation
The financial statements of the Group have been prepared in accordance with UK-adopted international accounting standards and with
the requirements of the Companies Act 2006 as applicable to companies reporting under these standards.
The Group has adopted Standards and Interpretations issued by the IASB and the International Financial Reporting Interpretations Committee
of the IASB (IFRS IC). Individual standards and interpretations have to be adopted by the UK Endorsement Board (UKEB) before being applied
in the UK. International Financial Reporting Standards (IFRS) are subject to ongoing amendment by the IASB and subsequent endorsement
by the UKEB and are therefore subject to change.
The financial statements have been prepared on the historical cost basis, except for items that are required by IFRS to be measured at fair
value, principally certain financial instruments measured at fair value, and retirement benefit assets. Historical cost is generally based on the
fair value of the consideration given up in exchange for the assets.
In preparing the consolidated financial statements, the Directors have considered the impact of climate change in the context of the
disclosures included in the Sustainability section of the Strategic report. These considerations did not have a material impact on the financial
reporting judgements and estimates, consistent with the conclusion that climate change is not expected to have a significant impact on the
Group’s cash flows, including those considered in the going concern and viability assessments.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of Bodycote plc (‘the Company’) and entities controlled by the
Company (its subsidiaries and together, ‘the Group’) 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 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 subsidiary financial statements
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.
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.
Going concern
In determining the basis of preparation for the consolidated financial statements, the Directors have considered the Group’s business
activities, together with the factors likely to affect its future development, performance and position. The Chief Financial Officer’s report
included in this Annual Report includes a summary of the Group’s financial position, cash flows, liquidity position and borrowings.
The current and plausible impact of macroeconomic factors, including the war in Ukraine, energy and price inflation, and global supply chain
impacts on the Group’s activities, performance and revenue, in addition to other factors and risks, have been considered by the Directors in
preparing its going concern assessment. The Group has modelled a base case, which reflects the Directors’ current expectations of future
trading in addition to potential severe but plausible impacts on revenue, profits and cash flows in a downside scenario.
Management’s base case scenario is built upon the budgeting and forecasting processes for 2024 and extended up to June 2025. It includes
the recent acquisition of Lake City and the £60m share buyback that were announced in January 2024. This model shows an improvement
in performance in both revenue and profits compared to 2023. The Group’s recent record of cash conversion was used to estimate the cash
generation and level of net debt over that period. The severe but plausible downside scenario assumes a significant decline in revenue of
around 20% below the base case modelled through to the end of June 2025, giving a 12% year on year decline in 2024. This downside takes
account of short-term negative shock events which are intentionally more severe that those used in the impairment analysis. In mitigation to
this severe sales decline, a 5% decline to maintenance capex and a 50% decline to expansionary capex compared to the base case has been
assumed, together with an assumption that there is no growth in dividends from 2023 across this period.
In performing the scenarios, the assessment has considered both liquidity and compliance with the Group’s covenants. The key covenants
attached to the Group’s Revolving Credit Facility relate to financial gearing (net debt to EBITDA) and interest cover, which are measured on
a pre-IFRS 16 basis. The maximum financial gearing ratio permitted under the covenants is 3.0x (with a one-time acquisition spike at 3.5x)
and the minimum interest cover ratio permitted is 4.0x. In both the base case and the severe but plausible downside scenario modelled,
the Group continues to maintain sufficient liquidity and meet its gearing and interest cover covenants under the Revolving Credit Facility
with substantial headroom.
Management also performed a reverse stress test. This indicated that 2024 revenue would need to decline by over 35% compared to 2023
levels and with no growth in 2025 before the Group’s loan covenants were breached at the June 2025 test date. In this scenario, minimum
liquidity was over £47m throughout the entire period. This scenario included the same mitigations as the downside scenario, with the
expansionary capex reduction increased to 80% in H1 2025.
104
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 The Group meets its working capital requirements through a combination of committed and uncommitted facilities and overdrafts.
For the purposes of the going concern assessment, the Directors have only taken into account the capacity under existing committed
facilities, being predominantly the Group’s Revolving Credit Facility.
The Group has access to a £250.9m Revolving Credit Facility maturing in May 2027. The Group’s committed facilities at 31 December 2023
totalled £260.6m while uncommitted facilities totalled £63.5m. At 31 December 2023, the Group’s committed facilities had drawings of
£32.3m (2022: £69.6m) and the Group’s net cash (excluding lease liabilities) was £12.6m (2022: net debt (excluding lease liabilities)
of £33.4m). The liquidity headroom was £273.5m at 31 December 2023 (2022: £223.0m), excluding uncommitted facilities.
Following this assessment, the Directors have formed a judgement, at the time of approving the financial statements, that there are no
material uncertainties that cast doubt on the Group’s going concern status and that it is a reasonable expectation that the Group has adequate
resources to continue in operational existence for at least the next 12 months from the approval date of the consolidated financial statements.
For this reason, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements.
Critical accounting judgements and significant accounting estimates
In the course of preparing the consolidated financial statements certain estimates, assumptions and judgements have been made in the
process of applying the Group’s accounting policies that have had a significant effect on the amounts recognised in the financial statements.
Although the estimates and judgements are based on management’s best information about current circumstances and future events and
actions, actual results may differ and result in material variances.
Critical accounting judgements
– 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 that 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. There can also be estimation involved in determining the quantum of any provision.
Refer to notes 6, 19 and 27.
– In line with previous years the Group continues to take the decision not to recognise an asset in relation to the surplus on the UK defined
benefit pension scheme, regardless of value. See note 26.
Significant accounting estimates
– Accounting for retirement benefit schemes under IAS 19 requires an assessment of the future benefits payable in accordance with actuarial
assumptions. The discount rate and the mortality rates applied in the calculation of scheme liabilities are a key source of estimation uncertainty
for the Group. Details of the accounting policies applied in respect of retirement benefit schemes are set out in note 26.
Other areas of judgement and accounting estimates
– The Group has considered whether the valuation of goodwill and the related value-in-use calculation assumptions used for the annual
impairment testing were significant estimates and has concluded that there is no reasonably possible material change expected in the carrying
amount of these balances due to a change in these assumptions in the next financial year. This estimate is therefore not considered a key
source of estimation uncertainty. Refer to note 9.
– The economy in Turkey is subject to high inflation and has qualified as a hyperinflationary economy as of 1 April 2022 for accounting periods
ending on or after 30 June 2022. The Group has concluded that applying IAS 29 (Financial Reporting in Hyperinflationary Economies) is not
required as the impact of adopting this standard is not material, but will continue to assess the position going forward.
– The Group recognises climate change as a principal risk. Growing awareness of climate change and customer sustainability targets will provide
opportunities for growth as we provide services and solutions that increase efficiency and reduce energy use. The Group’s view is that climate
change does not create any further key source of estimation uncertainty at this time. Refer to our principal risks and uncertainties and
sustainability reports and to note 9 for more information.
Revenue recognition
The Group predominantly has one revenue stream relating to thermal processing services with either identifiable customer contracts
or specific terms and conditions that constitute a contract. 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, being the
delivery of a service which happens either at a point in time or over a short time frame. Revenue is recognised on completion of the service
rendered as any spreading of revenue over a short time frame during which some services are performed would not have a material impact
on revenue recognition. 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. In general, there are limited instances of judgements made in assessing revenue recognition under IFRS 15 given the
relative simplicity of the contracts, and that revenue is recognised at a point in time.
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 is considered as agency activity. In such cases, the revenue
and direct costs of sale are recorded on a net basis in revenue in the consolidated income statement.
Other operating income
Other operating income represents asset sales, profit on disposal of investment in associates, government support, scrap sales and other
items of operating income not generated in the normal course of business.
105
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Group accounting policies continued
Year ended 31 December 2023
Foreign currencies
Transactions in currencies other than the functional currency 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. Gains and losses arising on retranslation are included in net profit or loss for the period. Non-monetary items that
are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise except for:
– Exchange differences on transactions entered into to hedge certain foreign currency risks (see page 131); 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 exchange differences 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.
Government assistance
Economic support provided to the Group as part of government and state initiatives to support local economies is recorded in the consolidated
income statement on the date at which the conditions attached to the receipt of such assistance have been met, in the period it becomes
receivable. General economic support is presented within other operating income in the consolidated income statement and where
appropriate net against the applicable costs within cost of sales and overheads.
Operating profit
Operating profit is stated after charging restructuring costs, goodwill impairment, impairment of tangible and intangible assets, amortisation of
acquired intangible assets, support from government assistance and any gains or losses on disposal of investments in associates, but before
finance income and finance costs.
Dividends
Interim dividend distributions to Bodycote plc’s ordinary shareholders are recognised when paid. Final dividends are accrued when approved
by the ordinary shareholders at the Group’s Annual General Meeting.
Borrowing costs
Borrowing costs are recognised in the consolidated income statement in the period in which they are incurred as finance costs.
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. Interest costs on borrowings are expensed to the consolidated income statement as they fall due and accounted for as
financing cash flows as they are settled.
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 collective 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, costs associated with significant restructuring and reorganisation costs, impairment charges,
significant profits and losses on disposal of subsidiaries and other one-off items which meet this definition. Subsequent adjustments to items
previously recognised as exceptional will normally also be reflected as exceptional items in future periods.
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 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 consolidated income statement.
Goodwill is allocated to cash generating units and is not amortised but tested annually for impairment, or more frequently when there is an
indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to assets of the unit on a pro-rata
basis. Any impairment loss recognised for goodwill cannot be reversed in a subsequent period.
On disposal of an associate or subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Other 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.
106
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 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, which is included in cost of sales and overheads.
Costs associated with maintaining software programmes are recognised as an expense as incurred. Development costs that are directly
attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets
and are amortised from the month in which the asset is available for its intended use. Directly attributable costs that are capitalised as part of
the software asset include third-party costs, employee costs and an appropriate portion of relevant overheads.
Annual licence agreements to use Cloud software are expensed and treated as a service agreement. Perpetual licences to use Cloud software
are capitalised if the Group has both a contractual right to the software and the ability to run the software independently of the host vendor.
Customisation and configuration costs related to the implementation of a Cloud-based solution is expensed unless it creates an asset that is
separate and identifiable from the software.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged to the income statement either to cost of sales or administrative expenses, depending on the use of the asset,
on a straight-line basis at rates which write down the value of assets to their residual values over their estimated useful lives. Land is
not depreciated.
The principal rates are as follows:
Freehold buildings
2%
Leasehold improvements
over the projected life of the lease
Fixtures and fittings
Plant and machinery
Motor vehicles
10%-20%
5%-20%
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 other operating income in the consolidated income statement.
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 and they have been transferred to the relevant asset class.
Business combinations
Acquisitions of subsidiaries and businesses are generally accounted for under IFRS 3, where appropriate. 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 the consolidated income
statement 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 any contingent consideration classified as an asset or liability are accounted for in accordance
with relevant IFRS standards.
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 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 Payments.
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 or an asset is not in use and therefore requires
an annual test, 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 inflows that are largely 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 nominal
cash flows are discounted to their present value using a nominal 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 in the
consolidated income statement.
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 in the consolidated income statement immediately.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Group accounting policies continued
Year ended 31 December 2023
Retirement benefit schemes
Obligations for contributions to defined contribution pension plans are recognised as an expense in the consolidated income statement
as incurred.
The cost of providing pensions under defined benefit schemes is calculated in accordance with a qualified actuarial evaluation and spread
over the period during which the benefit is expected to be derived from the employees’ services. The Group’s net obligation or surplus in
respect of defined benefit pension schemes is calculated separately for each scheme by a qualified actuary using the projected unit method
by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods less the fair
value of the scheme’s assets. Past service costs resulting from scheme amendments or curtailments and gains or losses on settlements are
charged to the consolidated income statement. If the calculation results in a surplus, the recognised asset is limited, under the provisions of
IFRIC 14, to the present value of benefits available in the form of future refunds from the plan or reductions to future contributions.
The average discount rate for the schemes’ liabilities is based on investment grade rated corporate bonds or similar government bonds of
suitable duration and currency. Scheme assets are measured using market values at the end of the reporting period. Actuarial gains and
losses, differences between the expected and actual returns, and the effect of changes in actuarial assumptions are recognised in the
consolidated statement of comprehensive income in the year they arise. Any scheme surplus (to the extent it is considered recoverable
under the provisions of IFRIC 14) or deficit is recognised in full in the consolidated balance sheet.
On plan settlement, a gain or loss on settlement is calculated as the difference between the present value of the defined benefit obligation
being settled as determined on the date of the settlement and the settlement price including any plan assets transferred, and any payments
made directly by the Group in connection with the settlement. This gain or loss is recognised in the income statement or other comprehensive
income at the time of settlement, depending on the nature of how the gain or loss arises.
Right-of-use assets and lease liabilities
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 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. 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. They are subsequently
measured at cost less accumulated depreciation and impairment losses.
Depreciation is charged to the consolidated 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 easily determinable.
If the rate cannot be readily determined, the lessee’s incremental borrowing rate is used. Finance charges are recognised in the consolidated
income statement over the period of the lease.
Lease arrangements that are short-term in nature in relation to low value assets are charged directly to the consolidated income statement
when incurred. Short-term leases are leases with a lease term of 12 months or less and low value assets are defined based on quantitative
criteria as outlined in IFRS 16.
Where subleased the right-of-use asset is de-recognised and a receivable booked to the balance sheet representing the rental income
receivable for the full sub-lease rental period. Rental income is credited against the lease liability in the consolidated balance sheet.
Assets held for sale
Assets are classified and presented as held for sale at the lower of carrying amount and fair value less cost to sell 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. Assets categorised as held for sale are not depreciated.
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. Financial liabilities are classified according to the substance of the contractual arrangements entered into.
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
With the exception of the Group’s borrowings, and certain tax provisions, financial liabilities are not generally interest-bearing.
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 original invoice amount (which is considered fair value) and are subsequently held at amortised
cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate where
applicable, 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.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 For trade receivables 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 in the consolidated income statement.
Cash and bank balances
Cash and bank balances 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. Overdrafts are presented as gross or
offset against cash and bank balances depending on whether the Group has the right and intention to settle the balances as net.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at fair value, net of transaction costs. Finance charges, including premiums payable
on settlement or redemption and direct issue costs, are accounted for on an accrual’s basis to the consolidated 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.
Derivative financial instruments
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. The Group uses derivative financial instruments, in particular foreign currency swaps, forward
exchange contracts and cross-currency interest rate swaps 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.
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 IFRS 9 Financial
Instruments are recognised immediately in the consolidated 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.
Net investment hedge
The Group uses foreign currency denominated borrowings to hedge its exposure to changes in the underlying value of net assets (translation
exposure) in certain of its overseas operations arising from foreign exchange rate movements. The Group maintains documentation of
the relationship between the hedged item and the hedging instrument at the inception of a hedging transaction together with the risk
management objective and the strategy underlying the designated hedge. The Group also documents its assessment, both at the inception
of the hedging relationship and subsequently on an ongoing basis, of the effectiveness of the hedge in offsetting movements in the nominal
value of the hedged items.
To the extent the hedge is effective, changes in the fair value of the hedging instrument arising from the hedged risk are recognised in the
consolidated statement of comprehensive income and accumulated in other reserves. The gain or loss relating to any ineffective portion is
recognised immediately in the consolidated income statement and is included in other operating income and expenses.
Cash flow hedge
The Group maintains documentation of the relationship between the hedged item and the hedging instrument at the inception of a hedging
transaction together with the risk management objective and the strategy underlying the designated hedge.
The Group also documents its assessment, both at the inception of the hedging relationship and subsequently on an ongoing basis, of the
effectiveness of the hedge in offsetting movements in the fair values or cash flows of the hedged items.
To the extent the hedge is effective, changes in the fair value of the hedging instrument arising from the hedged risk are recognised in the
consolidated statement of comprehensive income and accumulated in other reserves. Any gain or loss relating to any ineffective portion is
recognised immediately in the consolidated income statement and is included in other operating income and expenses. If the hedged item
results in the recognition of a non financial asset, the accumulated gains or losses are included within the initial cost of the asset at the time
that the asset is recognised.
Hedge accounting is discontinued when the instrument expires or is sold, exercised or if it no longer meets the criteria for hedge accounting.
If a forecasted transaction subject to hedge accounting is no longer expected to occur, the accumulated gain or loss in the hedging and
translation reserve is recognised immediately in the consolidated income statement.
Trade and other payables
Trade and other payables are recognised at the amounts expected to be paid to counterparties and subsequently held at amortised cost.
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 consolidated 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 asset and 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 the initial recognition of 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.
109
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Group accounting policies continued
Year ended 31 December 2023
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
consolidated 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.
Current and 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.
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. If the obligation
is expected to be settled within 12 months of the reporting date the provisions are included within current liabilities and if expected to be
settled after 12 months included in non-current liabilities.
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 difference between the carrying amount and the present value of those cash flows is material to the
financial statements, the 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 consolidated income statement such that the
cumulative expense reflects the revised estimates with a corresponding adjustment to the equity-settled share-based payments reserve.
Adoption of new and revised standards and interpretations applied in the current year
Accounting standard IFRS 17 - Insurance contracts issued in May 2017 is applicable for annual reporting periods commencing on or after
1 January 2023. This standard establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts
within the scope of the standard. There is no impact on the Group from adopting this standard and the Group has not therefore changed its
accounting policies or made retrospective adjustments as a result of adopting this standard.
A number of amended standards became applicable in 2023. The Group did not have to change its accounting policies or make retrospective
adjustments as a result of adopting these amendments and they did not have a material impact. These amendments were:
Effective for annual reporting periods commencing on or after 1 January 2023:
– Amendments to IAS 8 (Definition of Accounting Estimates).
– Amendments to IAS 12 (Income taxes) - Deferred Tax related to Assets and Liabilities arising from a Single Transaction.
Issued and effective from 23 May 2023:
– Amendments to IAS 12 (Income taxes) - International Tax Reform, Pillar Two Model Rules.
New standards and interpretations not yet applied
At the date of authorisation of these consolidated financial statements, the Group has not applied the following new and revised IFRS
Standards that have been issued but are not yet effective. They are not expected to have a material impact on the Group:
– Amendment to IFRS 16 Leases on sale and leaseback, effective from 1 January 2024.
– The International Sustainability Standards Board (ISSB) has issued amendments to the Sustainability Accounting Standards Board (SASB)
standards effective for annual reporting periods beginning on or after 1 January 2025.
– Amendments to IAS 1 classification of liabilities as current or non-current, effective 1 January 2024.
– Amendments to IAS 7 and IFRS 7 relating to supplier finance arrangements effective 1 January 2024.
General information
Bodycote plc is a Company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given
on page 55.
The nature of the Group’s operations and its principal activities, and information on the Group’s objectives, 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 Company. Foreign operations are included in accordance with the policies set out in the Foreign Currencies accounting policy
on pages 105 and 106.
110
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Notes to the consolidated financial statements
Year ended 31 December 2023
1. Business and geographical segments
The Group has more than 165 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 are
therefore derived by reference to the preponderance of markets served.
ADE
2023
£m
Central
costs and
eliminations
2023
£m
AGI
2023
£m
Consolidated
2023
£m
355.5
447.0
–
802.5
71.2
(1.7)
–
69.5
(6.4)
–
63.1
–
63.1
80.8
(1.5)
–
79.3
(1.7)
–
77.6
–
77.6
–
(2.7)
(18.5)
(21.2)
–
(0.3)
(21.5)
–
(21.5)
Group
Revenue
Total revenue
Result
Headline operating profit prior to share-based payments
and unallocated central costs
Share-based payments (including social charges)1
Unallocated central costs
Headline operating profit/(loss)
Amortisation of acquired intangible assets
Acquisition costs
Operating profit/(loss) prior to exceptional items
Exceptional items
Segment result
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year
1 Includes £0.8m social security charges (2022: £0.1m credit).
Inter-segment revenues are not material in either year.
The Group does not have any one customer that contributes more than 10% of revenue.
152.0
(5.9)
(18.5)
127.6
(8.1)
(0.3)
119.2
–
119.2
0.8
(8.3)
111.7
(24.9)
86.8
111
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the consolidated financial statements continued
Year ended 31 December 2023
1. Business and geographical segments continued
Aerospace, Defence & Energy
Revenue
Total revenue
Result
Headline operating profit prior to share-based payments
Share-based payments (including social charges)
Headline operating profit/(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
Segment result
Western Europe
2023
£m
North America
2023
£m
Emerging
markets
2023
£m
Total ADE
2023
£m
162.8
185.1
36.2
(0.8)
35.4
(0.4)
35.0
35.2
(0.9)
34.3
(6.0)
28.3
7.6
(0.2)
–
(0.2)
–
(0.2)
355.5
71.2
(1.7)
69.5
(6.4)
63.1
Western Europe
2023
£m
North America
2023
£m
Emerging
markets
2023
£m
Total AGI
2023
£m
254.6
102.4
54.7
(1.0)
53.7
(0.4)
53.3
10.1
(0.1)
10.0
(0.9)
9.1
90.0
16.0
(0.4)
15.6
(0.4)
15.2
447.0
80.8
(1.5)
79.3
(1.7)
77.6
112
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
1. 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
Operating profit/(loss) prior to exceptional items
Exceptional items
Segment result
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year
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
Operating profit prior to exceptional items
Exceptional items
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
Operating profit prior to exceptional items
Exceptional items
Segment result
ADE
2022
£m
Central costs and
eliminations
2022
£m
AGI
2022
£m
Consolidated
2022
£m
312.7
430.9
–
743.6
52.1
(1.3)
–
50.8
(6.9)
–
43.9
0.1
44.0
81.1
(0.3)
–
80.8
(2.4)
–
78.4
(0.2)
78.2
–
–
(19.4)
(19.4)
–
(0.9)
(20.3)
0.1
(20.2)
133.2
(1.6)
(19.4)
112.2
(9.3)
(0.9)
102.0
–
102.0
0.4
(7.1)
95.3
(21.0)
74.3
Western
Europe
2022
£m
North
America
2022
£m
Emerging
markets
2022
£m
Total ADE
2022
£m
137.1
168.6
24.5
(0.4)
24.1
(0.4)
23.7
0.7
24.4
27.4
(0.9)
26.5
(6.5)
20.0
(0.6)
19.4
7.0
0.2
–
0.2
–
0.2
–
0.2
312.7
52.1
(1.3)
50.8
(6.9)
43.9
0.1
44.0
Western
Europe
2022
£m
North
America
2022
£m
Emerging
markets
2022
£m
Total AGI
2022
£m
241.6
103.0
86.3
430.9
51.6
(0.6)
51.0
(0.5)
50.5
0.2
50.7
12.1
0.2
12.3
(1.5)
10.8
(0.3)
10.5
17.4
0.1
17.5
(0.4)
17.1
(0.1)
17.0
81.1
(0.3)
80.8
(2.4)
78.4
(0.2)
78.2
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Notes to the consolidated financial statements continued
Year ended 31 December 2023
1. Business and geographical segments continued
Other information
ADE
2023
£m
35.9
32.4
530.0
(95.9)
434.1
Western
Europe
2023
£m
12.0
12.7
178.6
(39.8)
138.8
Western
Europe
2023
£m
21.0
22.2
241.9
(93.9)
148.0
ADE
2022
£m
30.8
34.1
526.9
(96.0)
430.9
Central costs
and eliminations
2023
£m
10.1
3.1
AGI
2023
£m
48.5
46.6
Consolidated
2023
£m
94.5
82.1
551.9
(145.7)
406.2
North
America
2023
£m
23.7
19.1
346.8
(55.3)
291.5
North
America
2023
£m
10.2
12.0
161.2
(20.6)
140.6
AGI
2022
£m
38.2
47.0
569.8
(134.9)
434.9
54.8
(102.8)
(48.0)
Emerging
markets
2023
£m
0.2
0.6
4.6
(0.8)
3.8
Emerging
markets
2023
£m
17.3
12.4
148.8
(31.2)
117.6
1,136.7
(344.4)
792.3
Total ADE
2023
£m
35.9
32.4
530.0
(95.9)
434.1
Total AGI
2023
£m
48.5
46.6
551.9
(145.7)
406.2
Central costs
and eliminations
2022
£m
10.6
3.2
Consolidated
2022
£m
79.6
84.3
71.0
(154.8)
(83.8)
1,167.7
(385.7)
782.0
Group
Gross capital additions
Depreciation and amortisation
Balance sheet
Segment assets
Segment liabilities
Segment net assets/(liabilities)
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/(liabilities)
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1. 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
2022
£m
10.2
12.5
183.1
(51.6)
131.5
Western
Europe
2022
£m
20.1
22.5
248.4
(79.4)
169.0
North
America
2022
£m
20.4
20.9
337.7
(43.5)
294.2
North
America
2022
£m
10.0
13.2
177.4
(21.2)
156.2
Emerging
markets
2022
£m
0.2
0.7
6.1
(0.9)
5.2
Emerging
markets
2022
£m
8.1
11.3
144.0
(34.3)
109.7
Total ADE
2022
£m
30.8
34.1
526.9
(96.0)
430.9
Total AGI
2022
£m
38.2
47.0
569.8
(134.9)
434.9
Geographical information
The Group’s revenue from external customers and information about its assets (non-current assets excluding financial instruments,
deferred tax assets and other financial assets) by country are detailed below:
Revenue from
external customers
Non-current assets
USA
France
Germany
UK
Sweden
Netherlands
Others
2. Operating profit
Revenue
Cost of sales
Gross profit
Distribution costs
Administration expenses
Other operating income
Other operating expenses
Net impairment losses on financial assets
Operating profit prior to exceptional items
Exceptional items (see note 4)
Operating profit
2023
£m
271.7
116.9
82.3
66.3
50.9
34.9
179.5
802.5
2022
£m
258.2
90.8
79.0
55.6
48.1
32.8
179.1
743.6
2023
£m
426.1
63.3
69.2
96.7
34.7
22.7
183.4
896.1
2023
£m
802.5
(500.6)
301.9
(21.8)
(172.0)
12.6
(1.3)
(0.2)
119.2
–
119.2
2022
£m
450.6
64.4
71.3
88.1
35.2
23.1
187.9
920.6
2022
£m
743.6
(473.9)
269.7
(21.1)
(151.2)
9.2
(4.5)
(0.1)
102.0
–
102.0
115
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Notes to the consolidated financial statements continued
Year ended 31 December 2023
2. Operating profit continued
Operating profit for the year has been arrived at after charging/(crediting):
Net foreign exchange loss
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 recognised in operating profit
Gain on disposal of right-of-use assets
Repairs and maintenance
Employee costs (see note 3)
Pension scheme administration expenses
Utility costs
Government assistance support received1
Acquisition costs
Impairment loss on trade receivables
Impairment of property, plant and equipment and other assets - recognised in operating profit
2023
£m
0.2
76.8
59.4
12.9
9.8
(3.4)
(0.2)
27.2
307.5
0.5
98.3
(6.4)
0.3
0.2
0.9
1 Government assistance consists of support towards energy costs of £6.1m (2022: £1.7m), R&D support of £0.2m (2022: £0.7m) and £0.1m (2022: £0.2m) in respect of other
support programmes.
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
Total fees payable to the auditor
2023
£m
1.2
1.2
2.4
0.1
2.5
2022
£m
0.1
69.2
60.2
13.0
11.1
(1.7)
(0.1)
23.5
276.5
0.6
95.6
(2.6)
0.9
0.1
4.8
2022
£m
0.9
1.2
2.1
0.1
2.2
1 This includes £0.1m (2022: £0.1m) for the interim review of the half year report. Non-audit fees in 2023 also include a nominal amount for a subscription to a generic accounting and
reporting website.
The audit fees disclosed for 2023 include £0.1m of fees in connection with the 2022 audit. The audit fees disclosed for 2022 include £0.1m
of fees in connection with the 2021 audit.
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3. Employees
The average monthly number of employees (including Executive Directors) was:
ADE:
Western Europe
North America
Emerging markets
AGI:
Western Europe
North America
Emerging markets
Shared services
Head office
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Pension costs
2023
Number
2022
Number
765
910
65
1,469
590
808
292
45
4,944
2023
£m
262.8
36.1
8.6
307.5
740
868
73
1,490
626
815
278
43
4,933
2022
£m
235.6
32.6
8.3
276.5
Included in wages and salaries are share-based payments (excluding social charges) of £5.1m (2022: £1.7m).
Included in pension costs are £8.3m (2022: £7.8m) relating to defined contribution schemes and a £0.3m (2022: £0.5m) charge relating to
defined benefit schemes. Pension administrative costs not included above were £0.5m (2022: £0.6m) and interest costs not included above
were £0.4m (2022: £0.1m) – see notes 2 and 26.
Disclosure of individual Directors’ remuneration, share interests, share awards, long-term incentive schemes, pension contributions and
pension entitlements are shown in the tables in the Directors’ remuneration report on pages 79 to 91. See also note 24 for information on
share-based payments and note 26 for information on retirement benefit schemes.
4. Exceptional items
Severance and redundancy provision release
Net impairment reversal
Site closure costs
Losses on sales of property, plant and equipment recognised in exceptional items
Environmental provisions credit
Total exceptional items1
2023
£m
–
–
–
–
–
–
2022
£m
(0.8)
(0.1)
1.0
0.1
(0.2)
–
1 Non-exceptional costs relating to severance and redundancy, impairment charges and reversals, site closure costs and environmental provisions are booked to other operating expenses.
Gains and losses on sales of property, plant and equipment are booked to other operating income.
In 2020, the Group announced an organisation restructuring initiative which was driven by a combination of both macroeconomic
uncertainties and longer-term automobile and aerospace market structural shifts. A number of plants were closed as a result of these
restructuring activities. The related costs in the prior year were recorded as exceptional items in line with the Group’s accounting policy
for exceptional items.
At 31 December 2023 £1.4m (2022: £3.0m) was held as exceptional provisions.
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Notes to the consolidated financial statements continued
Year ended 31 December 2023
5. Net finance charge
Interest on bank loans and overdrafts
Interest on lease liabilities
Total interest expense
Net interest on the defined benefit pension liabilities
Other finance charges
Total finance charge
Interest received on bank deposits
Other interest receivable
Total finance income
Net finance charge
6. Taxation charge
Current taxation – charge for the year
Current taxation – adjustments in respect of previous years
Deferred tax (see note 19)
Total taxation charge
2023
£m
2.7
2.3
5.0
0.4
2.9
8.3
0.5
0.3
0.8
7.5
2023
£m
26.0
(2.7)
1.6
24.9
2022
£m
2.3
1.8
4.1
0.1
2.9
7.1
0.1
0.3
0.4
6.7
2022
£m
21.3
(0.6)
0.3
21.0
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 in 2023 is 25.4% (2022: 24.8%). The UK tax rate was increased from 19.0% to 25.0% from
1 April 2023 as per the Finance Act 2021 and consequently, the deferred tax balances on the consolidated balance sheet relating to the UK
have been measured using these revised rates.
During 2021, the OECD published a framework for the introduction of a global minimum effective tax rate of 15%, the Pillar II GloBE Rules,
applicable to large multinational Groups. On 20 June 2023, the United Kingdom substantially enacted the Pillar II GloBE rules. The Group has
performed an overall assessment of the impact and determined that the adoption of the Pillar II GloBE Rules by jurisdictions where Bodycote
operates is not expected to have a material impact on the Group’s future tax charge. The Group has applied the exception provided for by
the Pillar II GloBE Rules (Amendments to IAS 12) and has not recognised, or therefore disclosed, information about deferred tax assets and
liabilities related to these Pillar II GloBE rules.
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 25.4% (2022: 24.8%)
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
2023
£m
111.7
28.4
1.1
0.5
(2.7)
0.1
0.3
0.3
0.3
(3.4)
24.9
2022
£m
95.3
23.6
1.7
(2.0)
(0.6)
(3.4)
(0.6)
0.5
0.9
0.9
21.0
Tax on retirement benefit obligations taken directly to equity was a credit of £0.1m (2022: charge of £0.5m).
1 Those costs in various jurisdictions that are not deductible in calculating taxable profits.
2 2023 and 2022 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.
4
Includes provisions for local tax risks and cross-border transactions. 2023 includes a credit of £4.3m (2022: £nil) for the release of a provision for a tax risk which is no longer within an
audit period.
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6. Taxation charge continued
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. Included within current tax liabilities on the consolidated balance sheet as at 31 December 2023 of
£46.0m (2022: £42.8m) are tax provisions totalling £26.4m (2022: £28.1m), of which £4.2m (2022: £5.3m) are expected to crystallise within
12 months, although if facts and circumstances change this amount could materially differ. The provisions 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. The material provisions relate to the financing of the Group’s operations where management’s 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 enquiries, and determining whether any possible liability is probable. The Group’s individual tax provisions vary in
quantum from £3.4m to £8.8m.
7. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2021 of 13.8p per share
Interim dividend for the year ended 31 December 2022 of 6.4p per share
Final dividend for the year ended 31 December 2022 of 14.9p per share
Interim dividend for the year ended 31 December 2023 of 6.7p per share
Proposed final dividend for the year ended 31 December 2023 of 16.0p per share
2023
£m
–
–
28.5
12.7
41.2
30.3
2022
£m
26.3
12.2
–
–
38.5
–
A final dividend for 2022 of 14.9p was approved at the Annual General Meeting (AGM) on 25 May 2023 to shareholders on the register of
Bodycote plc on 21 April 2023 and was paid on 2 June 2023.
The Board approved the payment of an interim dividend for 2023 of 6.7p on 29 July 2023 to those shareholders on the register of Bodycote
plc on 6 October 2023 and has proposed a final dividend of 16.0p per share to be paid on 6 June 2024 to shareholders on the register at close
of business at 26 April 2024 subject to approval by shareholders at the AGM. The 2023 interim dividend was paid on 10 November 2023.
As the proposed final dividend is subject to shareholder approval in 2024, it is not included as a liability in these financial statements.
The dividends are waived on shares held by the Bodycote International Employee Benefit Trust.
Any dividend unclaimed after a period of 6 years from the date for payment of such dividend is forfeited and reverted back to the Group.
In the year 2023 £0.6m (2022: £nil) was received from dividends forfeited.
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Notes to the consolidated financial statements continued
Year ended 31 December 2023
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 conditions1
Shares subject to vesting 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
2023
£m
2022
£m
85.6
73.7
Number
Number
189,877,099
190,779,615
661,721
344,050
190,882,870
384,848
191,502
191,355,965
Pence
Pence
45.1
44.8
2023
£m
85.6
6.1
0.2
91.9
38.6
38.5
2022
£m
73.7
7.0
0.7
81.4
Pence
Pence
48.4
48.1
42.7
42.5
1 As at 31 December 2023, in accordance with IAS 33, the related performance conditions for open plans have been met resulting in 0.3p dilution of earnings per share
(2022: 0.1p dilution) and 0.3p dilution of headline earnings per share (2022: 0.2p).
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
120
2023
£m
288.9
(6.6)
–
282.3
61.1
(0.3)
60.8
221.5
2022
£m
274.5
14.1
0.3
288.9
60.6
0.5
61.1
227.8
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
9. Goodwill continued
Goodwill acquired through business combinations is allocated to the 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 across the Group’s segments as follows:
ADE:
Western Europe
North America
AGI:
Western Europe
North America
Emerging Markets
2023
£m
27.2
97.2
27.8
57.1
12.2
221.5
2022
£m
27.2
100.9
28.2
59.4
12.1
227.8
Goodwill is tested for impairment at least annually, or more frequently if there are indications that the carrying value may not be recoverable.
The recoverable amounts of the CGUs are determined from value-in-use calculations. In assessing value-in-use, estimated post-tax future
cash flows for each CGU are discounted to their present value using a post-tax discount rate which reflects current market assessments of
the time value of money and the risks specific to the CGUs, including country risk premium.
The cash flows for each CGU have been derived from the 2024 budget, and five-year financial plan up to and including 2028, both of which
have been approved by the Board. They have then been extrapolated for a further five years (until the end of 2033) by applying a medium-term
growth rate to EBITDA, before applying a long-term growth rate into perpetuity from 2034 onwards.
The key assumptions applied in determining the value-in-use of each CGU were as follows:
– Revenue: Revenue for 2024–2028 was projected based on management’s growth expectations of the underlying market sectors served by
each CGU. These were benchmarked against external projections for each market and also included approved growth initiatives.
Expectations on pricing were based on recent experience in the market and forecast inflation expectations.
– Operational gearing: Operational gearing represents the correlation between movements in revenue and operating profits. The gearing levels
assumed reflect management’s expectations of future business performance, and are informed by past performance.
– Capital expenditure: The future cash flows include estimates of capital expenditure required to maintain the existing asset base of each CGU,
and are based on historical experience. Expansionary capital expenditure, and the associated cash flows, are only included to the extent that
the capital expenditure has been approved at the balance sheet date and work on the project is already underway.
– Medium-term growth rates: The EBITDA for each CGU has been extrapolated between 2028 (the final year of the five-year financial plan)
and 2033 reflecting a market-based nominal GDP growth rate of 4%. A medium-term growth rate has been used as management believe that
the current inflationary environment will lead to higher nominal growth in the medium term, before reverting to a more normalised long-term
growth rate.
– Long-term growth rate: A long-term growth rate has been applied into perpetuity based on the long-term average GDP growth projections of
the geographies relevant to each CGU, and are in the range of 2.0% to 2.2% (2022: 2.0% to 2.3%).
– Discount rate: The discount rates have been derived from a weighted average cost of capital, adjusted for the geographies in which each CGU
operates. The post-tax discount rates range between 9.6% and 10.4% (2022: 8.6% and 9.9%). The pre-tax discount rates are the rates which,
when applied to the pre-tax cash flows, result in the same NPV as calculated by the post-tax discount rate applied to the post-tax cash flows.
The pre-tax discount rates range from 11.9% to 13.0% (2022: 10.5% to 12.0%).
The majority of goodwill is allocated to two of the CGUs, being North America ADE (NA ADE) and North America AGI (NA AGI).
The long-term growth rates and the rates used to discount the projected cash flows for these CGUs are shown below:
Cash generating units
North America ADE
North America AGI
Goodwill
carrying value
2023
£m
Long-term
growth rate
2023
%
Post-tax
discount rate
2023
%
Pre-tax
discount rate
2023
%
97.2
57.1
2.2
2.2
10.4
10.4
13.0
12.9
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Notes to the consolidated financial statements continued
Year ended 31 December 2023
9. Goodwill continued
Expected future cash flows are inherently uncertain and could change materially over time. They are affected by several factors, including
market and production estimates, together with economic factors such as prices, discount rates, currency exchange rates, estimates of
operational costs, and future maintenance capital expenditure. The Group has conducted sensitivity analysis on the key assumptions applied
to the value-in-use calculations for each CGU.
The key assumptions that were sensitised in a downside scenario included a reduction in sales growth, operating margin and the medium and
long-term growth rates. The combined impact of these adjustments reduced the aggregated net present value (NPV) of the CGUs by 29%.
With the exception of the NA AGI CGU, no reasonably possible downside reductions to any of these assumptions resulted in an impairment.
For the NA AGI CGU, management modelled a downside scenario which reflected no volume growth over the next five years, followed by
an assumed 25% reduction in the medium and long-term growth rate versus the base case. In addition, it was assumed in this scenario that
headline operating margins were well below the base case, being restricted to 11.5%, reflecting the margin achieved in 2022 and substantially
below their pre-COVID peak despite the cost reduction actions taken since then. This downside scenario, which management believes to
be unlikely, but could be possible if market conditions and underlying performance do not recover, could result in an immaterial impairment.
This scenario does not include the benefit of any cost reduction and other initiatives that would be undertaken in the unlikely event that no
growth in volumes or recovery of margins in this CGU was achieved. This downward trend would have to continue into the longer term to
result in an impairment.
In determining the sensitivities to apply, consideration was given to the impact that climate change risks and opportunities may have on the
Group’s businesses. Specific scenarios relating to the potential risks of climate change, as set out in our TCFD section of the Annual Report,
were considered to determine if these should be included in the modelling performed and it was determined that none of these scenarios
would have a material impact on the outcome. Furthermore the impact of the above sensitivities was deemed sufficiently severe to cover
a range of potential risks, some of which could relate to these potential risks.
Based on current available information, the Directors do not consider that there are any reasonably possible scenarios that could arise that
would result in a material impairment charge being recognised in the next 12 months, notwithstanding the potential risk around the NA AGI
CGU as set out above. Accordingly, the Directors have concluded that no impairment charge is required as at 31 December 2023.
10. Other intangible assets
Cost
At 1 January 2022
Exchange differences
Additions
Eliminated on disposals
At 1 January 2023
Exchange differences
Additions
Eliminated on disposals
At 31 December 2023
Amortisation
At 1 January 2022
Exchange differences
Charge for the year
Eliminated on disposals
At 1 January 2023
Exchange differences
Charge for the year
Eliminated on disposals
At 31 December 2023
Carrying amount
At 31 December 2023
At 31 December 2022
Software
£m
Customer
relationships
£m
Non-compete
agreements
£m
46.6
0.5
9.8
(3.3)
53.6
(0.3)
8.3
(0.7)
60.9
25.4
0.4
1.7
(3.3)
24.2
(0.1)
1.7
(0.7)
25.1
35.8
29.4
138.2
16.3
–
–
154.5
(7.6)
–
–
146.9
52.0
6.3
9.3
–
67.6
(3.6)
7.8
–
71.8
75.1
86.9
3.8
–
–
–
3.8
–
–
–
3.8
3.1
–
0.1
–
3.2
–
0.3
–
3.5
0.3
0.6
Total
£m
188.6
16.8
9.8
(3.3)
211.9
(7.9)
8.3
(0.7)
211.6
80.5
6.7
11.1
(3.3)
95.0
(3.7)
9.8
(0.7)
100.4
111.2
116.9
Included in intangible software assets are carrying values related to the Group’s existing ERP software module totalling £2.5m (2022: £4.0m)
which are currently being amortised over the remaining useful life.
The Group is currently developing and implementing a new ERP software solution, assets of which will be held centrally. During the year,
the Group has capitalised £8.1m (2022: £9.6m), of which £5.1m (2022: £4.7m) relates to internal capital costs for the development of this ERP
solution. Included in intangible assets are £32.2m (2022: £24.0m) that is not yet available for use and is therefore not yet being amortised.
Contractual commitments related to the ERP software development were £1.1m at 31 December 2023 (2022: £1.9m). These costs will be
capitalised as incurred.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
11. Property, plant and equipment
Land and buildings
Long
leasehold
improvements
£m
Short
leasehold
improvements
£m
Plant
and
machinery
£m
Fixtures
and
fittings
£m
Assets
under
construction
£m
Freehold
£m
Cost or valuation
At 1 January 2022
Additions1
Exchange differences
Recategorisation
Eliminated on disposals
At 1 January 2023
Additions1
Exchange differences
Transfer to assets held for sale
Recategorisation
Eliminated on disposals
At 31 December 2023
248.4
0.1
17.5
10.1
(3.6)
272.5
0.1
(7.4)
(1.4)
(1.6)
(10.4)
251.8
Accumulated depreciation and impairment
119.9
7.0
1.2
8.3
(0.5)
(2.6)
133.3
6.8
0.1
(3.4)
(0.9)
(5.7)
(4.1)
126.1
At 1 January 2022
Charge for the year
Impairment losses incurred
Exchange differences
Recategorisation
Eliminated on disposals
At 1 January 2023
Charge for the year
Impairment losses incurred
Exchange differences
Transfer to assets held for sale
Recategorisation
Eliminated on disposals
At 31 December 2023
Carrying amount
At 31 December 2023
At 31 December 2022
125.7
139.2
1 For further information on capital payables and accruals see note 20.
10.0
0.1
0.2
(0.5)
(0.4)
9.4
1.3
(0.3)
–
7.0
(0.6)
16.8
6.0
1.0
–
0.1
0.2
(0.4)
6.9
0.9
–
(0.3)
–
5.9
(0.6)
12.8
4.0
2.5
19.8
0.1
1.9
0.8
(1.2)
21.4
0.3
(0.9)
–
0.3
(0.1)
21.0
10.1
1.5
0.1
0.9
–
(1.2)
11.4
1.4
–
(0.4)
–
(1.2)
(0.1)
11.1
9.9
10.0
989.4
4.9
71.2
39.5
(17.2)
1,087.8
3.3
(31.3)
–
52.1
(29.8)
1,082.1
702.0
49.1
3.3
49.9
0.3
(16.4)
788.2
48.6
0.8
(22.5)
–
6.3
(29.9)
791.5
290.6
299.6
26.8
0.5
1.9
2.0
(1.2)
30.0
0.6
(0.9)
–
(5.7)
(2.8)
21.2
22.0
1.6
0.1
1.5
–
(1.2)
24.0
1.7
–
(0.7)
–
(5.3)
(2.7)
17.0
4.2
6.0
55.0
52.2
5.0
(51.9)
(1.2)
59.1
66.1
(2.4)
–
(52.1)
(0.2)
70.5
0.1
–
–
–
–
–
0.1
–
–
(0.1)
–
–
–
–
70.5
59.0
Total
£m
1,349.4
57.9
97.7
–
(24.8)
1,480.2
71.7
(43.2)
(1.4)
–
(43.9)
1,463.4
860.1
60.2
4.7
60.7
–
(21.8)
963.9
59.4
0.9
(27.4)
(0.9)
–
(37.4)
958.5
504.9
516.3
At 31 December 2023 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting
to £21.1m (2022: £9.4m).
123
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the consolidated financial statements continued
Year ended 31 December 2023
11. Property, plant and equipment continued
Property, plant and equipment impairments of £0.9m were incurred in the year (2022: £4.8m) that relate to assets that were deemed to no
longer be required. Net asset impairments incurred in 2022 of £4.7m include £0.1m asset impairment reversal. All impairments in 2023 and
2022 were written to £nil carrying value. Net asset impairments broken down by business segment are shown in the table below:
ADE:
Western Europe
North America
Emerging Markets
AGI:
Western Europe
North America
2023
£m
–
0.2
0.3
–
0.4
0.9
2022
£m
–
0.1
–
–
4.6
4.7
As at 31 December 2023 property assets with a net book value of £0.5m were classified as a current asset held for sale (2022: £0.3m)
(see note 16 for details). The Group also disposed of certain property assets with net proceeds recorded of £9.4m (2022: £3.2m). A gain
on sale was recorded in operating profit in the consolidated income statement of £3.4m (2022: £1.7m) and a loss on sale of certain assets
related to the 2020 restructuring programme included in exceptional items of £nil (2022: £0.1m).
12. Right-of-use assets
As a lessee
Information about leases for which the Group is the lessee is presented below:
Land, buildings,
fixtures and
fittings
£m
Plant and
machinery
£m
Vehicles
£m
125.3
9.0
(1.2)
9.3
142.4
9.2
(10.0)
(3.7)
137.9
76.2
8.4
(0.9)
6.1
89.8
9.0
(9.4)
(2.2)
87.2
50.7
52.6
20.6
1.3
(0.8)
1.5
22.6
1.9
(2.7)
(0.7)
21.1
16.2
2.2
(0.8)
1.3
18.9
1.7
(2.7)
(0.5)
17.4
3.7
3.7
17.8
1.6
(1.5)
1.2
19.1
3.4
(3.4)
(0.8)
18.3
13.7
2.4
(1.3)
1.0
15.8
2.2
(3.2)
(0.6)
14.2
4.1
3.3
Total
£m
163.7
11.9
(3.5)
12.0
184.1
14.5
(16.1)
(5.2)
177.3
106.1
13.0
(3.0)
8.4
124.5
12.9
(15.3)
(3.3)
118.8
58.5
59.6
Cost or valuation
At 1 January 2022
Additions
Eliminated on disposals
Exchange differences
At 1 January 2023
Additions
Eliminated on disposals
Exchange differences
At 31 December 2023
Accumulated depreciation
At 1 January 2022
Charge for the year
Eliminated on disposals
Exchange differences
At 1 January 2023
Charge for the year
Eliminated on disposals
Exchange differences
At 31 December 2023
Carrying amount
At 31 December 2023
At 31 December 2022
124
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
12. Right-of-use assets continued
Lease liabilities
Maturity analysis – contractual undiscounted cash flows
Less than one year
One to five years
More than five years
Total undiscounted cash flows
At 1 January
Additions
Disposals
Principal and interest repayments
Exchange differences
At 31 December
Current
Non-current
Amounts recognised in the consolidated income statement
Depreciation charge
Interest on lease liabilities
Expenses relating to short-term leases
Expenses relating to leases of low value assets
Gain on disposal of right-of-use assets
2023
£m
12.3
33.4
53.4
99.1
2023
£m
66.0
14.6
(0.8)
(13.1)
(2.4)
64.3
11.8
52.5
2023
£m
12.9
2.3
0.9
0.8
(0.2)
2022
£m
14.3
33.9
55.7
103.9
2022
£m
64.5
11.7
(0.7)
(13.8)
4.3
66.0
12.3
53.7
2022
£m
13.0
1.8
1.1
0.7
(0.1)
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
Inventory expensed in the years ended 31 December 2023 and 2022 is disclosed in note 2.
2023
£m
26.7
2.6
0.9
(0.7)
29.5
2022
£m
23.9
4.1
0.9
(1.1)
27.8
125
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the consolidated financial statements continued
Year ended 31 December 2023
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
2023
£m
130.8
(2.8)
128.0
10.3
10.1
148.4
1.3
2022
£m
135.8
(2.9)
132.9
11.7
9.8
154.4
1.5
The credit period given to customers for the supply of services as at 31 December 2023 is 62 days (2022: 63 days). An allowance has
been made for estimated irrecoverable amounts from the supply of services of £2.8m (2022: £2.9m). This allowance has been determined
by reference to expected credit losses as set out in the Group’s accounting policies. The carrying amount of trade and other receivables
approximates their fair value. Included in the Group’s trade receivables balance are specific debtor balances with a carrying amount of
£30.1m (2022: £32.0m) 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 and that any impairment would be
de minimis for recognition.
Ageing analysis of net trade receivables:
Trade receivables within terms
Ageing of past due but not impaired receivables:
31-60 days
61-90 days
91-120 days
Greater than 120 days
Movement in the allowance for expected credit loss:
At 1 January
Impairment losses recognised
Amounts written off as uncollectable
Impairment losses reversed
Exchange differences
At 31 December
2023
£m
97.9
15.1
11.5
2.3
1.2
128.0
2023
£m
2.9
1.0
(0.2)
(0.8)
(0.1)
2.8
2022
£m
100.9
17.0
10.3
3.2
1.5
132.9
2022
£m
2.8
1.3
(0.2)
(1.2)
0.2
2.9
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 recent 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 impaired trade receivables with a gross balance of £5.8m (2022: £6.5m) which are
carried net after the expected credit loss provision at £3.0m (2022: £3.6m). Impairments recognised represent the difference between
the carrying amount of the 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
126
2023
£m
0.2
1.8
3.8
5.8
2022
£m
0.3
2.2
4.0
6.5
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
15. Cash and bank balances
Cash and bank balances comprise cash held by the Group and a breakdown of significant cash and bank balances by currency is as follows:
US dollar
Euro
Sterling
Chinese yuan
Swedish krona
Other
Total cash and bank balances1
1 Refer to note 17 for an analysis of overdraft by currency.
2023
£m
24.4
3.5
3.7
11.0
0.8
1.8
45.2
2022
£m
10.6
7.3
3.1
10.3
1.9
4.0
37.2
16. Assets held for sale
Included in assets held for sale are £0.5m (2022: £0.3m) of assets that are actively being marketed for sale. During the year assets of £0.3m
previously recorded as held for sale as at 31 December 2022 were sold. Assets classified as held for sale are recorded at the lower of their
carrying amount and fair value less costs to sell. Current assets held for sale are analysed between operating segments as follows:
AGI:
Western Europe
ADE:
Western Europe
17. Borrowings
Revolving Credit Facility
Bank overdrafts
Total borrowings
Weighted average interest rate paid
Analysis of Revolving Credit Facility drawdowns by currency:
US dollar
Euro
Sterling
Analysis of bank overdrafts by currency:
US dollar
Euro
Swiss Franc
2023
£m
–
0.5
0.5
2023
£m
32.1
0.5
32.6
5.3%
–
32.1
–
32.1
–
0.2
0.3
0.5
2022
£m
0.3
–
0.3
2022
£m
69.6
1.0
70.6
4.2%
12.0
34.6
23.0
69.6
1.0
–
–
1.0
The majority of bank overdrafts are repayable on demand. No overdrafts are secured.
The Group has a £250.9m Revolving Credit Facility which commenced on 27 May 2020 which is due to expire on 27 May 2027.
At 31 December 2023, the Group’s Revolving Credit Facility had total drawings of £32.1m (2022: £69.6m). As at 31 December the RCF
is drawn in euros only, but through the year was drawn down in sterling, US dollars (USD) and euros (EUR) and as such was subject to
foreign exchange movements of EUR and USD amounting to a loss of £1.4m. See section (e) in note 18 for information on the related net
investment hedge.
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.
127
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the consolidated financial statements continued
Year ended 31 December 2023
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 or has the intention to pay.
The table includes both interest and principal cash flows.
Non-interest bearing financial liabilities1
Bank loans and overdrafts
Lease liabilities
Non-interest-bearing financial liabilities1
Bank loans and overdrafts
Lease liabilities
Derivative financial instruments
Less than
1 year
2023
£m
65.8
32.6
12.3
110.7
Less than
1 year
2022
£m
72.2
70.6
14.3
0.3
157.4
1-2 years
2023
£m
0.1
–
10.6
10.7
1-2 years
2022
£m
0.2
–
11.6
–
11.8
2-5 years
2023
£m
–
–
22.8
22.8
2-5 years
2022
£m
–
–
22.3
–
22.3
5+ years
2023
£m
–
–
53.4
53.4
5+ years
2022
£m
–
–
55.7
–
55.7
Total
2023
£m
65.9
32.6
99.1
197.6
Total
2022
£m
72.4
70.6
103.9
0.3
247.2
1 Excludes payroll related accruals of £37.0m (2022: £31.9m) which are financial instruments held at amortised cost but are paid immediately after year end.
Of the £32.6m (2022: £70.6m) bank loans and overdrafts disclosed above, £32.1m (2022: £69.6m) of bank loans are drawn under the
committed facility maturing on 27 May 2027. The overdrafts are predominantly repayable on demand and some are part of pooling
arrangements, which include offsetting cash balances. The net impact on the balance sheet of derivative cash flows was £nil (2022: liability of
£0.3m).
128
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18. Financial instruments
(a) Financial instruments by category
In accordance with IFRS 9, the Group categorises its financial instruments into those measured at ‘amortised cost’, ‘fair value through profit or
loss’ and ‘fair value through other comprehensive income’.
Financial assets
Trade and other receivables
Cash and bank balances
Financial assets
Trade and other receivables
Cash and bank balances
Financial liabilities
Borrowings – loans and overdrafts
Lease liabilities
Trade and other payables1
Financial liabilities
Borrowings – loans and overdrafts
Lease liabilities
Trade and other payables1
Other non-current liabilities
Derivative financial instruments
Fair value
hierarchy
Fair value
hierarchy
Fair value
hierarchy
Fair value
hierarchy
Level 2/3
Level 2
At amortised
cost
2023
£m
133.9
45.2
179.1
At amortised
cost
2022
£m
141.4
37.2
178.6
At amortised
cost
2023
£m
32.6
64.3
62.2
159.1
At amortised
cost
2022
£m
70.6
66.0
69.0
0.1
–
205.7
At fair value
through profit
or loss
2023
£m
–
–
–
At fair value
through profit
or loss
2022
£m
–
–
–
At fair value
through profit
or loss
2023
£m
–
–
–
–
At fair value
through profit
or loss
2022
£m
–
–
–
–
–
–
At fair value
through OCI
2023
£m
–
–
–
At fair value
through OCI
2022
£m
–
–
–
At fair value
through OCI
2023
£m
–
–
–
–
At fair value
through OCI
2022
£m
–
–
–
–
0.3
0.3
Total
2023
£m
133.9
45.2
179.1
Total
2022
£m
141.4
37.2
178.6
Total
2023
£m
32.6
64.3
62.2
159.1
Total
2022
£m
70.6
66.0
69.0
0.1
0.3
206.0
1 Excludes payroll related accruals of £37.0m (2022: £31.9m) which are financial instruments held at amortised cost but are paid immediately after year end.
For information on the derivative financial instruments with a fair value of £nil (2022: liability £0.3m) refer to section (d) of note 18.
(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 may be exposed to
foreign currency risk, interest rate risk, liquidity risk and credit risk. Financial risk management and treasury 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, transacted by specialist treasury personnel. The use
of financial instruments, including derivatives, is permitted when approved according to treasury policy, 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.
129
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the consolidated financial statements continued
Year ended 31 December 2023
18. Financial instruments continued
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, strategic planning, annual budget agreed by the Board each year and re-forecasts undertaken
during the financial year. To mitigate the risk, the resulting forecast net cash/(debt) is measured against the liquidity headroom policy which
requires a minimum liquidity headroom of £75m.
As at 31 December 2023, the Group had £218.8m (2022: £181.3m) available on the committed Revolving Credit Facility of £250.9m which
together with cash and cash equivalents of £45.2m (2022: £37.2m), and available committed overdraft facilities of £9.5m (2022: £4.5m),
resulted in available liquidity headroom of £273.5m (2022: £223.0m). The Group also uses uncommitted short-term bank facilities to manage
short-term liquidity but these facilities are excluded from the liquidity headroom policy. The Group manages longer-term liquidity through its
committed bank facilities and will, if appropriate, raise funds on capital markets.
As at 31 December 2023 the Group’s principal committed bank facility of £250.9m had a maturity date of 27 May 2027 (3.4 years to maturity)
and had drawings of £32.1m (2022: £69.6m).
Cash management pooling, netting and concentration techniques are used to minimise borrowings.
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 losses based on a simplified lifetime Expected Credit Loss (ECL) model to assess trade receivables for
impairment where ECL is the present value of all cash shortfalls over the expected life of a trade receivable. An allowance for impairment is
made when one or more events have occurred that have a significant impact on the expected future cash flows of the financial asset such
that there is sufficient evidence of a reduction in the recoverability of the asset. The quantitative analysis of credit risk relating to receivables is
included in note 14.
Counterparty risk encompasses settlement risk on derivative financial instruments and credit risk on cash and term deposits. 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. The credit risk on liquid funds (cash balances) and derivative
financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies
and Group policy is to enter into such transactions with a preference with counterparties with an investment grade rating. However, acquired
businesses occasionally have dealings with banks with lower credit ratings. Business with such banks is moved as soon as practicable.
The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.
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 rates in the UK, Europe and the USA.
Interest rate sensitivity
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, which did not
indicate any material impact on the financial statements. This analysis was for illustrative purposes only. The sensitivity analysis excludes the
impact of market risks on net post-employment benefit obligations.
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 2023 would increase or reduce profit before tax by approximately £0.1m (2022: £0.7m). There is no
significant impact on equity in the current or previous year.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 18. Financial instruments continued
Currency risk
Bodycote has operations in 22 countries and is therefore exposed to foreign exchange translation risk when the profits/losses and net assets
of these entities are consolidated into the Group’s financial statements.
Ninety-two per cent of the Group’s revenues are in currencies other than sterling (EUR 37%, USD 34% and SEK 6%, and others at or below
3% individually, total 15%). Cumulatively over the year, sterling rates moved such that the revenue for the year was £3.0m lower than it would
have been had the revenue been translated at the rates prevailing in 2022.
It is Group policy not to hedge exposure for the translation of reported profits. Refer to section (e) for further disclosure of the Group’s financial
instrument risk management activities.
The Group’s balance sheet translation policy is not to actively hedge currency net assets but where appropriate the Group will still match
centrally held currency borrowings to the net assets. The Group generally borrows in sterling, US dollars and euros, consistent with the
locations where the majority of the Group’s cash flows are generated. The Group recognises foreign exchange movements in equity for the
translation of net investment hedging instruments and balances (see section (e)).
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 is Group policy to hedge exposure to cash transactions in foreign currencies
when a commitment arises, usually through the use of foreign exchange forward contracts. Even though approximately 92% of the Group’s
revenues 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 2023 revenue by currency, a 10% weakening/strengthening in the 2023 cumulative average rates for all currencies versus sterling
would have given rise to a +£81.8m /-£66.9m movement in revenue respectively. The impact on headline operating profit is affected by the
mix of losses and profits in the various currencies. However, taking the 2023 operating profit mix, a 10% weakening/strengthening in 2023
cumulative average rates for all currencies would have given rise to a +£12.3m/-£10.0m movement in headline operating profit.
(d) Derivative financial instruments
The Group’s derivative financial instruments were 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).
In accordance with IFRS 7 Financial Instruments: Disclosures, 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. At the balance sheet date, the Group
has no outstanding interest rate derivative.
(e) Net investment hedge
During the year the Group’s outstanding Revolving Credit Facility drawings were denominated in GBP, USD, and EUR. Certain EUR and USD
amounts were designated as a net investment hedge through the year to the Group’s subsidiaries with a matching functional currency on a
1:1 ratio. As at 31 December the Revolving Credit Facility was drawn only in EUR and consequently the USD net investment hedge was open
but inactive. The effects and performance of the active net investment hedges as at 31 December 2023 are set out as follows:
EUR Net investment hedge
Carrying amount of the hedging instruments
Carrying amount of the hedged items (net assets
of subsidiaries) and denominations
Hedge ratio
Change in hedging instruments carrying amount as a result
of foreign currency movements from 1 January 2023
Change in value of hedged item used to determine
hedge effectiveness
2023
£m
32.1
32.1
1:1
0.9
(0.9)
2023
€m
37.0
37.0
–
–
–
2022
£m
43.5
43.5
1:1
(2.1)
2.1
2022
€m
49.0
49.0
–
–
–
The gain on the net investment hedge of £1.5m (2022: £3.1m loss), made up of £0.9m on the EUR hedge (2022: £2.1m loss) and £0.6m on
the USD hedge (2022: £1.0m loss) has been recognised in other comprehensive income and accumulated in other reserves in shareholders’
equity. There was no ineffectiveness to be recorded from the net investment hedges.
131
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Notes to the consolidated financial statements continued
Year ended 31 December 2023
19. Deferred tax
The following are the major deferred tax liabilities and (assets) recognised by the Group and movements thereon during the current and prior
reporting periods:
Accelerated tax
depreciation
£m
50.0
Tax losses
£m
(1.8)
Retirement
benefit
obligations
£m
(3.2)
0.5
–
1.7
4.3
1.0
57.5
5.9
–
(2.3)
0.3
61.4
(0.1)
–
(1.7)
(0.1)
–
(3.7)
0.3
–
0.1
–
(3.3)
0.2
0.2
–
(0.2)
–
(3.0)
0.2
–
–
–
(2.8)
At 1 January 2022
Charge/(credit) to the consolidated income
statement
Debit to equity
Transfers
Exchange differences
Effect of change in tax rate in the income
statement
At 1 January 2023
Charge/(credit) to the consolidated
income statement
Credit to equity
Exchange differences
Effect of change in tax rate in the income
statement
At 31 December 2023
Deferred tax liabilities
Deferred tax assets
Other
£m
(0.2)
(1.2)
0.3
–
(0.1)
(0.1)
(1.3)
(5.1)
(0.1)
0.4
–
(6.1)
2023
£m
51.8
(2.6)
49.2
Total
£m
44.8
(0.6)
0.5
–
3.9
0.9
49.5
1.3
(0.1)
(1.8)
0.3
49.2
2022
£m
51.0
(1.5)
49.5
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.
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 £33.1m (2022: £37.6m) available for offset against future profits. A deferred tax
asset has been recognised in respect of £13.6m (2022: £15.7m) of such losses, based on existing taxable temporary differences generating
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 £19.5m (2022: £21.9m) of the losses where the likelihood that sufficient taxable profits of the appropriate type is not
probable. The majority of losses may be carried forward indefinitely.
The Group has capital losses of £53.3m (2022: £52.4m) which are not recognised for deferred tax as future suitable profits against which the
losses could be utilised are not probable. A deferred tax liability of £3.9m (2022: £3.1m) 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.
The majority of the deferred tax liability is expected to reverse in over 12 months.
132
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
20. Trade and other payables
Working capital amounts falling due within one year:
Trade payables
Other taxes and social security
Other payables
Trade accruals1
Other amounts falling due within one year:
Interest payable
Capital payables
Capital accruals
Total amounts falling due within one year:
Working capital amounts falling due after more than one year:
Other payables
1 Accruals include £37.0m (2022: £31.9m) of payroll-related accruals.
2023
£m
20.8
19.8
6.1
64.7
111.4
2.7
4.6
4.0
11.3
122.7
0.9
2022
£m
30.8
20.7
4.9
55.8
112.2
1.7
5.6
5.4
12.7
124.9
1.1
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 2023 is 22 days (2022: 35 days). The Directors consider the carrying value of trade payables to
approximate to their fair value.
21. Provisions
At 1 January 2023
Increase in provision
Release of provision
Utilisation of provision
Exchange difference
At 31 December 2023
Included in current liabilities
Included in non-current liabilities
Restructuring
£m
1.6
0.8
(0.4)
(1.5)
–
0.5
Restructuring
environmental
£m
2.4
0.2
(0.1)
(0.1)
(0.2)
2.2
Environmental
£m
8.9
1.1
–
(2.5)
(0.5)
7.0
Legal and
operational
£m
5.2
3.4
(0.5)
(2.8)
–
5.3
Total
£m
18.1
5.5
(1.0)
(6.9)
(0.7)
15.0
12.0
3.0
15.0
As at 31 December 2023 the Group held £1.4m (2022: £3.0m) of exceptional restructuring provisions relating to the 2020 exceptional
restructuring programme. Refer to the 2020 Annual report for more information.
The Group provides for the costs of environmental remediation if there is a probable outflow of economic resources that has been identified
at the time of plant closure, as part of acquisition due diligence or in other circumstances where remediation by the Group is required.
This provision is reviewed annually to determine the best estimate of expenditure required to settle the identified obligations and where
applicable external confirmations are obtained to determine the best estimate of future liabilities. Environmental provisions are separated
into restructuring environmental and environmental provisions to identify separately those provisions relating to the restructuring 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.
Legal provisions include, but are not limited to, alleged breach of contract and alleged breach of environmental legislation. While the Group
cannot predict the outcome of individual legal actions, where the exposure can be reliably measured and an outflow of economic benefits is
considered probable, provisions are recognised following legal advice.
There were no individually material provisions as at 31 December 2023.
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.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the consolidated financial statements continued
Year ended 31 December 2023
22. Share capital
Authorised: 248,947,368 (2022: 248,947,368) ordinary shares of 173/11p each
Issued and fully paid: 191,456,172 (2022: 191,456,172) ordinary shares of 173/11p each
23. Notes to the cash flow statement
Profit for the year
Adjustments for:
Finance income
Finance costs
Taxation charge
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 recognised in operating profit
Loss on disposal of property, plant and equipment recognised in exceptional items
Profit on disposal of right-of-use assets
Share-based payments
Impairment reversal of property, plant and equipment and other assets recognised
in exceptional items
Impairment of property, plant and equipment and other assets recognised in operating profit
EBITDA (See APM definition on page 153)
Increase in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables
Decrease in provisions
Cash generated by operations
Net income taxes paid
Settlement of derivatives
Refund of post settlement pension surplus
Net exchange differences
Net cash from operating activities
Cash and cash equivalents comprise:
Cash and bank balances
Bank overdrafts (included in borrowings)
2023
£m
43.0
33.1
2023
£m
86.8
(0.8)
8.3
24.9
119.2
59.4
12.9
9.8
(3.4)
–
(0.2)
5.1
–
0.9
203.7
(1.7)
6.2
(1.0)
(3.1)
204.1
(9.0)
(0.3)
–
(3.2)
191.6
2023
£m
45.2
(0.5)
44.7
2022
£m
43.0
33.1
2022
£m
74.3
(0.4)
7.1
21.0
102.0
60.2
13.0
11.1
(1.7)
0.1
(0.1)
1.7
(0.1)
4.8
191.0
(8.5)
(37.4)
12.6
(3.7)
154.0
(15.4)
0.8
1.8
1.7
142.9
2022
£m
37.2
(1.0)
36.2
The cash and cash equivalents disclosed above in the statement of cash flows includes £0.8m (2022: £0.8m) held in escrow relating to
environmental provisions in the USA and £1.3m (2022: £1.8m) held in the USA related to the refund of a pension surplus. The Group intends
to use this refund of pension surplus cash to fund future pension contributions for its USA employees, otherwise the full amount will become
subject to regulatory restrictions in the USA.
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24. Share-based payments
The Company operates the Bodycote Incentive Plan (BIP) under which Executive Directors and Senior Executives receive a conditional award
of Bodycote shares up to a maximum of 175% of base salary. Vesting of awards are based upon two performance measures, over a three-
year period.
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
2023
5,337,784
2,867,954
(206,935)
(1,996,812)
6,001,991
BIP
2022
4,499,730
2,086,698
(75,460)
(1,173,184)
5,337,784
Other Plans
2023
484,211
298,682
(139,947)
(18,041)
624,905
Other Plans
2022
311,335
242,384
(61,377)
(8,131)
484,211
555.1
15,919,411
549.5
11,465,911
608.3
1,816,981
583.8
1,414,922
Fifty percent of the award is subject to a return on capital employed (ROCE) performance condition and 50% of the award is subject to
headline operating profit or headline earnings per share (EPS) performance conditions. In the event that an underpin headline EPS target is
not achieved, no awards will vest.
Other plans include buy-out awards, a restricted share programme and a deferred bonus plan whereby 35% of any bonus earned is deferred
into shares. Buy-out award shares issued vest between 1 and 24 months from the grant date, other plans shares issued vest after three years
from the grant date, and all are conditional only on continued employment.
More information on the BIP and the buy-out awards for Executive Directors can be found in the Directors' remuneration report on pages
77 to 91.
The exercise price of shares exercised was £nil. As at 31 December 2023 of 84,387 exercisable shares outstanding, 70,610 were related
to BIP and 25,548 related to other plans. 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 (%)
Weighted average remaining contractual life of shares
outstanding (years)
Average fair value of share awards granted during the year
at date of grant (pence)
Fair value of awards granted during the year (£)
BIP
2023
608.3
nil
3.0
3.0
BIP
2022
592.7
nil
3.0
2.5
Other Plans
2023
634.3
nil
0.1-3.0
3.0
Other Plans
2022
616.6
nil
3.0
0.0-2.5
1.2
1.0
1.1
1.7
555.1
15,919,411
549.5
11,465,911
608.3
1,816,981
583.8
1,414,922
The Group recognised a total charge to the consolidated income statement of £5.1m (2022: £1.7m) related to equity-settled share-based
payment transactions, excluding social charges.
25. Related party transactions
Transactions between subsidiaries of the Group, which are related parties to each other, have been eliminated on consolidation and are not
disclosed in this note. For information on defined benefit retirement pension schemes that the Group operates see note 26.
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
2023
£m
3.5
1.8
0.2
5.5
2022
£m
2.5
0.2
0.2
2.9
Further information about the remuneration of the individual Directors is provided in the Directors' report on remuneration on pages 77 to 91.
135
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the consolidated financial statements continued
Year ended 31 December 2023
26. Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for employees in the UK, France, Belgium and Canada.
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 the consolidated income statement of £8.3m (2022: £7.8m) represents contributions payable to these schemes
by the Group at rates specified in the rules of the plans. As at 31 December 2023 contributions of £0.3m (2022: £0.4m) due in respect of the
current reporting period had not been paid over to the schemes.
Defined benefit schemes
The Group operated a number of pension schemes and provided leaving service benefits to certain employees during the year. The defined
benefit obligation less fair value of assets at the end of the year and total expense recognised in the income statement are summarised below
as follows:
Defined benefit obligation less fair value of assets
UK Scheme
Non-UK Schemes
Total expense recognised in the income statement
UK Scheme1
Non-UK Schemes1
2023
£m
–
11.1
11.1
2023
£m
0.4
0.8
1.2
2022
£m
–
10.9
10.9
2022
£m
0.5
0.7
1.2
1 The UK Scheme is closed to new members and the accrual of benefits and the costs represent administrative and past service credits and costs. Costs associated with the non-UK schemes
relate to employee service and related costs (see note 3) and administrative costs (see note 2).
UK Scheme
The Group sponsors the Bodycote UK Pension Scheme (‘the Scheme’) which is a funded defined benefit arrangement for certain former UK
employees, and pays out pensions at retirement based on service, final pensionable pay and price inflation. The Scheme is funded by the
Group. The scheme asset values are sensitive to market conditions and the scheme liabilities are sensitive to actuarial assumptions used to
determine the scheme obligations, the main assumptions of which are the discount rate, the rate of price inflation and the life expectancy rate.
The following table provides an estimate of the potential impact on the pension scheme of changing these assumptions.
0.5% change in discount rate
0.5% change in price inflation (and associated assumptions)
One year change in life expectancy at age 65
2023
Increase
£m
(3.6)
1.4
2.6
2023
Decrease
£m
4.0
(1.3)
(2.6)
2022
Increase
£m
(4.1)
1.6
2.2
2022
Decrease
£m
4.5
(1.5)
(2.2)
The sensitivity analysis was performed by recalculating the defined benefit obligation with the following parameters (all other parameters
were not modified). The sensitivity table is based on an illustrative 0.5% change, although the assumptions may vary by greater amounts.
Therefore, the Group considers the retirement benefit obligations a key source of estimation uncertainty.
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 in respect of the 6 April 2017 actuarial valuation. The preliminary actuarial valuation of the
Scheme as at 6 April 2023 was completed by a qualified independent actuary and the results of this have been updated on an approximate
basis to 31 December 2023.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
26. Retirement benefit schemes continued
It is the policy of the Group to recognise all actuarial gains and losses in the year in which they occur outside of the consolidated income
statement and in the consolidated statement of comprehensive income. The UK Scheme was closed to new entrants and future accrual
in 2019.
In June 2023, the High Court judged that amendments made to the Virgin Media scheme were invalid because the scheme’s actuary did not
provide the associated S37 certificate necessary. If upheld, the High Court’s decision could have wider ranging implications, affecting other
schemes (such as the Bodycote UK Pension Scheme) that were contracted-out on a salary-related basis, and made amendments between
April 1997 and April 2016.
There remains uncertainty about the impact of this judgment with a Court of Appeal hearing for the case set for June 2024 as well as the
potential for overriding government legislation to be introduced and consequently the Company and the Trustee of the Bodycote UK Pension
Scheme are not yet in a position to be certain of the full potential implications in detail. The Company and the Trustee of the Scheme will
continue to seek legal advice on the matter and act accordingly as the situation evolves.
The Group acknowledges that the recognition of a 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, IFRIC 14. 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 any 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 material uncertainty over whether the power to wind up the Scheme is wholly within the Group’s control as would be required under the
terms of IFRIC 14 in order to recognise a surplus on the balance sheet. Consistent with previous years, given this uncertainty the Group has
adopted the provisions of IFRIC 14 and the associated additional reporting requirements. As the Scheme is in surplus as at 31 December 2023
a restriction has been applied to the balance sheet, and the net surplus recognised on the balance sheet has been restricted to £nil.
Reconciliation of opening and closing balances of the present value of the defined benefit obligation (UK Scheme)
Defined benefit obligation at start of year
Interest expense
Actuarial gains arising from changes in demographic assumptions
Actuarial losses/(gains) arising from changes in financial assumptions
Experience losses
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 (UK Scheme)
Fair value of assets at start of year
Interest income
Return on scheme assets excluding interest income
Scheme administration expenses
Contributions by employer
Benefits paid, death in service insurance premiums and expenses
Fair value of assets at end of year
Total expense recognised in the income statement (UK Scheme)
Past service (credit)/cost
Scheme administration expenses
Assets (UK Scheme)
Bonds
Liability Driven Investment
Diversified credit funds
Cash and cash equivalents
2023
Quoted1
£m
13.6
21.9
15.4
10.1
61.0
2023
Unquoted
£m
2.9
–
3.7
–
6.6
2022
Quoted1
£m
12.8
15.4
12.0
9.4
49.6
1 Quoted scheme assets include assets which have a quoted market price in active markets held within investment trusts.
2023
£m
64.4
2.9
(3.2)
1.5
0.3
(3.1)
(0.1)
62.7
2023
£m
67.4
3.1
0.3
(0.5)
0.4
(3.1)
67.6
2023
£m
(0.1)
0.5
0.4
2022
£m
101.9
1.8
(0.5)
(35.4)
3.3
(6.8)
0.1
64.4
2022
£m
115.9
2.0
(43.7)
(0.4)
0.4
(6.8)
67.4
2022
£m
0.1
0.4
0.5
2022
Unquoted
£m
6.0
–
11.8
–
17.8
137
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the consolidated financial statements continued
Year ended 31 December 2023
26. Retirement benefit schemes continued
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 19% of the investment strategy to non-matching asset classes, predominantly longer-
term credit based investments and 81% 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. LDIs are
held in pooled investment vehicles and include over the counter derivatives and quoted equities designated to move in line with the defined
benefit liability.
Assumptions for 2023 (UK Scheme)
RPI inflation
CPI inflation
Salary increases
Rate of discount
Allowance for pension in payment increases of 3% or RPI if lower
Allowance for revaluation of deferred pensions
Mortality – current pensioners (UK Scheme)
Actuarial tables used
Life expectancy for members currently aged 65
Mortality – future pensioners (UK Scheme)
Actuarial tables used
Life expectancy at age 65 for members currently aged 45
Cash commutation:
2023
% per annum
3.20
2.90
n/a
4.50
2.18
2.90
2022
% per annum
3.25
2.95
n/a
4.70
2.12
2.95
2023
S3PxA YoB
CMI 2021 1.5%
long-term trend
19.8
2022
S3PxA YoB
CMI 2020 1.5%
long-term trend
21.3
2023
S3PxA YoB
CMI 2021 1.5%
long-term trend
20.7
2022
S3PxA YoB
CMI 2020 1.5%
long-term trend
22.9
2023
All members
commute 75%
of maximum
permitted
2022
All members
commute 75%
of maximum
permitted
The weighted average duration of the defined benefit obligation at 31 December 2023 is approximately 12 years (31 December
2022: 15 years).
The defined benefit obligation at 31 December 2023 can be approximately attributed to the scheme members as follows:
– Active members:
0% (2022: 0%)
– Deferred members:
41% (2022: 40%)
– Pensioner members:
59% (2022: 60%)
All benefits are vested at 31 December 2023 (unchanged from 2022).
Present value of defined benefit obligations, fair value of assets and deficit (UK Scheme)
Present value of defined benefit obligation
Fair value of plan assets
Scheme surplus
Adjustment relating to asset ceilings and minimum funding requirements
Net defined benefit asset before deferred tax
2023
£m
62.7
(67.6)
(4.9)
4.9
–
2022
£m
64.4
(67.4)
(3.0)
3.0
–
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
26. Retirement benefit schemes continued
Reconciliation of asset ceiling (UK Scheme)
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 2024 is £0.4m.
Amounts recognised in other comprehensive income (UK Scheme)
Return on scheme assets excluding interest income
Actuarial (losses)/gains arising from changes in financial assumptions
Actuarial gains arising from changes in demographic assumptions
Experience losses on liabilities
(Loss)/gain due to change in asset restriction
Total gain recognised in other comprehensive income
Combined non-UK disclosures
The Group operates defined benefit schemes in continental Europe.
2023
£m
3.0
0.2
1.7
4.9
2023
£m
0.3
(1.5)
3.2
(0.3)
(1.7)
–
In Europe the Group operates defined benefit pension, post-retirement and long-service arrangements for certain employees in France,
Germany, Italy, Turkey, Switzerland and Liechtenstein.
Reconciliation of opening and closing balances of the present value of the defined benefit obligation (non-UK schemes)
Defined benefit obligation at start of year
Current service cost
Interest expense
Actuarial losses arising from changes in demographic assumptions
Actuarial losses/(gains) arising from changes in financial assumptions
Experience losses/(gains) on liabilities
Benefits paid, death in service insurance premiums and expenses
Employee contributions
Settlements
Exchange rate loss
Defined benefit obligation at end of year
Reconciliation of opening and closing balances of the fair value of plan assets (non-UK schemes)
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 employees
Benefits paid, death in service insurance premiums and expenses
Settlements
Exchange rate gain
Fair value of assets at end of year
2023
£m
16.2
0.4
0.5
–
0.1
0.4
(0.6)
0.1
–
0.2
17.3
2023
£m
5.3
0.1
0.4
–
0.2
0.1
–
–
0.1
6.2
2022
£m
14.0
0.2
(11.2)
3.0
2022
£m
(43.7)
35.4
0.5
(3.3)
11.2
0.1
2022
£m
24.0
0.5
0.2
0.5
(4.1)
(1.5)
(1.6)
0.1
(3.8)
1.9
16.2
2022
£m
12.2
0.1
(1.7)
(0.2)
0.1
0.1
(0.9)
(5.4)
1.0
5.3
139
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the consolidated financial statements continued
Year ended 31 December 2023
26. Retirement benefit schemes continued
Total expense recognised in the income statement (non-UK schemes)
Current service cost
Net interest on the defined benefit liability
Scheme administration expenses
Settlements
Total expense
Assets (non-UK schemes)
Cash and cash equivalents
Collective Foundation receivables
Total
2023
£m
0.4
0.4
–
–
0.8
2022
Quoted1
£m
1.7
–
1.7
2022
£m
0.5
0.1
0.2
(0.1)
0.7
2022
Unquoted
£m
–
5.3
5.3
2023
Quoted1
£m
–
–
–
2023
Unquoted
£m
–
6.2
6.2
1 Quoted scheme assets include assets which have a quoted market price in active markets held within investment trusts.
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 2023 (non-UK schemes)
USA
France
Germany
Italy
Turkey
Liechtenstein
Switzerland
Salary
increases
% per annum
n/a
3.0
2.5
2.5
21.0
2.5
n/a
Rate of
discount
% per annum
n/a
4.0
3.5
3.3
24.5
1.5
2.3
Inflation
% per annum
n/a
2.0
n/a
2.5-3.0
21.0
n/a
n/a
Pension
increases
% per annum
n/a
1.0
2.3
n/a
n/a
n/a
n/a
There were no significant movements compared to the prior year with the exception of Turkey where the rate of discount percentage per
annum was increased by 9.5 ppts to 24.5% compared with 2022 and the inflation percentage changed by 10.5 ppts to 21%, both due to the
country’s current and forecasted high inflation period.
The assumption for the inflation rate % per annum for Italy decreases by 0.5 ppts from 3.0% in 2024 to 2.5% from the year 2025 onwards.
Duration
The weighted average durations of the defined benefit obligations of the overseas schemes at 31 December 2023 range from 9 years to
18 years. The durations ranged from 8 years to 17 years as at 31 December 2022.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
26. Retirement benefit schemes continued
Present value of defined benefit obligations, fair value of assets and deficit (non-UK schemes)
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
2023
£m
17.3
(6.2)
11.1
–
11.1
As all actuarial gains and losses are recognised, the deficit shown above at 31 December 2023 is that recognised in the balance sheet.
Amounts recognised in other comprehensive income (non-UK schemes)
Return on scheme assets excluding interest income
Actuarial (losses)/ gains arising from changes in financial assumptions
Actuarial loss arising from changes in demographic assumptions
Experience (losses)/gains on liabilities
Gain due to change in asset restriction
Total gain recognised in other comprehensive income
£m
0.4
(0.1)
–
(0.4)
–
(0.1)
2022
£m
16.2
(5.3)
10.9
–
10.9
£m
(1.7)
4.1
(0.5)
1.5
2.3
5.7
The only funded plans are those operated in France, Switzerland and Liechtenstein. The best estimate of contributions to be paid into the
plans for the year ending 31 December 2024 is £0.1m.
Sensitivities (changes to total defined benefit obligations) (non-UK schemes)
0.25% change in discount rate
0.25% change in price inflation (and associated assumptions)
2023
2022
Increase
£m
(0.5)
0.3
Decrease
£m
0.6
(0.3)
Increase
£m
(0.5)
0.3
Decrease
£m
0.5
(0.3)
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.
27. Contingent liabilities
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.
28. Post-balance sheet events
Acquisition of Lake City Heat Treating
On 19 January 2024 the Group acquired Lake City Heat Treating (Lake City) for a total gross consideration of £52.2m ($66.5m USD) on a cash
and debt free basis which was settled through the Group’s existing cash and borrowing facilities. This will significantly increase Bodycote’s
customer reach in the Medical market within the ADE business in North America.
Given the proximity to the year end date an initial accounting and fair value exercise will be completed in the first half of 2024 and the
accounting impact of this acquisition and the results of the operations for Lake City will be included in the Group’s condensed consolidated
interim financial statements for the half year of 2024.
Share repurchase programme
On 22 January 2024, the Company announced its intention to launch a share repurchase programme of up to £60.0m. This will commence on
15 March 2024.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Company balance sheet
At 31 December 2023
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Investments in subsidiaries
Trade and other receivables
Current assets
Trade and other receivables
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Net current liabilities
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Lease liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Own shares
Other reserves
Profit for year
Retained earnings
Total equity
Note
3
4
5
6
6
7
4
7
8
4
9
2023
£m
34.1
0.2
1.3
388.9
6.2
430.7
5.1
5.1
435.8
10.4
0.2
10.6
(5.5)
6.5
2.3
1.3
10.1
20.7
415.1
33.1
177.1
(15.7)
139.8
3.8
77.0
415.1
2022
£m
27.1
0.2
0.1
388.9
49.9
466.2
6.8
6.8
473.0
7.3
0.1
7.4
(0.6)
4.8
1.3
–
6.1
13.5
459.5
33.1
177.1
(5.2)
136.6
10.6
107.3
459.5
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue on
15 March 2024.
They were signed on its behalf by:
S.C. Harris
Director
B. Fidler
Director
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Company statement of changes in equity
Year ended 31 December 2023
1 January 2022
Profit for the year
Exchange differences on translation of overseas
operations
Actuarial gain on defined benefit pension schemes
net of deferred tax
Total comprehensive (expense)/income for the year
Dividends paid
Share-based payments
Settlement of share awards
31 December 2022
Profit for the year
Exchange differences on translation of overseas
operations
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 awards
31 December 2023
Share
capital
£m
33.1
Share
premium
account
£m
177.1
–
–
–
–
–
–
–
33.1
–
–
–
–
–
–
–
–
33.1
–
–
–
–
–
–
–
177.1
–
–
–
–
–
–
–
–
177.1
Own
shares
£m
(6.3)
–
–
–
–
–
–
1.1
(5.2)
–
–
–
–
–
(13.2)
–
2.7
(15.7)
Other
reserves
£m
136.3
Retained
earnings
£m
145.9
–
10.6
Total
£m
486.1
10.6
(0.4)
–
(0.4)
–
(0.4)
–
1.7
(1.0)
136.6
–
0.1
10.7
(38.5)
–
(0.2)
117.9
3.8
0.1
10.3
(38.5)
1.7
(0.1)
459.5
3.8
0.2
–
0.2
–
0.2
–
–
5.1
(2.1)
139.8
0.1
3.9
(40.6)
–
–
(0.4)
80.8
0.1
4.1
(40.6)
(13.2)
5.1
0.2
415.1
Details of dividends paid are set out in note 7 of the Group consolidated financial statements.
Details of share-based payment transactions are set out in note 24 of the Group consolidated financial statements.
Own shares are 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.
In the year ended 31 December 2023, 2,000,000 shares were purchased for the Bodycote International Employee Benefit Trust to satisfy
future share-based payments under the Group’s share incentive schemes, for an average price of £6.57 at a cost of £13.1m plus purchase
costs of £0.1m.
At 31 December 2023, 2,292,243 (2022: 639,125) ordinary shares of 173/11p 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 £13.6m (2022: £3.6m).
Included in other reserves is £9.6m (2022: £6.6m) relating to a share award reserve and a capital redemption reserve of £129.8m
(2022: £129.8m). 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.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
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 the Companies Act 2006 as applicable to companies using FRS 101. The financial statements have been prepared
under the historical cost convention and in accordance with applicable law. The principal accounting policies are summarised below, and have
been applied consistently. 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, standards not yet effective and
related party transactions.
Where required, equivalent disclosures are given in the Group consolidated financial statements of Bodycote plc, which are publicly available.
Dividends
Interim dividend distributions (ordinary and special) to Bodycote plc’s ordinary shareholders are recognised when paid and final dividends
are accrued when approved by the ordinary shareholders at the Group’s Annual General Meeting. Further detail is contained in note 7 of the
Group consolidated financial statements.
Going concern
The Directors have at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to
continue in operational existence for at least the next 12 months and continue to adopt the going concern basis of accounting in preparing the
Company’s financial statements. Further detail is contained in the Group going concern statement in the Group accounting policies.
Investments
Investments are held at cost less provision for impairment. Any potential impairment is determined whereby the carrying value of the
investment is not supported by the net assets of the investment, or discounted future cash flows in the form of expected dividend income.
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 year.
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 as per the requirements of IAS 19 Employee Benefits, as described in further detail in the accounting policies applied in
the Group consolidated financial statements.
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.
Right-of-use assets
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 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 includes 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 Company’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.
144
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Property, plant and equipment
Property, plant and equipment 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 assets
Intangible 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%
Impairment of tangible and intangible assets
At each balance sheet date, the Company 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 or an asset is not in use and therefore requires an
annual test, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
Recoverable amount is the higher of fair value less costs to dispose and value in use. If the recoverable amount of an asset is estimated to be
less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an
expense immediately in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset 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 in prior years.
A reversal of an impairment loss is recognised as income immediately.
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.
In accordance with IFRS 9, a simplified 12-month Expected Credit Loss (ECL) model is used to assess receivables for impairment.
Amounts owed by subsidiary undertakings falling due after more than one year are classified as such according to the loan agreement in place
until 27 May 2027. The interest rate for such facility was at SONIA plus 1.95% margin in 2023.
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 27 May 2027. The interest rate for such facility was at SONIA plus 1.2% margin in 2023.
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.
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Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Company accounting policies continued
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.
The Company recognises and maintains the share-based payment reserve for all eligible Group employees. Appropriate provisions for non-
Company employees vesting share awards are passed on to other Group companies in the form of a non-interest bearing loan payable to the
Company. When share awards are exercised by non-Company employees the Company charges other Group companies for the weighted
average cost to purchase the shares exercised. The Company reduces the loan receivable from the other Group company for the shares
exercised, recognising the difference between grant and exercise price within retained earnings settlement of share awards.
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, accounting for retirement benefit schemes under IAS 19 requires an
assessment of the future benefits payable in accordance with actuarial assumptions. The discount rate and the mortality rates applied in
the calculation of scheme liabilities are a key source of estimation uncertainty for the Company. Details of the accounting policies applied
in respect of retirement benefit schemes are set out in note 26 of the Group consolidated financial statements.
In line with previous years, the Company continues to take the decision not to recognise an asset in relation to the surplus on the defined
benefit pension scheme, regardless of value.
146
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the company financial statements
Year ended 31 December 2023
1. Profit for the year
Bodycote plc has made use of the exemption from presenting a profit and loss account, in accordance with Section 408 of the
Companies Act 2006.
Bodycote plc reported a profit for the financial year ended 31 December 2023 of £3.8m (2022: £10.6m).
The auditor’s remuneration for audit and other services is disclosed in note 2 of the Group consolidated financial statements.
2. Employees
Average monthly number of employees
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Pension costs
2023
Number
46
2022
Number
48
£m
10.3
1.1
0.5
11.9
£m
6.3
1.0
0.5
7.8
Included in wages and salaries are share-based payments (excluding social charges) resulting in a charge of £0.7m (2022: £0.4m).
All Directors of the Group are remunerated through the Company and these costs are reflected in the financial statements of the Company.
Disclosure of individual Directors’ remuneration, share interests, share awards, long-term incentive schemes, pension contributions and
pension entitlements required by the Companies Act 2006 are shown in the tables in the Directors’ report on remuneration on pages 79 to 91.
3.
Intangible assets
Cost
At 1 January 2023
Additions
Disposals
At 31 December 2023
Amortisation
At 1 January 2023
Charge for the year
Disposals
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
Software
£m
45.5
8.6
(0.6)
53.5
18.4
1.6
(0.6)
19.4
34.1
27.1
Included in software assets are ongoing development costs related to the Group’s ERP solutions. £31.4m (2022: £22.9m) 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.
Additions are for the ongoing ERP development which include £4.3m (2022: £4.3m) charged from other Group companies.
147
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Notes to the company financial statements continued
For the year ended 31 December 2023
4. Right-of-use assets
Cost
At 1 January 2023
Additions
Disposals
At 31 December 2023
Depreciation
At 1 January 2023
Charge for the year
Disposals
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
Lease liabilities
Maturity analysis – contractual undiscounted cash flows
Less than one year
One to five years
More than five years
Total undiscounted cash flows
Current
Non–current
Total lease liabilities
5.
Investments in subsidiaries
Cost
At 1 January 2023 and 31 December 2023
Provision for impairment
At 1 January 2023 and 31 December 2023
Net book value
At 1 January 2023 and 31 December 2023
Buildings
and vehicles
£m
2.3
1.4
(2.3)
1.4
2.2
0.2
(2.3)
0.1
1.3
0.1
2022
£m
0.1
–
–
0.1
0.1
–
0.1
£m
395.5
6.6
388.9
2023
£m
0.3
1.0
0.5
1.8
0.2
1.3
1.5
The following subsidiaries in the UK 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 these businesses. These subsidiaries
have been included in the Group consolidated financial statements of Bodycote plc as at 31 December 2023.
Bodycote America Capital Limited
Bodycote America Finance Limited
Bodycote America Treasury Limited
Bodycote Finance Limited
Bodycote Finance UK Limited
Bodycote Heat Treatments Limited
Bodycote H.I.P. Limited
Bodycote HIP Germany Limited
Bodycote International Limited
Bodycote Investments
Bodycote Nominees No. 1 Limited
Bodycote Pension Trustees Limited
Bodycote Surface Technology Limited
Bodycote Thermal Processing Mexico Limited
A full list of directly and indirectly owned subsidiary undertakings can be found on page 155 and 156.
148
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 6. Trade and other receivables
Amounts falling due within one year:
Amounts owed by subsidiary undertakings1
Corporation tax
Other receivables and prepayments
Amounts falling due after more than one year:
Amounts owed by subsidiary undertakings1
Other receivables
2023
£m
3.5
0.5
1.1
5.1
5.8
0.4
6.2
11.3
2022
£m
2.1
2.8
1.9
6.8
49.2
0.7
49.9
56.7
1 An assessment regarding the expected credit losses (ECL) of these amounts has been made and no allowance for ECL has been recognised on the basis that the loans do not exceed the
borrower’s liquid assets. The portion of the ‘Amounts owed from subsidiary undertakings’ balance that is expected to be settled within 12 months is classified as current. Loans owed from
subsidiaries have a defined maturity date being predominantly in line with the Group’s Revolving Credit Facility, however parties have the ability to repay earlier.
7. Trade and other payables
Amounts falling due within one year:
Trade payables
Amounts owed to subsidiary undertakings1
Other taxes and social security
Other payables
Accruals
Amounts falling due after more than one year:
Amounts owed to subsidiary undertakings1
2023
£m
0.3
0.2
0.7
4.9
4.3
10.4
6.5
6.5
2022
£m
0.4
0.2
0.2
2.3
4.2
7.3
4.8
4.8
1 The portion of the ‘Amounts owed to subsidiary undertakings’ balance that is expected to be settled within 12 months is classified as current. Loans owed to subsidiaries have a defined
maturity date being predominantly in line with the Group’s Revolving Credit Facility, however parties have the ability to repay earlier.
8. Deferred tax
The following are the deferred tax assets and liabilities recognised by the Company and movements thereon during the current and prior year.
At 1 January 2022
Charge to profit or loss
At 1 January 2023
Charge to profit or loss
At 31 December 2023
Accelerated tax
depreciation
£m
(0.5)
(1.0)
(1.5)
(1.0)
(2.5)
Retirement
benefit
obligations
£m
–
–
–
–
–
Other timing
differences
£m
0.5
(0.3)
0.2
–
0.2
Total
£m
–
(1.3)
(1.3)
(1.0)
(2.3)
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 liability
2023
£m
(2.3)
2022
£m
(1.3)
149
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Notes to the company financial statements continued
For the year ended 31 December 2023
9. Share capital
Share capital:
Ordinary shares (allotted, called-up and fully paid)
At 1 January 2023
At 31 December 2023
Number of
shares
191,456,172
191,456,172
£m
33.1
33.1
Details of share awards in issue on the Company’s share capital and share-based payments are set out in note 24 of the Group consolidated
financial statements.
10. Contingent liabilities
The Company has guaranteed bank overdrafts, loans and letters of credit of certain subsidiary undertakings amounting to £37.0m
(2022: £74.4m). The likelihood of these guarantees being called is considered to be unlikely, therefore the estimated financial effect on
the Company is £nil (2022: £nil) as no provision is required.
11. Pension commitments
The Company participates in a final salary defined benefit scheme in the UK, the details of which are disclosed in note 26 of the Group
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 Employee Benefits.
The Company acknowledges that the recognition of the pension scheme surplus is an area of accounting judgement, which depends
on the wording of the scheme rules and IFRIC 14. The pension surplus not recognised at 31 December 2023 was £4.9m (2022: £3.0m).
Full disclosures concerning the scheme as required by IAS 19 are set out in note 26 of the Group consolidated financial statements and full
disclosure concerning IFRIC 14 is set out in note 26 of the Group consolidated financial statements.
The contributions made by the Company over the financial year to the defined contribution scheme amounted to £0.5m (2022: £0.5m).
As at 31 December 2023, contributions of £nil (2022: £nil) were due in respect of the current year had not been paid over to the scheme.
12. Related party transactions
Information on the retirement benefit schemes operated by the Company are set out in note 26 of the Group consolidated financial
statements. The remuneration of the Directors is set out in note 25 of the Group consolidated financial statements and in the Directors'
report on remuneration on pages 77 to 91. The Company has taken the exemption available under FRS 101 not to disclose transactions
with wholly-owned subsidiary companies.
13. Post balance sheet event
On 22 January 2024, the Company announced its intention to launch a share repurchase programme of up to £60.0m. This will commence
on 15 March 2024.
150
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Five-year summary (unaudited)
Revenue
Profit:
Headline operating profit
Amortisation of acquired intangible assets
Acquisition costs
Operating profit prior to exceptional items
Exceptional items
Operating profit
Net finance charge
Profit/(loss) before taxation
Taxation
Profit after taxation
Non-controlling interests
Profit attributable to the equity holders of the parent
Headline earnings per share (pence)
Full year dividend per share (pence)
Assets employed
Intangible assets
Property, plant and equipment
Other assets and liabilities
Financed by
Share capital
Reserves
Shareholders’ funds
Non-controlling interests
Lease liabilities
Net (cash)/debt
Capital employed
Net assets per share (pence)
Return on capital employed (%):
Headline operating profit divided by the average of
opening and closing capital employed
2023
£m
802.5
127.6
(8.1)
(0.3)
119.2
–
119.2
(7.5)
111.7
(24.9)
86.8
(1.2)
85.6
48.4
22.7
332.7
504.9
6.4
844.0
33.1
757.7
790.8
1.5
64.3
(12.6)
844.0
413.0
2022
£m
743.6
112.2
(9.3)
(0.9)
102.0
–
102.0
(6.7)
95.3
(21.0)
74.3
(0.6)
73.7
42.7
21.3
344.7
516.3
20.4
881.4
33.1
747.8
780.9
1.1
66.0
33.4
881.4
407.9
2021
£m
615.8
94.8
(10.3)
(0.7)
83.8
–
83.8
(6.3)
77.5
(17.5)
60.0
(0.5)
59.5
35.8
20.0
322.0
489.3
(9.5)
801.8
33.1
651.6
684.7
0.7
64.5
51.9
801.8
357.6
2020
£m
598.0
75.3
(9.8)
(2.1)
63.4
(58.4)
5.0
(6.5)
(1.5)
2.3
0.8
(0.4)
0.4
27.8
19.4
323.5
522.6
(66.6)
779.5
33.1
647.4
680.5
0.9
75.6
22.5
779.5
355.4
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
19.3
212.4
534.5
17.4
764.3
33.1
671.9
705.0
0.8
79.4
(20.9)
764.3
368.2
14.8
13.3
12.0
9.8
17.7
151
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Alternative performance measures (APMs) – unaudited
Bodycote uses various APMs, in addition to those reported under International Financial Reporting Standards (IFRS), as management consider
these measures enable users of the financial statements to assess the headline trading performance of the business. These APMs of financial
performance, position or cash flows are not defined or specified according to 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 organic revenue, revenue excluding surcharges, headline operating profit, headline operating margin, revenue and
headline operating profit at constant exchange rates, headline operating margin excluding surcharge revenue, headline profit before taxation,
EBITDA, headline EBITDA, headline operating cash flow, free cash flow, headline operating cash conversion, free cash flow conversion,
headline tax charge, headline tax rate, headline earnings per share (EPS), net (debt)/cash, net (debt)/cash plus lease liabilities and return on
capital employed (ROCE). These measures reflect the headline trading performance of the business as they exclude certain non-operational
items, exceptional items, acquisition costs and the 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 trading performance of
the Group. The measures described above are also used in the targeting process for executive and management annual bonuses (headline
operating profit and headline operating cash flow) with headline EPS and ROCE also used in executive share schemes.
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.
Organic revenue
Excludes revenue from acquisitions in the current and comparative period to provide a like-for-like comparison, reconciled in the table below:
Total revenue
Less adjustments for revenue from acquisitions completed in the current or prior year
Total organic revenue
Revenue excluding surcharges
Total revenue
Less energy surcharges
Total revenue excluding surcharges
Headline operating profit
Operating profit
Add back:
Amortisation of acquired intangibles
Acquisition costs
Exceptional items
Headline operating profit
Revenue and headline operating profit at constant exchange rates
Reconciled to revenue and headline operating profit in the table below:
2023
£m
802.5
–
802.5
2023
£m
802.5
(66.8)
735.7
2023
£m
119.2
8.1
0.3
–
127.6
2022
£m
743.6
(8.6)
735.0
2022
£m
743.6
(46.6)
697.0
2022
£m
102.0
9.3
0.9
–
112.2
Year to 31 December 2023
Central
cost and
eliminations
£m
–
–
–
Consolidated
£m
802.5
3.0
805.5
(21.2)
0.5
(20.7)
127.6
3.3
130.9
AGI
£m
447.0
1.3
448.3
79.3
2.0
81.3
ADE
£m
355.5
1.7
357.2
69.5
0.8
70.3
Revenue
Constant exchange rates adjustment
Revenue at constant currency
Headline operating profit
Constant exchange rates adjustment
Headline operating profit at constant currency
152
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Headline operating margin
Headline operating profit
Revenue
Headline operating margin
Headline operating margin excluding surcharge revenue
Headline operating profit
Revenue excluding surcharges
Headline operating margin excluding surcharge revenue
Headline profit before taxation
Profit before taxation
Add back:
Amortisation of acquired intangibles
Acquisition costs
Exceptional items
Headline profit before taxation
EBITDA and headline EBITDA (earnings before interest, taxation, depreciation and amortisation)
Operating profit
Depreciation and amortisation
Impairment reversal of property, plant and equipment and other assets –
recognised in exceptional items
Impairment of property, plant and equipment and other assets – recognised in operating profit
Profit on disposal of property, plant and equipment –recognised in operating profit
Profit on disposal of right-of-use assets – recognised in operating profit
Loss on disposal of property, plant and equipment – recognised in exceptional items
Share-based payments
EBITDA
Acquisition costs
Exceptional items, excluding impairments
Share-based payments
Headline EBITDA
Headline EBITDA Margin
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
Net income taxes paid
Net Interest paid
Free cash flow
2023
£m
127.6
802.5
15.9%
2023
£m
127.6
735.7
17.3%
2023
£m
111.7
8.1
0.3
–
120.1
2023
£m
119.2
82.1
–
0.9
(3.4)
(0.2)
–
5.1
203.7
0.3
–
(5.1)
198.9
24.8%
2023
£m
198.9
(57.7)
(1.7)
139.5
2023
£m
139.5
(1.6)
(9.0)
(6.4)
122.5
2022
£m
112.2
743.6
15.1%
2022
£m
112.2
697.0
16.1%
2022
£m
95.3
9.3
0.9
–
105.5
2022
£m
102.0
84.3
(0.1)
4.8
(1.7)
(0.1)
0.1
1.7
191.0
0.9
(0.1)
(1.7)
190.1
25.6%
2022
£m
190.1
(52.2)
(25.3)
112.6
2022
£m
112.6
(7.4)
(15.4)
(5.8)
84.0
153
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Alternative performance measures (APMs) – unaudited
continued
2023
£m
139.5
127.6
109.3%
2023
£m
122.5
127.6
96.0%
2023
£m
24.9
2.0
0.1
27.0
2023
£m
27.0
120.1
22.5%
2023
£m
45.2
(0.5)
(32.1)
12.6
(64.3)
(51.7)
2022
£m
112.6
112.2
100.4%
2022
£m
84.0
112.2
74.9%
2022
£m
21.0
2.3
0.2
23.5
2022
£m
23.5
105.5
22.3%
2022
£m
37.2
(1.0)
(69.6)
(33.4)
(66.0)
(99.4)
Year to 31 December 2023
Central
cost and
eliminations
£m
(21.2)
(31.6)
n/a
AGI
£m
79.3
446.3
17.8%
Consolidated
£m
127.6
862.8
14.8%
Year to 31 December 2022
Central
cost and
eliminations
£m
(19.4)
(27.6)
n/a
AGI
£m
80.8
442.8
18.2%
Consolidated
£m
112.2
841.6
13.3%
ADE
£m
69.5
448.1
15.5%
ADE
£m
50.8
426.4
11.9%
Headline operating cash conversion
Headline operating cash flow
Headline operating profit
Headline operating cash conversion
Free cash flow conversion
Free cash flow
Headline operating profit
Free cash flow conversion
Headline tax charge
Tax charge
Tax on amortisation of acquired intangibles
Tax charge on exceptional items and acquisition costs
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 of the consolidated financial statements.
Net debt and net cash/(debt) plus lease liabilities
Cash and bank balances
Bank overdrafts (included in borrowings)
Bank loans (included in borrowings)
Net cash/(debt) excluding lease liabilities
Lease liabilities
Net debt
Return on capital employed (%)
Headline operating profit
Average capital employed1
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 (debt)/cash plus lease liabilities.
154
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 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 Limited3
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
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
4211 Mainway, Burlington, Ontario, L7L 5N9, Canada
Bodycote Heat Treatment Canada, Inc.1
Bodycote Thermal Processing Canada, Inc1
1100-1959 ST Upper Water Halifax Nova Scotia B3J 3N2, Canada
Bodycote Surface Technology Canada Ltd.1
30 de l’Aeroport Boulevard, Bromont Québec JSL 1S6, Canada
Bodycote Surface Technology Canada Property, Inc.4
Incorporated in China
No. 68 Ningbo East Road, Taicang Economic Development Area, Taicang City, Jiangsu, China
Bodycote Heat Treatments Technology (Taicang) Co., Limited1
Building 4 in International Innovation Park Phase Two, No.1188 Feng Hua Road, Jiaxing City, Zhejiang Province, China
Bodycote (Jiaxing) Heat Treat Co., Ltd.1
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.o.1
Rohanske nabrezi 671/15, Karlin, 186 00, Praha 8, Czech Republic
Bodycote SSC s.r.o.6
155
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Subsidiary undertakings continued
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 Schmerbach GmbH1
Bodycote Specialist Technologies GmbH1
Bodycote Specialist Technologies Deutschland GmbH1
Bodycote Wärmebehandlung GmbH1
Incorporated in Ireland
12 Merrion Square North, Dublin 2, Ireland
Bodycote Ireland Finance DAC6
Incorporated in Jersey
50 La Colomberie, St Helier, JE2 4QB, Jersey
Bodycote Jersey Holdings Limited3
Incorporated in Mexico
Avenida Conquistadores, Exterior No.: 105 Interior No.: PA 07, Calle Rio Lys and Calle Rios Mosa, Col. Mirasierra, San Pedro Garza
Garcia, Nuevo León 66240, México
Bodycote de SLP, S. de R.L. de C.V.1
Carretera Monterrey-Saltillo #3279 B, Privada de Santa Catarina, Nuevo León 66367, México
Bodycote Testing de Mexico, S. de R.L. de C.V.2
Avenida Olmo, No. 100, Parque Industrial y de Negocios Las Colinas, Silao, Guanajuato 36270, México
Bodycote Thermal Processing de Mexico, S. de R.L. de C.V.1
Avenida Industriales del Poniente Km. 19, Colonia Centro, Santa Catarina, Nuevo León 66350, México
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 124, 424 23, Angered, Sweden
Bodycote Sweden AB3
Bodycote Thermotreat AB2
Bodycote Värmebehandling AB1
Bodycote Ytbehandling AB1
Incorporated in Switzerland
chemin du Pavillon 2, 1218 Le Grand-Saconnex, Switzerland
Bodycote (Suisse) SA6
BDC Enterprises SA3,6
Jurastrasse 59, 2503, Biel, Canton de Berne, Switzerland
HTM Biel GmbH1
156
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Incorporated in USA
12750 Merit Drive, Suite 1400, Dallas, TX 75251, USA
Bodycote Americas, Inc.3 – merged into Bodycote USA, Inc. 31.12.2023
Bodycote IMT, Inc.1
Bodycote K-Tech, Inc.1
Bodycote Syracuse Heat Treating Corporation1
Bodycote Thermal Processing, Inc.1
Bodycote USA, Inc.3
8118 Corporate Way Suite 201, Mason OH 45040, USA
Bodycote Surface Technology Property LLC4
Bodycote Surface Technology Mexico LLC1
Bodycote Surface Technology, Inc.1
Bodycote Surface Technology Group, Inc.6
1237 Knoxville Hwy, Wartburg TN 37887, USA
Bodycote Surface Technology Wartburg, Inc.1
Incorporated in other overseas countries
Boehlerdurplatz 1, 8605 Kapfenberg, Austria
Bodycote Austria GmbH1
Groethofstraat 27, 5916PA Venlo, Netherlands
Bodycote Hardingscentrum BV1
Bodycote Hardingscentrum No.2 BV3
ÁTI-Sziget Ipari Park, 23. Épület, 2310 Szigetszentmiklós, 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
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
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 five German subsidiaries Bodycote Hirzenhain GmbH, Bodycote Schmerbach GmbH, Bodycote Specialist Technologies
Deutschland GmbH, Bodycote Specialist Technologies GmbH and Bodycote Wärmebehandlung GmbH make use of the exemption option
under Sec. 264 para. 3 German Commercial Code for the fiscal year 2023, and will not publish their annual financial statements according to
Sec. 325 et seq. German Commercial Code.
The financial data of the above German companies for 2023 will be included in the consolidated annual accounts of Bodycote European
Holdings GmbH.
157
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Shareholder enquiries
Registrar
The Company’s Registrar is Equiniti Limited. Equiniti provide a range of services to shareholders. Extensive information, including many
answers to frequently answered questions can be found online at www.shareview.co.uk. Equiniti’s registered address is: Aspect House,
Spencer Road, Lancing, West Sussex BN99 6DA.
Use the QR code to register for FREE at www.shareview.co.uk
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 check online at www.shareview.co.uk for up-to-date commission rates.
Dividend reinvestment plan (DRIP)
Equiniti’s DRIP offers a convenient way for shareholders to build up their shareholding by using dividend payments to purchase additional
shares. The DRIP is provided by Equiniti Financial Services Limited, part of Equiniti Group, which is authorised and regulated by the Financial
Conduct Authority. 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.
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.
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
for answers to any queries you may 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 annual 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 your accounts into one single entry. Please contact Equiniti, who will
be pleased to carry out your instructions.
Shareholder warning
Shareholders should be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports on the
Company. Fraudsters use persuasive and high-pressure tactics to lure investors into scams and they may offer to sell shares that often turn
out to be worthless, overpriced or even non-existent. Whilst high returns are promised, those who invest usually end up losing their money.
Please keep in mind that firms authorised by the Financial Conduct Authority (FCA) are unlikely to contact you out of the blue. If you receive
any unsolicited investment advice:
– Make sure you get the correct name of the person and organisation and make a record of any other information they give you,
e.g. telephone number, address, and ask for their ‘firm reference number’ (FRN)
– Check that they are properly authorised by the FCA before getting involved. You can check the FCA register at https://register.fca.org.uk
or call +44 800 111 6768
– Report approaches to the FCA – a list of unauthorised firms who are targeting, or have targeted, UK investors is maintained.
Reporting such organisations means the list can be kept up to date and appropriate action be considered
– Inform Equiniti Limited, our Registrars. They are not able to investigate such incidents themselves, but will record the details and pass them on
to the Company and liaise with the FCA on your behalf
– Consider that if you deal with an unauthorised firm, you would not be eligible to receive payment under the Financial Services Compensation
Scheme If you suspect you have been approached by fraudsters, please contact the FCA using the share fraud reporting form at
fca.org.uk/scams
You can also call the FCA Helpline on: 0800 111 6768 (UK freephone) or 0300 500 8082 (UK), or +44 207 066 1000 (from outside UK).
If you have already paid money to share fraudsters, you should contact Action Fraud on 0300 123 2040 or online at actionfraud.police.uk.
158
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 Shareholder analysis
Analysis of share register as at 29 February 2024:
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
631
542
199
79
72
1,523
%
41.4
35.6
13.1
5.2
4.7
100.0
Number of
shares
255,702
1,744,528
7,005,686
17,436,818
165,013,438
191,456,172
% of
shareholders
0.3
31.4
68.3
100.0
As at 26 February 2024 the following voting rights in the Company had been notified in accordance with the Disclosure and
Transparency Rules:
Name of shareholders
Martin Currie Investment Management Ltd.
Goldman Sachs Advisors BV
Fidelity Management & Research Company LLC
Artemis Investment Management
The Vanguard Group, Inc.
Baillie Gifford & Co.
Blackrock Investment Management (UK) Ltd.
Number of
shares
14,086,370
12,100,000
10,201,401
9,549,730
9,057,851
7,298,305
5,820,193
%
0.1
0.9
3.7
9.1
86.2
100.0
% of total
shares
0.3
98.6
1.1
100.0
%
7.4
6.3
5.3
5.0
4.7
3.8
3.0
159
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023
Company information
Advisers
Auditors
PricewaterhouseCoopers LLP
Principal bankers
HSBC UK Bank plc, National Westminster Bank plc, Handelsbanken plc, UniCredit Bank AG, Wells Fargo Bank, N.A. and KBC Bank N.V.
Brokers
HSBC Bank plc and Jefferies International Limited
Solicitors
Herbert Smith Freehills LLP and DLA Piper UK LLP
Financial calendar
Annual General Meeting
Final dividend for 2023
Interim results for 2024
Interim dividend for 2024
Results for 2024
30 May 2024
6 June 2024
July 2024
November 2024
March 2025
160
Strategic reportGovernanceFinancial statementsAdditional informationBodycote plc Annual Report 2023 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 2024
Produced by Radley Yeldar
www.ry.com