Bodycote Regulatory News (BOY)

PRESS RELEASE

Bodycote plc

Interim results for the six months ended 30 June 2013

Financial Highlights

Highlights

·; Revenue up 5%; 3% in constant currencies

·; Headline operating profit up 11%

·; Headline margin up 90 basis points to 16.6%

·; Enhanced mix and strong cost control

·; Headline earnings per share up 9.3%

·; 89% headline operating cash conversion7

·; Net debt at £27.1m

·; Interim dividend of 4.4p, up 10%

Commenting, Stephen Harris, Group Chief Executive said:

"The Group delivered a good first half result, with last year's acquisitions performing well. Improvements in mix and rigorous cost control outweighed softness in demand, resulting in increased margins.

Looking forward, we expect a broadly similar outcome in the second half and therefore the Board continues to expect modest progress for the year as a whole.

The Board remains confident that Bodycote's strategy will continue to deliver good profits, cash and returns through the business cycle."

1 2012 restated for the adoption of IAS 19 (Revised) 'Employee Benefits', which has the effect of reducing headline operating profit and operating profit by £0.2m, reducing finance charge by £0.3m and increasing profit before taxation by £0.1m.

2 Headline operating profit and headline profit before taxation exclude the amortisation of acquired intangibles of £2.1m (2012: £0.7m) and acquisition costs of £nil (2012: £1.2m).

3 Headline operating cash flow is defined as operating cash flow stated before cash flow relating to restructuring of £3.0m (2012: £2.0m) and acquisition costs of £nil (2012: £1.2m).

4 Operating cash flow is defined as cash generated by operations of £72.1m (2012: £75.7m) less net capital expenditure of £28.6m (2012: £26.6m).

5 A detailed reconciliation is provided in note 5 to this announcement.

6 See note 6.

7 Headline operating cash conversion is defined as headline operating cash flow divided by headline operating profit.

A live webcast of the analysts' meeting will be available at 9.00am at www.bodycote.com.

For further information, please contact:

Bodycote plc

Stephen Harris, Group Chief Executive

David Landless, Group Finance Director

Tel No +44 (0) 1625 505300

FTI Consulting

Richard Mountain, Susanne Yule

Tel No +44 (0) 20 7269 7291

INTERIM MANAGEMENT REPORT

OVERVIEW

Bodycote made good progress in the first half of 2013. Reported revenues increased by 5.0% (2.6% in constant currencies). Acquisitions made in 2012 added 7.0% to Group revenues, whilst organic revenues (in constant currencies) were lower by 4.5% (£13.5m) compared to the first half of 2012. Headline operating profit1grew by 10.8% to £52.4m, operating profit1 grew by 10.8% to £50.3m, and Group headline margin2 at 16.6% increased by 90 basis points (2012: 15.7%).

Two achievements within the results are worthy of note. The first is the resilience of the profits in the face of organic revenue3 declines in some sectors and the second is the further expansion of Group margins.

The profit resilience stems from the good cost management and efficiency gains in the parts of the Group that suffered revenue declines. In the Automotive & General Industrial (AGI) business the organic revenue declines of £10.9m were accompanied by a downside operational gearing of only 19%. This is far lower than seen in prior periods of sales decline and the resilience results directly from management actions and represents a validation of Group strategy. The lower organic sales in AGI were not unexpected given the global macroeconomic weakness. The heavy truck and tooling sectors were particularly weak, with sharp declines globally. The organic decline of £2.6m in the Aerospace, Defence & Energy (ADE) business revenues represented, we believe, a short-term slowdown in the inherent long-term growth of the aerospace and energy markets. The volatility of the oil & gas markets, with notable de-stocking in North America, combined with the weak general industrial elements of these divisions more than offset the growth segments. Notwithstanding this, organic profits increased by £1.2m in the ADE business.

The other key achievement in the half was the expansion of Group headline margin by 90 basis points over the same period in the prior year. Cost reductions played an important part in this with average headcount down a further 2.9% (excluding the impact of acquisitions). However, the contribution of some 70 basis points of the improvement in Group margins coming from the new technologies of S3P (Speciality Stainless Steel Processes) and HIP PF (Hot Isostatic Pressing Product Fabrication) was particularly pleasing. When the strategy of investing in these technologies was launched in 2010 it was clear that these nascent businesses would take some time before they had a meaningful impact on Group results. Growth in these technologies has been very good and margins have remained strong notwithstanding the investments in capital and operating expenses required. Now, some three years later, these growing businesses are thriving and are becoming a meaningful part of the Group.

The three acquisitions completed last year have been integrated into the Group and are performing well. The seamless integration of these businesses is not only due to the hard work of the North American management teams involved but is also testament to the attitude and skill sets of the employees that came with the acquisitions. To date, information flow and best practice transfer has been a two way street with the acquired businesses learning from the pre-existing businesses and vice versa. Overall the acquisitions added £21.2m in revenues and £4.6m in headline operating profit in the first six months of 2013, adding some 40 basis points to Group headline margin.

Headline operating cash flow conversion was 89%4 (2012: 111%)yielding an operating cash flow of £43.5m. Net capital expenditure of £28.6m represents a capital expenditure to depreciation ratio of 1.0 times (2012: 1.1 times), in line with our stated intent to invest in capacity to service specific areas of long-term demand growth. Investment has been focussed on our new technologies, notably in HIP and S3P, expanded capacity to service the aerospace market and replenishment of assets in some of the acquired businesses which were under-invested.

As we move into the second half of 2013 we will continue to implement our successful strategy. The key elements of the Group's strategy are: a focus on services that are highly valued by our customers; targeted customer engagement; increasing our emerging market footprint; growth in selected new technologies; and the drive for operational excellence.

1 2012 restated for the adoption of IAS 19 (Revised) 'Employee Benefits', which has the effect of reducing headline operating profit and operating profit by £0.2m, reducing finance charge by £0.3m and increasing profit before taxation by £0.1m.

2 Headline operating profit as a percentage of sales.

3 Organic revenue growth or decline is defined as the change in revenue excluding the impact of foreign exchange rate movements and the impact of acquisitions.

4 Headline operating cash flow divided by headline operating profit.

BUSINESS REVIEW

Markets

Organic revenues from the aerospace and defence market grew 3.3% (in constant currencies) and would have been higher but for some slow down in the subcontracting strategy of some key US customers along with pressure on defence budgets, which together caused a temporary reduction in sales growth at a number of our facilities in the first half of the year.

The Group has seen very different conditions in oil & gas depending on the sub-sector. North American demand for onshore exploration and production equipment, particularly for gas fracking applications, weakened significantly in the first half as customers adjusted inventories to reflect the lower level of activity. Declines in North American sales were offset to some extent by growth in sales to customers serving the subsea market. Overall this resulted in an organic decline of 12.1% (in constant currencies) in Bodycote's global sales to oil & gas customers versus the same period in 2012. A greenfield facility for thermal spray was opened in Houston, Texas, giving the Group this capability in North America for the first time.

Sales to industrial gas turbine customers have continued to grow in North America and have begun to show some improvement in Europe. Organic revenues (in constant currencies) were ahead approximately 8% compared to the first half of 2012, although much of this gain was offset by a temporary reduction in demand from nuclear power customers.

Overall aerospace, defence and energy market revenues were up 5.1% compared to the same period in 2012.

Although market conditions in the European car and light truck sector have been weak, the Group has been able to maintain organic revenues (in constant currencies) in this region, as a result of continued share gains and a focus on premium models, sales of which have performed more strongly. Organic car and light truck sales in North America were modestly ahead (in constant currencies). In contrast, the heavy truck market has seen a sharp reduction in demand in both North America and Europe and overall revenues were down organically by over 20% (in constant currencies). Including acquisitions and at actual exchange rates, sales to automotive customers, including heavy truck, grew 8.3% in the first half of the year.

Demand from general industrial customers has been soft in all sectors. The tooling and mining equipment sectors saw the most significant declines but almost all markets were weaker. In total, organic revenues were down by 6.0% (in constant currencies) but with the benefit of acquisitions and at actual exchange rates, revenues were 3.0% higher than in the same period of 2012.

Demand in emerging markets has generally been weak, with sales in automotive and general industrial sectors down 5.8% (in constant currencies).

Overall automotive and general industrial market revenues were up 5.0% compared to the same period in 2012.

Aerospace, Defence & Energy

Revenues for the ADE business were £133.8m in the six months to June 2013 compared with £130.3m in 2012, an increase of 2.7% (0.5% in constant currencies), made up of an organic decline of 2.0% and growth from acquisitions of 2.5%.

Headline operating profit was £34.5m (2012: £31.3m), an increase of 10.2%. The headline operating margin improved from 24.0% to 25.8%.

Net capital expenditure was £17.3m (2012: £15.6m), representing a spend rate of 1.8 times depreciation (2012: 1.7 times). The majority of capital spend so far this year has been in North America. Notable projects include the expansion of HIP and thermal spray capacity.

Average capital employed for the period was £250.0m (2012: £228.7m).

Automotive & General Industrial

Revenues for the AGI business were £182.7m in the first half of 2013, compared with £171.0m in 2012, an increase of 6.8%. The growth in constant currencies was 4.1%, made up of an organic decline of 6.4% and growth from acquisitions of 10.5%.

Headline operating profit was £25.1m (2012: £22.8m), an increase of 10.1%. Despite the headwind of weak demand in a number of sectors, headline operating margin improved from 13.3% to 13.7%.

Net capital expenditure was £10.4m (2012: £9.5m) representing a spend rate of 0.6 times depreciation (2012: 0.6 times). The Group continues to focus investment and expand capacity in high added-value processes.

Average capital employed for the period was £317.2m (2012: £261.9m).

FINANCIAL OVERVIEW

Revenue and headline operating profit

Revenue for the half year was £316.5m (2012: £301.3m), an increase of 5.0% compared to the same period last year. In constant currencies the increase was 2.6% (£7.7m), of which £21.2m (7.0%) came from acquisitions, all of which were completed in 2012, together with a like-for-like reduction in revenue of £13.5m (4.5%). There was a year-on-year exchange gain of £7.5m.

Headline operating profit increased to £52.4m (2012: £47.3m) and headline operating margin improved to 16.6% (2012: 15.7%). The contribution to headline operating profit from acquisitions was £4.6m and the impact of exchange was a benefit of £1.7m, which offset a like-for-like reduction in headline operating profit of £1.2m. Operating profit increased to £50.3m (2012: £45.4m) and operating margin was 15.9% (2012: 15.1%).

Headline operating margins for the first six months improved in both ADE and AGI. ADE reported a headline operating margin of 25.8% (2012: 24.0%) and AGI reported a headline operating margin of 13.7% (2012: 13.3%).

Profit before taxation

Finance charge

The net finance charge for the Group was £1.8m compared to £1.5m in 2012. Of the increase, £0.3m relates to higher average net debt, as a result of the 2012 acquisitions, offset by a reduction of £0.1m due to lower interest rates. Higher financing costs of £0.1m result primarily from the refinanced €125m Revolving Credit Facility completed earlier in the year.

1Restated for the adoption of IAS 19 (Revised) 'Employee Benefits', which has the effect of reducing the pension finance charge by £0.3m.

Exceptional costs

Exceptional costs for the first six months amounted to £2.1m (2012: £1.9m). The charge comprises amortisation of acquired intangible fixed assets of £2.1m (2012: £0.7m) and acquisition costs of £nil (2012: £1.2m).

Cash flow

1 Earnings before interest, tax, depreciation, amortisation, impairment, gain or loss on disposal of property, plant and equipment, cash flow relating to restructuring, acquisition costs and share-based payments.

Free cash flow for the period was £27.5m compared to £38.9m in the first six months of 2012. The reason for the decrease compared to 2012 is primarily a result of the working capital outflow in the period, and an increase in taxes paid.

The net working capital outflow for the six month period amounted to £8.5m (2012: inflow of £3.5m). Inventories increased by £0.3m (2012: £0.4m increase). Receivables increased by £12.8m (2012: £7.9m increase) as a result of the seasonally higher sales in May and June in comparison to November and December and the impact of 30 June falling at a weekend pushing some cash receipts into July. Debtor days outstanding at 30 June 2013 remained consistent with 30 June 2012 at 59 days (31 December 2012: 58 days). Payables increased by £4.4m (2012: £11.9m increase). The movement in payables in 2012 was impacted by the timing of significant capital expenditure payments.

Provision balances decreased by £2.8m over the period (2012: £2.5m decrease), predominantly reflecting cash expenditure on restructuring.

The Group has continued to manage its capital expenditure programme carefully. Net capital expenditure for the first half was £28.6m (2012: £26.6m) and the ratio to depreciation was 1.0 times (2012: 1.1 times). Major capital projects that were in progress during the first half of 2013 included additional investment in the HIP business in the USA, the S3P business in Europe and additions to heat treatment capacity in both Europe and the USA.

Income taxes paid during the first six months at £14.3m were £5.3m higher than in 2012, reflecting the increase in profits generated in 2013 compared to the first half of 2012, aided by the impact of acquisitions made in the second half of 2012. Additionally, tax losses in certain countries were fully accessed and exhausted in 2012, resulting in higher cash tax payments for the subsequent comparative period.

Taxation

The tax charge in the first half of 2013 was £12.5m, compared to a charge of £11.2m for the same period of 2012. The effective tax rate of 25.7% (2012: 25.3%) results from the impact of differing tax rates in each of the numerous jurisdictions in which the Group operates. The rate represents the weighted average of corporation taxes expected for the full financial year.

Earnings per share

Basic headline earnings per share from operations for the half year were 20.0p (2012: 18.3p). Basic earnings per share from operations for the half year were 18.9p (2012: 17.3p). Diluted earnings per share were 18.9p (2012: 17.3p).

Dividend

The Board has declared an interim dividend of 4.4p (2012: 4.0p) which represents an increase of 10% over the prior year. The interim dividend will be paid on 7 November 2013 to all shareholders on the register at the close of business on 4 October 2013.

Net debt

Group net debt at 30 June 2013 was £27.1m (30 June 2012: £16.7m and 31 December 2012: £34.2m). Loans and letters of credit drawn under the committed facilities at 30 June 2013 totalled £22.6m, compared to £38.4m at 31 December 2012 and £22.2m at 30 June 2012. The Group continues to be able to borrow at competitive rates and therefore currently deems this to be the most effective means of funding. The debt to equity ratio at 30 June 2013 was 5% (2012: 3%).

Liquidity and Investments

The Group is financed by a mix of cash flows from operations, short-term borrowings, longer-term loans and finance leases. The Group's funding policy aims to ensure continuity of finance at reasonable cost, based on committed facilities from several sources over a spread of maturities. At 30 June 2013, the Group had the following committed facilities:

Defined benefit pension schemes

The Group's principal defined benefit pension obligations have been reviewed as at 30 June 2013. The IAS 19 (Revised) deficit in the UK scheme decreased to £3.9m (31 December 2012: £4.2m). The decrease is a result of the contributions paid, which exceeded the interest on the deficit. In France, for its primarily unfunded cash lump sum obligation, the deficit is £8.7m (31 December 2012: £8.0m). The sum of the deficits for all other Group schemes is £7.2m (31 December 2012: £6.8m).

For the year ended 31 December 2013 the Group is required to adopt IAS 19 (Revised) 'Employee Benefits'. The accounts have been restated and the impact of the restatement is set out in note 1.

Acquisitions

In accordance with IFRS 3 'Business Combinations' the Group has carried out a review of the provisional acquisition fair values recognised in the accounts at 31 December 2012. Adjustments made to provisional acquisition fair values as a result of this review are not considered material to the financial statements.

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors do not consider that the principal risks and uncertainties of the Group have changed since the publication of the annual report for the year ended 31 December 2012. The risks and associated risk management processes can be found in the 2012 Annual Report, on pages 26, 27, 82 and 83, which is available at www.bodycote.com. The risks referred to and which could have a material impact on the Group's performance for the remainder of the current financial year relate to:

·; Markets;

·; Loss of key customers;

·; Human resources;

·; Safety and health;

·; Environment;

·; Service quality;

·; Regulatory and legislative compliance;

·; Liquidity;

·; Interest rate; and

·; Currency fluctuation.

GOING CONCERN

As stated in note 1, the Directors have formed a judgement, at the time of approving the condensed financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the condensed financial statements.

SUMMARY AND OUTLOOK

The Group delivered a good first half result, with last year's acquisitions performing well. Improvements in mix and rigorous cost control outweighed softness in demand, resulting in increased margins.

Looking forward, we expect a broadly similar outcome in the second half and therefore the Board continues to expect modest progress for the year as a whole.

The Board remains confident that Bodycote's strategy will continue to deliver good profits, cash and returns through the business cycle.

Stephen C HarrisGroup Chief Executive25 July 2013

David F LandlessGroup Finance Director25 July 2013

RESPONSIBILITY STATEMENT

We confirm to the best of our knowledge that:

(a) the condensed consolidated set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the Interim Management Report includes a fair review of the information required by DTR 4.2.7R (indication of important events that have occurred during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the Interim Management Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board,

Stephen C HarrisGroup Chief Executive25 July 2013

David F LandlessGroup Finance Director25 July 2013

CAUTIONARY STATEMENT

This Interim Management Report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The Interim Management Report should not be relied on by any other party or for any other purpose.

The Interim Management Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT

All activities have arisen from continuing operations.

*Restated for the adoption of IAS 19 (Revised) 'Employee Benefits' (see note 1).

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Included in other reserves is the capital redemption reserve arising on redemption of the Group's B shares of £129.4m (2012: £129.4m) and the share-based payment reserve of £9.1m (2012: £10.2m).

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION

1. Accounting policies

Basis of preparation

This condensed set of financial statements for the half year ended 30 June 2013 has been prepared in accordance with IAS 34, 'Interim Financial Reporting'.

The Interim Management Report has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) as adopted by the European Union and in accordance with those disclosed in the annual report for the year ended 31 December 2012, which was filed with the Registrar of Companies on 5 June 2013.

Going concern

In determining the basis of preparation for the Interim Management Report, the Directors have considered the Group's business activities, together with the factors likely to affect its future development, performance and position which are set out in the Financial Overview. This includes an overview of the Group's financial position, its cash flows, liquidity position and borrowing facilities.

The Group meets its working capital requirements through a combination of committed and uncommitted facilities and overdrafts. The overdrafts and uncommitted facilities are repayable on demand but the committed facilities are due for renewal as set out below. There is sufficient headroom in the committed facility covenants to assume that these facilities can be operated as contracted for the foreseeable future. The committed facilities as at 30 June 2013 were as follows:

§ £125m Revolving Credit Facility maturing 31 August 2016

§ €125m Revolving Credit Facility maturing 1 March 2018

§ $10m Letter of Credit Facility maturing 31 August 2016

The weighted average life of the revolving credit committed facilities on 30 June 2013 was 3.9 years.

The Group's forecasts and projections, which cover a period of at least 12 months from the date of approval of this Interim Management Report, taking account of reasonable potential changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities.

The Directors have reviewed forecasts and projections for the Group's markets and services, assessing the committed facility and financial covenant headroom, central liquidity and the Group's ability to access further funding. The Directors also reviewed downside sensitivity analysis over the forecast period, thereby taking into account the uncertainties arising from the current economic environment. Following this review, the Directors have formed a judgement, at the time of approving the condensed financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the condensed financial statements.

Changes in accounting policies

In the current financial year, the Group has adopted the amendments to IAS 1 'Presentation of Items of Other Comprehensive Income', IAS 19 (Revised) 'Employee Benefits' and IFRS 13 'Fair Value Measurement'. Otherwise, the same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

The amendments to IAS 1 'Presentation of Items of Other Comprehensive Income', require items of other comprehensive income to be grouped by those items that will be reclassified subsequently to profit or loss and those that will never be reclassified, together with their associated income tax. The amendments have been applied retrospectively, and hence the presentation of items of comprehensive income have been restated to reflect the change. The effect of these changes is evident from the condensed consolidated statement of comprehensive income.

IAS 19 (Revised) 'Employee Benefits' and the related consequential amendments have impacted the accounting for the Group's defined benefit scheme by:

§ reclassifying pension scheme administration costs from finance costs to operating costs in the income statement;

§ replacing the interest cost and expected return on plan assets with a net interest charge on the net defined benefit liability; and

§ charging past service costs immediately to the income statement as incurred.

As a result of this change in accounting policy the comparative amounts have been restated, as follows:

For the current period, the profit is £0.1m higher and other comprehensive expense is £0.1m higher than it would have been prior to the adoption of IAS 19 (Revised).

The adoption of IFRS 13 'Fair Value Measurement' has had no material impact.

2. Business and geographical segments

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance.

The Group's reportable segments have been determined in accordance with the activity of the Group, focusing on key market sectors. Principally, this splits the Group into two business areas, being:

§ Aerospace, Defence & Energy ('ADE'); and

§ Automotive & General Industrial ('AGI').

This initial split is determined following consideration of factors including the different customer sets, differing service requirements and different characteristics of business activity. A further split is then made for the geographical divisional split of the Group, being:

§ Western Europe;

§ North America; and

§ Emerging markets.

Inter-segment sales are not material.

The Group does not rely on any individual major customers.