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RNS Number : 5410G
Bodycote PLC
26 November 2020
26 November 2020
Bodycote plc
Trading Update
Bodycote, the world's leading provider of heat treatment and
specialist thermal processing services, is issuing the following
trading update, covering the four-month period from 1 July to 31
October 2020 ("the period").
COVID-19 has severely impacted the global economy and Bodycote's
business with it. We have responded to this challenge and, through
this response, we have ensured that a stronger Bodycote will emerge
as the global economy recovers. Overall, profitability has held up
relatively well in light of the significant drop in revenues. We
have continued to prioritise the health and safety of our employees
and other stakeholders. We are taking all necessary actions to
maintain a safe working environment for our employees, who have
responded magnificently to this year's challenges.
Group revenue for the period was GBP193.6m, 20% lower than last
year (18% lower at constant currency). This represents a recovery
from the 28% decline in constant currency revenues in the second
quarter when the COVID-19 related downturn was at its peak. Group
revenue for the 10 months to 31 October 2020 was GBP500.3m, 18%
down on last year (17% lower at constant currency).
All percentage movements in the following review of the Group's
markets compare to the same period from July to October 2019, at
constant currency, unless otherwise stated.
Our two divisions experienced differing fortunes during the
period, with revenues in the ADE business declining 33% (excluding
the GBP10.3m revenue contribution from the Ellison acquisition),
while revenues in the AGI division were down 15%.
As anticipated, civil aerospace revenue declined the most, with
like-for-like revenues down 50%. This reflects the impact
throughout the period of the downturn in civil aerospace that has
affected our business from May onwards. The impact is across all
our geographies, but is most acute in Western Europe, where the
weighting in our wide-bodied business is greater.
Energy revenue declined 18% as a result of weakness in our
onshore US oil & gas business, which is dependent on the
fortunes of the Permian Basin. Lower oil prices have reduced
activity in this area among our customers.
Car and light truck revenue declined 11%, which represents a
very significant bounce back from the more than 50% decline in the
second quarter. The recovery was strongest in North America, where
inventory levels were also lowest following the production
shutdowns seen in the second quarter.
General industrial revenue was 13% lower, with most categories
continuing to experience weakness and the negative impact of
destocking continuing to weigh on performance.
Emerging markets, dominated by automotive and general industrial
revenues, returned to growth, increasing 2%, with a 20% increase in
our revenues in China more than offsetting continued weakness
across Eastern Europe.
Specialist Technologies' revenues, with their relative bias
towards the harder hit ADE business, declined 21% in the period,
excluding the contribution from Ellison. Each of the Specialist
Technologies in the AGI business registered revenue growth in the
period and, as expected, Specialist Technologies continued to
outperform the background market.
Management Actions
The restructuring announced in the first half was mainly focused
on our AGI business, which was most immediately impacted by the
COVID-19 related downturn. As this restructuring programme
continues to be implemented, Bodycote's headcount has reduced to
4,813 FTEs at 31 October. This compares with proforma FTEs of 5,764
at the beginning of the year. Once the restructuring announced in
the first half has been fully completed, headcount will be reduced
by a further 100 FTEs.
Our expectation is that the civil aerospace market will remain
near the current low levels for at least the next 18 months. This
provides us with the opportunity to consolidate our ADE footprint
into fewer, larger facilities. The exercise to do this requires
significant study, since we expect the civil aerospace market to
recover strongly in due course and we want to be in the best
position possible to take full advantage as this happens. There
will, therefore, be a further restructuring programme, similar to
the programme already announced in the first half, but which will
be more focused on our ADE business. We will provide further
details with our full year results in March.
Cash Flow and Financial position
Underlying cash flows in the period remained strong, although,
as revenue recovered from the low levels in the second quarter and
trade receivables correspondingly increased, there was an element
of unwinding of the working capital benefit that had such a
positive impact on cash flows in the first half. Accordingly, with
the payment of the deferred 2019 dividend in September (GBP25.1m)
and cGBP4m expenditure associated with the restructuring programme
in the period, net debt (excluding lease liabilities) at 31 October
2020 was GBP46.6m, compared with net debt of GBP23.6m at 30 June
2020.
Dividend
The Board has also approved the payment of an interim dividend
for 2020 of 6.0p to be paid on 12 February 2021 to shareholders on
the register at the close of business on 8 January 2021. This will
cost GBP11.4m.
Outlook
Our AGI business has recovered strongly from the steep revenue
declines that we saw in the second quarter. Indeed, as we have
reduced our cost base, significant parts of this business are
exiting the period with higher margin levels than at the back end
of 2019, despite continued lower revenues. As revenues recover
further, therefore, we are well placed to benefit from the step
change improvement in the quality of this business.
The ADE business remains under pressure, given the scale of the
impact on revenues. We are taking necessary actions to improve the
business in the short term, while protecting our ability to take
advantage of the upturn when it comes. Through these actions, we
continue to reinforce the long-term quality of this business and
remain confident that it will deliver strong margins as the civil
aerospace market recovers.
Trading Update Conference Call
Stephen Harris and Dominique Yates will be hosting a conference
call for analysts and investors at 8.00am today (Thursday, 26
November 2020).
Participant's dial in number: +443333009267 (Direct)
Participants will be asked for names only, no PIN required
For further information, please contact:
Bodycote plc
Stephen Harris, Group Chief Executive
Dominique Yates, Chief Financial Officer
Tel No +44(0) 1625 505300
FTI Consulting
Richard Mountain
Susanne Yule
Tel No +44 (0) 2037271340
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END
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