Annual
Report
2021
Contents
www.bodycote.com/investors
for more information
In preparing this Strategic report, the Directors
have complied with s414C oftheCompanies
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 report
01 Understanding Bodycote
02 Our markets and technologies
04 Our global network
06 Highlights
08 The investment case
10 Chair’s statement
11 Chief Executive’s review
14 Strategy and objectives
15 Our business model
16 Measuring progress
18 Our stakeholders
19 A component journey – Safety
critical service
20 Section 172 statement
22 Business review
24 A component journey – Inner strength
25 Chief Financial Officer’s report
28 A component journey – A twist to resist
29 Principal risks and uncertainties
34 Viability statement
35 A Component journey – Stress ball
36 Sustainability report
Governance
44 Board of Directors
46 Corporate governance statement
54 Directors’ report
56 Report of the Nomination Committee
59 Report of the Audit Committee
64 Board report on remuneration
85 Directors’ responsibilities statement
Financial statements
86 Independent auditors’ report
94 Consolidated income statement
95 Consolidated balance sheet
96 Consolidated cash flow statement
97 Consolidated statement of
changes in equity
98 Group accounting policies
106 Notes to the consolidated
financial statements
139 Company balance sheet
140 Company statement of changes in equity
141 Company accounting policies
144 Notes to the company
financial statements
Additional information
148 Five year summary (unaudited)
149 Alternative performance measures
(unaudited)
152 Subsidiary undertakings
155 Shareholder enquiries
157 Company information
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Understanding Bodycote
Page 36 for more information
Driving performance
with our Core Values
We cultivate a culture of transparency, where
honesty and integrity are at the foundation of
ourbusiness and our relationships. Trust is at
theheart ofeverything we do.
We create value for our employees, customers
andshareholders, and this is the very essence
of Bodycote.
Creating Value
Honesty and Transparency
We behave individually and collectively with respect
for each other, our stakeholders and the environment,
conducting business responsibly, taking ownership
ofour actions.
Respect and Responsibility
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Understanding Bodycote
Our markets
Bodycote offers materials solutions for virtually every market sector, providing
expertise across both classical heat treatment and specialist thermal processes.
Bodycote addresses the markets we serve with our superior levels of service
and unmatched ability to satisfy customers’ needs. Bodycote supports many
market sectors; however, we categorise our business into four major groups:
The aerospace market is highly complex; we primarily treat engine
components and landing gear that rely on our solutions to improve
performance. Our services provide thermal processing solutions
across a wide range of applications which include commercial,
business, and military aircraft.
Bodycote operates an international network of quality accredited
facilities supporting prime aerospace manufacturers and their
supply chains.
We serve a very broad range of customers across multiple
industrysegments in our General Industrial business.
These customers range from industrial machinery to agricultural
equipment, construction, electronics, and medical equipment.
Our success in this market is due to our local plant networks,
combined with superior customer service, using the breadth
of processes available within Bodycote and extensive technical
resources allowing for the development of cost-effective solutions
for our customers.
Aerospace andDefence
Using industry-leading thermal processing, we can extend the
life of industrial gas turbines, power generation, and oil & gas
components (onshore, offshore, and subsea) by reducing the
wearcaused to them through abrasion, erosion and corrosion
minimising downtime.
Energy
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.
Automotive
General Industrial
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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 improve the properties
of metals and alloys, and extend the life of components. Bodycote addresses
the markets we serve with our superior service levels and unmatched ability
to satisfy customers’ needs.
Classical Heat Treatment
Classical Heat Treatment is the process of
controlled heating and cooling of metals
in order to obtain the desired mechanical,
chemical, and metallurgical properties during
the manufacturing of a product.
Classical Heat Treatment is an
indispensable set of processes
within the manufacturing
chain of most of the products
used in daily life. By providing
wear resistance, strength, or
toughness, depending on the
application, the components
we treat last longer and reduce
downtime for the products
our customers manufacture.
Surface hardness can be
controlled by diffusing
elements such as carbon and
nitrogen into the metal during
the heating stages of the
process. The heat treatment of
products impacts human life
every day, whether it’s a vehicle
seat belt buckle to ensure
that it keeps the passenger
safe during an accident or a
turbine blade bringing power to
your neighbourhood.
Product life is extended by
accurately treating products,
carried out in precisely
controlled industrial furnaces
which can heat up to
temperatures above 1000°C
and use quenchants like oil,
water, or nitrogen gas to cool
the heated material. During the
process, the microstructure of
the metal transforms, 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 also positively
impacts the environment by
reducing waste.
Specialist Technologies
Our Specialist Technologies business is a
selection of highly differentiated, early-stage
processes with high margins, significant
market opportunities, and solid growth
prospects. Our Specialist Technologies are
generally lower carbon-emitting and therefore
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 inc. Powdermet
®
Additive manufacturing of
often complex components by
combining with HIP.
Specialty Stainless Steel
(S³P) Processes
Improves the strength,
hardness, and wear
resistance of stainless steels.
Standard heat treatments
negatively impact the corrosion
resistance of stainless
steel, but our proprietary
S³P process can provide
dramatically improved material
properties while maintaining
corrosion resistance.
Surface Technology
Enhances component life
using ceramic and ceramic/
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 an
environmentally-friendly
substitute for hard chrome.
Our technologies
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As the only global provider of thermal processing services,
Bodycote offers significant advantages to its customers.
Through an international network of facilities, Bodycote can
effectively utilise a wealth of knowledge, experience, and
specialist expertise to deliver quality service when and where
itis needed.
The network operates from more than 165 facilities, with customers benefiting from
Bodycote’s comprehensive range of services across multiple locations. Customers know
that if their business expands, Bodycote will have the capability to meet their needs.
They recognise that if they were to broaden their manufacturing footprint, Bodycote
would assist them. They know that they can obtain the same process to the same quality
standards from multiple locations. Customers understand that Bodycote can operate their
facilities more efficiently and reduce their overall impact on climate change.
Such a large network brings economies of scale, with technology developed at one
location being available globally if the market requires it. Similarly, network utilisation
is enhanced by using logistics to put customers’ work into the most effective facility
to meet their requirements. Moreover, the network allows Bodycote to specialise in
fewer technologies per location, reducing complexity and increasing the efficiency
ofits 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.
Understanding Bodycote
Our global network
Delivering quality through our international
network of facilities.
>
40,000
customers
>
165
facilities
4,757
1
employees
22
countries
Revenue by geography
Revenue by market sector
1 At year end 2021.
£615.8m
24%
8%
27%
General Industrial 41%
Aerospace andDefence
Energy
Automotive
£615.8m
North America 36%
Western Europe 52%
Emerging Markets 12%
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Bodycote operates facilities across Western
Europe and is the number one provider of
thermal processing services, with by far
the largest network and comprehensive
service offering.
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.
Bodycote is the largest provider of thermal
processing services in North America by
a significant margin with comprehensive
network coverage. This network offers more
than 60 facilities convenient to customers in
all areas where manufacturing and technical
industries are concentrated.
North America Western Europe Emerging Markets
2,271
employees
>
80
facilities
953
employees
>
25
facilities
>
60
facilities
1,533
employees
Revenue by market sector – £m
Aerospace and Defence 43%
Energy 9%
Automotive 22%
General Industrial 26%
£221.3m
Revenue by market sector – £m
15%
8%
24%
53%
Aerospace and Defence
Energy
Automotive
General Industrial
£322.3m
Revenue by market sector – £m
8%
1%
57%
34%
Aerospace and Defence
Energy
Automotive
General Industrial
£72.2m
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Understanding Bodycote
Highlights
Highlights
Financial summary
2021 2020
Revenue £615.8m £598.0m
Headline operating profit
1
£94.8m £75.3m
Headline operating margin
1
15.4% 12.6%
Exceptional items
3
– £(58.4)m
Free cash flow
1
£105.0m £10 6.1m
Basic headline earnings per share
1,2
35.8p 27. 8 p
Ordinary dividend per share 20.0p 19.4p
Return on capital employed
1
12.0% 9.8%
Additional statutory measures
Operating profit £83.8m £5.0m
Profit after tax £60.0m £0.8m
Net cash generated from operating activities £144.3m £139.1m
Basic earnings per share 31.2p 0.2p
1 The headline performance measures represent the statutory results excluding certain non-operational items. Net debt excludes lease liabilities. These are deemed alternative
performance measures under the European Securities and Markets Authority guidelines. Please refer to page 149 for a reconciliation to the IFRS equivalent.
2 A detailed EPS reconciliation is provided in note 8 of the consolidated financial statements.
3 Detail of exceptional items is provided in note 4 of the consolidated financial statements.
4 Organic constant currency.
– Financial performance
– Revenues up 7.1% at constant currency to £615.8m (organic revenues up 5.2%)
– Headline operating margin at 15.4% (2020: 12.6%)
– Free cash flow of £105m
– Closing net debt
1
of £52m
– Strategic Progress
– 2020 restructuring programme completed, with permanent cost savings of £20m
delivered in 2021
– Incremental £10m of permanent cost savings to come in 2022
– Emerging Markets’ revenues up 17% at constant currency
– Specialist Technologies’ revenues up 7%
4
, outperforming Classical Heat Treatment
– Strong margin improvement anticipated as revenues grow
– Final ordinary dividend 13.8p, total year 20.0p (2020: 19.4p)
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Financial highlights
£m
£615.8m
‘17 ‘18 ‘19 ‘20 ‘21
690.2
728.6
719.7
598.0
615.8
Revenue
pence
20.0p
‘17 ‘18 ‘19 ‘20 ‘21
17.4
19.0
19.3
19.4
20.0
Dividend per share
£m
£94.8m
‘17 ‘18 ‘19 ‘20 ‘21
140.7
134.9
75.3
94.8
Headline operating profit
126.2
pence
35.8p
‘17 ‘18 ‘19 ‘20 ‘21
49.2
55.9
52.1
27.8
35.8
Headline earnings per share
12.0%
‘17 ‘18 ‘19 ‘20 ‘21
17.8
18.9
17.7
9.8
12.0
Return on capital employed
%
Free cash flow
£m
£105.0m
‘17 ‘18 ‘19 ‘20 ‘21
111.7
133.8
123.1
106.1
105.0
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Understanding Bodycote
The investment case
We provide expertise in classical heat treatment
and specialist thermal processes across a wide
variety of markets.
Specialist
Technologies
potential for higher
margins and growth
rates to become
a larger proportion
of the Group
Plentiful
investment
opportunities to drive
margins and returns
Resilient Classical Heat
Treatment is robust
in downturns
Part of the solution
to reducing
global emissions
Positioned for
the future
Experienced
management
team with a clear
strategy and proven
track record of execution
and delivery
Highly cash
generative business
funding both investment
and cash returns
to shareholders
Significant barriers to
entry across the majority of
Bodycote’s business which
are practical, financial, and
technical in nature
Consistently strong
margins and excellent free
cash flow generation
Core business is resilient in
a downturn due to a mixture
of improvement, flexibility of
workforce, diversity of end
markets, and geographic-spread
Bodycote is the world’s
No.1 service provider of heat
treatment and specialist
thermal processing
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Experienced management team with
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,
andlower emissions
– Investment in development
and localisation opportunities in
growth markets
– Improving the mix in parts of the
Classical Heat Treatment business
– Proactive approach on ESG
and sustainability
– Investment in structural end-market
growth opportunities
– Investment in acquisitions and
greenfield sites
– Strategy that can accommodate widely
differing market outcomes
Robust balance sheet
strength through:
c.£365m
invested in capacity growth
in last five years
>£250m
returned to shareholders
inlastfive years
What you can expect?Key investment strengths
Specialist Technologies 30% of
Group revenue – higher margin and
growth opportunities; expected to
consistently outperform the organic
Classical Heat Treatment business
Classical Heat Treatment should
perform ahead of themarket, driven by:
– Increasing demand for improved
materials and quality
– Investment in Emerging Markets that
allows for high-growth opportunities
– Additional outsourcing as customers
understand that Bodycote is part
of the solution to reducing their
environmental impact
Continued selected acquisitions
– 6 key acquisitions in the last
five years, including Ellison
Surface Technologies
All on top of underlying Industrial
Production growth
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Overview
I am pleased to be contributing to the Annual Report for the first
time as Bodycote’s Chair, having taken up the position on 1 January
2022. It is encouraging to see that the Group made good progress
in 2021 as our markets began a patchy recovery from the pandemic-
induced downturn of 2020. The rigorous actions taken promptly
by the management team delivered the necessary flexibility and
strengthened Bodycote’s foundations for future growth.
Dividend
The Board is proposing a final dividend of 13.8p, an increase of 3.0%,
which will be paid on 3 June 2022, subject to shareholder approval at
the 2022 Annual General Meeting (AGM). This brings the total ordinary
dividend for 2021 to 20.0p (2020: 19.4p), a year on year increase of
3.1%, returning £38.3m to shareholders.
Board and governance
My predecessor, Anne Quinn CBE, stepped down as Chair of the
Board at the end of 2021. On behalf of the Board and the Group as
a whole, I would like to thank Anne for her guidance and leadership
during her time as Chair.
The Chair is primarily responsible for the composition of the Board and
for ensuring high standards of governance. As Chair, I will continue
to place great importance on the breadth of relevant experience
and complementary skills amongst the Group’s Directors and on the
development of the Board’s understanding of the Bodycote business.
By maintaining high standards of corporate governance, we enhance
business performance, underpinning the execution of our strategy
and the constant review and refinement of our business model.
The approach to governance is set by the Board and our Executive
Committee ensures that the approach is effectively implemented across
the business. Effective and robust governance remains a strong pillar
supporting the sustainable success of the Group. I am confident that the
Bodycote Board remains well-positioned to meet our governance duties.
On 11 March 2022, we announced the appointment of new Non-
Executive Director Cynthia Gordon with effect from 1 June 2022.
This isan important building block for our Board succession planning.
People
As part of my induction to Bodycote, I have been able to visitseveral
facilities and meet many people, including all the Senior Management
team. I am impressed. This is a service business, reliant on its people
at all levels, and Bodycote has good people who understand the
business and are committed to outstanding performance. The Group
places great importance on ensuring the safety and wellbeing for all
Bodycote employees and performed very strongly in this area in spite
of the challenges posed by the pandemic. The Board remained very
engaged, despite the challenges in 2021. Although travel remained
severely constrained, the Board and its committees met frequently
(albeit virtually) with the Executive Team and a wide variety of
employees to review updates on the business and culture. The Board
engaged with employees around the world on subjects pertinent to
the business, including meeting with employee engagement groups,
reviewing the Group’s strategy and in the enhanced programme to
combat climate change. While we do not have business in Ukraine,
Russia or Belarus, we are deeply saddened by the impact of the
current conflict. Now is a time to focus on our common humanity and
care for the people affected.
Sustainability
Throughout 2021, Bodycote focused on sustainability with a particular
emphasis on enhancing our contribution to combatting climate
change. We are proud to have signed our commitment to the Science
Based Target initiative and will publish our targets during 2022.
The focus on climate change includes both action plans to continue
to minimise Bodycote’s own emissions as well as helping current and
new customers reduce their carbon footprint by outsourcing work to
Bodycote’s well-invested, carbon-efficient operations. Heat treatment
and our other specialty metal processes, despite their fundamental
energy intensity, are vital to ensuring the performance and longevity
of crucial components in almost every part of the modern world and
enable light-weighting and the minimisation of resource consumption.
It is gratifying to be part of a business with the opportunity to reduce
the environmental impact of so many companies worldwide.
Shareholders
In 2021, the AGM was held 'behind closed doors' due to COVID
restrictions, equally most shareholder meetings were required to be
virtual due to restrictions. We will continually review the regulations
and best practice, and I look forward to engaging with shareholders
throughout 2022, either virtually or in a COVID-19 safe environment.
Summary
We expect the uncertainties of the pandemic to continue to recede,
notwithstanding the further uncertainties arising from the current
conflict. I am confident that Bodycote will continue to perform well
and deliver value to our customers, shareholders and employees.
D. Dayan
Chair
14 March 2021
Chair’s statement
This is a service business, reliant on
its people at all levels, and Bodycote
has good people who understand
the business and are committed to
outstanding performance.
D. Dayan
Chair
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2021 was a year of good progress,
as margins improved to 15.4%,
with Bodycote benefiting from
strong recovery in General
Industrial markets and completion
of the restructuring programme.
The results also highlight the
continued progress we are making
with our strategic focus areas.
S. C. Harris
Group Chief Executive
Chief Executive’s review
Results overview
We saw good progress in 2021, with margins increasing to
15.4%, as Bodycote benefited from strong recovery in General
Industrial markets and completion of the restructuring programme.
The results also highlight the progress we are making in our strategic
focus areas.
We achieved £615.8m overall revenues, an increase of 7.1% at
constant currency (up 3.0% at actual currency). This included
a full year revenue contribution from the Ellison acquisition.
Organic constant currency revenues increased 5.2%.
Headline operating profit increased to £94.8m from £75.3m in 2020,
notwithstanding a £4.4m foreign exchange translation headwind.
Headline operating margin recovered to 15.4% (2020: 12.6%).
Statutory operating profit increased from £5.0m to £83.8m (2020’s
result included a £58.4m exceptional charge).
The Group again delivered strong free cash flow of £105.0m, with
free cash flow conversion of 111%. The balance sheet remains
healthy, with closing net debt excluding lease liabilities of £51.9m,
after having settled the remaining £57.8m of consideration for
the Ellison acquisition, as well as having paid £49.0m in ordinary
dividends during the year.
Basic headline earnings per share for the Group was 35.8p
(2020: 27.8p). Basic earnings per share was 31.2p (2020: 0.2p),
reflecting the increase in statutory operating profit.
The following reflects constant currency growth rates versus the
comparable period last year, unless stated otherwise.
Market sectors
General Industrial revenues increased 14% to £254m, with robust
recovery through the year. Organic general industrial revenues in
the second half of the year were 5% ahead of 2019’s revenues.
This growth was initially driven by recovery in customers’ operating
expenditure as production lines were restarted, as well as some
restocking in specific sub sectors. Towards the end of the year, sub
sectors that are driven by customers’ capital expenditure started to
improve. This is particularly encouraging, as the capital goods cycle is
typically quite robust and long-lasting.
Automotive revenues increased 9% in the year, to £168m.
Automotive revenues were 13% below 2019 pre-pandemic levels,
which is disappointing. However, heavy truck was relatively strong.
The well-publicised supply chain disruptions and chip shortages
affected most of our car & light truck customers during the year.
This has continued into 2022, although we are seeing evidence
that these issues are starting to abate. Once our customers’ supply
chains stabilise, we would expect revenues and margins to grow
strongly in this sector and margins will achieve levels well above
those seen in 2019. This is particularly the case in our strategic focus
areas of emerging markets and electric vehicles.
Aerospace and Defence revenues were 1% lower than the prior
year. Taking account of the full year contribution from the Ellison
acquisition, organic revenues were down 7%, and 34% below
2019 levels. The rate of narrow-body plane build is ramping up
substantially and is expected to increase further through 2022 and
beyond. Indeed, our Civil Aerospace revenues were up 37% in the
fourth quarter. This is particularly important for Bodycote where
our narrow-body focus has increased our share of content on these
planes significantly over the last 5 years. While wide-body plane build
is largely static, our wide-body revenues were particularly strong,
primarily in the UK where Q4 revenues showed good improvement,
driven by increased flying hours and overhaul programmes.
Substantial levels of inventory were in place in the aerospace supply
chains at the onset of the COVID-19 pandemic and while this
inventory has been reducing through the year there is still excess
inventory in parts of the supply chains coming into 2022. As this
excess inventory is utilised and the rate of plane build increases
in the coming years, we would expect to see revenue growth
accelerate further, accompanied by strong margin and profit growth.
It is worth noting that at this point there is no evidence of any supply
chain disruptions affecting this sector.
Energy revenues represent some 8% of Bodycote’s entire business,
at £47m. In 2021, Energy experienced a decline of 4%. Industrial Gas
Turbines (IGT) revenues grew, while subsea orders softened after
a strong 2020. Lead times on subsea projects are longer and there
is normally a lag in subsea activity when compared with underlying
oil and gas price movements. Non-fossil fuel power generation
experienced a modest decline.
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Chief Executive’s review continued
Specialist Technologies
Expanding Specialist Technologies activities is a key strategic focus
for Bodycote. These technologies are differentiated early stage
processes with high margins, large market opportunities, and good
growth prospects. Bodycote is either the clear market leader or
one of the top players among few competitors. These technologies
address multiple market sectors. We continue to invest in these
technologies organically, in both capital and people, and through
acquisitions. Specialist Technologies’ revenues increased 13% to
£184m in 2021, boosted by the full-year contribution from the Ellison
acquisition. Organic Specialist Technologies’ revenues increased
7%. Bodycote’s AGI-focused Specialist Technologies’ revenues
grew 22% during the year, which compares favourably with the 9%
increase in the combined AGI Classical Heat Treatment revenues.
Bodycote’s ADE-focused Specialist Technologies’ revenues declined
2% organically during the year, outperforming the 4% decline in
the comparable organic ADE Classical Heat Treatment revenues.
Specialist Technologies’ revenues constituted 30% of Bodycote’s
revenues in the year and 42% of headline operating profit.
Emerging Markets
Investment in Emerging Markets (12% of Group revenues) continues
to be a strategic priority. Our Emerging Market footprint comprises
Eastern Europe, China and Mexico. Emerging Market’s revenues
grew 17% in the year, despite a decline in our Automotive revenues
in Mexico which are largely dependent on developments in the
US car & light trucks market. Automotive revenues were up 20%
elsewhere. General Industrial revenues were up 30% across the
emerging markets.
Restructuring
The Group embarked on a strategic restructuring plan in January
2020 and expanded it significantly post the March onset of the
pandemic. The plan was aimed at repositioning the Group to
better focus on our strategic growth areas as well as permanently
eliminating cost. The restructuring programme has been successfully
completed. As part of the plan 26 plants were closed and five new
ones were opened (two already opened in 2020, and three opened
in 2021).
The restructuring programme has generated a total of £30m in
permanent cost savings, with £20m benefitting 2021 and an
additional £10m of benefit in 2022.
As part of the restructuring, virtually all the productive assets
have been retained and relocated to facilities that can make better
use of them. These are predominantly in higher growth markets
and geographies. A large number of customers have also been
transferred. The result is that Bodycote has significant production
capacity available not only to service the revenue recovery that has
started across a number of our markets, but also to accommodate a
significant amount of further growth.
Cost inflation
The Group saw inflationary pressure build through the year, most
notably in energy costs during the second half. We are, once again,
ensuring that cost inflation is passed on to customers. Indeed,
Bodycote has achieved this year in, year out for more than 10 years.
Cost inflation principally impacts us through increases in energy
prices (historically circa 10% of revenues) and labour costs (circa
40% of revenues). In a volatile inflationary environment, energy cost
increases are passed on through customer surcharges or contractual
indexation. In contrast, labour inflation is addressed by price
increases or contractual indexation. Surcharges and price increases
typically take effect in one to three months. Contractual indexation,
which covers about 20% of our business, lags the cost impact by
six to 12 months. The significant cost inflation we experienced in
energy, and to some extent labour, in 2021 negatively impacted Q4
profitability. This negative impact will continue into early 2022 until
the surcharges, price increases and contractual indexation catch up.
Bodycote generally achieves higher furnace fill rates than in-house
facilities in manufacturing companies and is more energy efficient
as a result. Energy used in the processes is largely independent of
fill rates. As a result, in the mid- to long-term higher energy costs
actually increase Bodycote’s competitive advantage, motivating
more companies to outsource to us. This is amplified by the growing
demand for companies to reduce their carbon footprint.
Ukraine invasion
Bodycote has no direct exposure to Russia, Belarus or Ukraine.
Furthermore, we have no facilities, customers or suppliers in any of
these territories, nor any raw materials or energy supply contracts
from them. At this stage, it is too early to predict the broader
potential impacts on the Group but we continue to monitor the
situation closely and will take any necessary actions warranted by
unfolding events.
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Strategic progress and sustainability
Bodycote’s strategy is based on:
1. Ensuring the safety of our employees and reducing our direct
environmental impact, specifically on climate change.
2. Improving the overall quality of the business and focusing
investment to drive long term profitable growth.
3. Growing our Classical Heat Treatment business focused on electric
vehicles and narrow-body aerospace platforms.
4. Growing our Emerging Markets’ business.
5. Growing our Specialist Technologies’ business.
6. Targeted acquisitions that support these growth areas.
The 2021 results highlight the continued progress we are making
with our strategic focus areas. During the year, we opened three
new facilities including one in our Emerging Markets, all of which
contained Specialist Technologies. One of our HIP facilities in North
America has undergone a major expansion and a new HIP facility is
nearing completion. In December, we completed the acquisition of a
small HIP operation in Western Europe.
I am pleased to report that we have continued to make progress
on our sustainability strategy. Managing energy and reducing our
impact on climate change has long been part of our corporate
culture. We have committed to the Science Based Targets initiative
(SBTi). The external focus on carbon emissions and climate change
has increased significantly in recent years and most companies
have correspondingly increased the attention they are paying
to this important issue. It may not be immediately obvious, but
Bodycote is part of the solution. Thermal processing, including
heat treatment enables products to be lighter, more efficient, and
longer lasting. Our inherently higher utilisation and energy efficiency
than manufacturers’ in-house heat treatment facilities, helps drive
them to outsource to Bodycote, in turn lowering the overall carbon
footprint. Moreover, our Specialist Technologies are inherently
lower emissions technologies. Therefore, encouraging accelerated
conversion to these technologies also plays a role in reducing overall
emissions. This increased attention and our commitment to SBTi
is an opportunity to increase our efforts to combat climate change,
while at the same time helping to drive growth.
Summary and outlook
We saw good progress in 2021, with margins increasing to 15.4%,
as Bodycote benefited from strong recovery in General Industrial
markets and completion of the restructuring programme. The results
also highlight the progress we are making in our strategic focus
areas. The results also highlight the continued progress we are
making with our strategic focus areas.
As we moved into 2022, General Industrial continued to perform
strongly, and Civil Aerospace growth has accelerated. Bodycote’s
Automotive business continued to be impacted by supply chain
disruption for our customers, but signs of improvements are evident.
And while we expect cost inflation to persist, we will continue to
manage its impact on the business. In summary, the Board expects
further progress this year, but remains mindful of the current
geopolitical and macro-economic landscape.
Looking further ahead, the outlook for the business remains positive
as we benefit from high profit drop through on revenue growth
across all our market sectors.
S.C. Harris
Group Chief Executive
14 March 2022
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Bodycote’s objective is to create superior shareholder returns
through the provision of selected thermal processing services
that are highly valued by our customers, giving full regard to
a safe working environment for our employees, and with a
minimal environmental impact.
Strategy and objectives
Strategic priorities
Objectives
Continuous improvement of business processes and
systems makes us more efficient and responsive.
Driving operational
improvement
2
We invest in markets with long-term structural
opportunities, such as civil aerospace and
medical markets.
Investing in structural
growth opportunities
3
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.
Acquisitions
6
Core markets
In addition to the
strategic icons
above, we also
link our markets
and values via
the following
icons throughout
the report.
Core values
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.
We behave individually and collectively with
respect for each other, our stakeholders and the
environment, conducting business responsibly,
andtaking ownership of our actions.
We create value for our employees, customers
and shareholders, and this is the very essence
of Bodycote.
Honesty and
Transparency
Respect and
Responsibility
Aerospace andDefence
Automotive
Creating
Value
General Industrial
We have a strategic commitment to ensuring the safety
of our employees and reducing our direct environmental
impact, specifically on climate change.
1
Safety and
Climate Change
Expanding with our customers in rapid growth countries
with an emphasis on Eastern Europe, Mexico, and China.
Investing in
Emerging Markets
4
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.
Capitalising on and investing
in our Specialist Technologies
5
Energy
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Our business model focuses on ensuring we are the supplier
of choice for our customers’ thermal processing needs.
Our business model
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
– Our people make the difference in the service
we provide. With the best metallurgists,
engineers and technicians in the industry,
Bodycote is ideally placed to provide solutions
for customers, whatever their market or
wherever in the world they may be.
See managing our people on pages 36-38
Scale and investment
– Bodycote’s scale enables continuous yet
focused investment, both in the latest
processes and in the most efficient and
environmentally friendly equipment.
See Chief Executive’s review on pages 11-13
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 providing protection from
supply disruption, leveraging Bodycote’s
unique facility network.
See business review on pages 22-23
– Unique opportunities for transferring
knowledge, skills and technology across
the network.
See our customer component journeys throughout
the strategic report.
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, as well
as by offering substitute Specialist Technologies’ processes which are
inherently lower emissions processes. Our global network of engineers
and metallurgists collaborate with customers to solve complex challenges,
enhance operational efficiencies, and help improve product performance.
Our services allow our customers' parts to last longer and reduces their
environmental impact, supporting a more sustainable future.
We provide essential
solutions to customers...
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.
– Bodycote’s extensive facilities and expertisemean
that projects can enhance/extend beyond customers’
in-house capabilities, combining identification and
provision of technical solutions to deliver value-adding
material properties with a lower environmental impact
on climate change, and often at lower cost.
Quality
– Bodycote’s quality management systems, validated
by major engineering OEMs, have been developed
to meet the requirements of international and
national accrediting bodies.
– Our facilities hold industry and customer approvals
appropriate to the services they offer and the
markets they serve.
For our customers
– Value-adding services
– Global supplier meeting multiple
processing needs
– Access to entire Bodycote
knowledge-base and expertise
– Cost and carbon-reduction benefits
versus in-house operations
– Reducing the overall carbon
emissions from their value chain
For Bodycote
– Mutually beneficial
customer relationships
– Vast customer-base means
Bodycote is not reliant on
anyone customer
– Ideally positioned to promote
growth in emerging markets
andselected technologies
For our investors
– Financially stable and
sustainable business
– Good growth drivers
– Superior return on investment
– Strong margins and cash flows
– Proactive approach to ESG climate
change and ESG matters
and focusing on
service andquality...
…creating value for customers, Bodycote and our investors.
…utilising
our strategic
competitive
advantages...
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Measuring progress
Our key performance indicators
(%)
‘17 ‘18 ‘19 ‘20 ‘21
17.8
18.9
17.7
9.8
12.0
Return on capital employed
Performance
Return on capital employed increased by 2.2 percentage points during the year, up
from9.8% in 2020 to 12.0% in 2021.
Definition
Headline operating profit
1
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).
(pence)
‘17 ‘18 ‘19 ‘20 ‘21
49.2
55.9
52.1
27.8
35.8
Headline earnings per share
Performance
Headline earnings per share increased by 8.0p (29%) from 27.8p in 2020 to 35.8p in 2021.
Definition
Headline earnings per share is defined in the alternative performance measures section
tothis annual report on page 149.
(%)
‘17 ‘18 ‘19 ‘20 ‘21
18.0
19.3
18.7
12.6
15.4
Headline operating margin
Performance
Headline operating margin increased by 2.8 percentage points during the year, from 12.6% in
2020 to15.4% in 2021. Headline operating profit increased by 26% from £75.3m in 2020 to
£94.8m in 2021, while revenue increased by 3% from £598.0m in 2020 to £615.8m in 2021.
Definition
Headline operating profit as a percentage of revenue.
1 Defined on page 149.
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(£m)
‘17 ‘18 ‘19 ‘20 ‘21
111.7
133.8
123.1
106.1
105.0
Free cash flow
Performance
Free cash flow for the Group was £105.0m (2020: £106.1m). This was 111% of headline
operating profit (2020: 141%).
Definition
Free cash flow is defined in the alternative performance measures section to this annual
report on page 149.
‘17 ‘18 ‘19 ‘20 ‘21
2.8
2.6
2.8
2.3
2.8
Total Reportable Case Rate (TRC)
Performance
Bodycote works tirelessly to improve safety and reduce workplace incidents and is
committed to providing a safe environment for everyone who works at or visits our locations.
The TRC rate increased to 2.8 this year (2020 2.3). Further details are included in the
Sustainability Report section on page 36.
Definition
TRC is defined as the number of lost time incidents, restricted work cases and medical
treatment cases x200,000 hours (approximately 100 man years), divided by the total number
of employee hours worked.
‘17 ‘18 ‘19 ‘20 ‘21
462.8
437.2
430.3
503.7
420.4
Carbon footprint
(tonne CO
2
e/£m sales normalised
1
)
Performance
On a normalised basis, the carbon footprint decreased by 16% from 503.7 tonnes per
£m sales to 420.4 tonnes per £m sales. Further details are included in the Sustainability
Report section.
Definition
Carbon footprint is defined as tonnes of CO
2
equivalent emissions divided by £m revenue.
CO
2
equivalent emissions are calculated by taking electricity and gas usage in kilowatt hours
and multiplying by country-specific conversion factors provided by the International Energy
Agency (IEA). Normalised emissions statistics restate prior year figures using current year
country-specific conversion IEA factors and current year average exchange rates.
1 Normalised statistics restate prior-year figures using current-year IEA carbon conversion factors and current-year average exchange rates.
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Our stakeholders
How and why we engage
– Annual Report and Accounts/Annual
General Meeting
– Corporate website, including investor
relations section
– Results presentation and regular
engagement with top shareholders
– Meetings throughout the year with
existing and prospective shareholders
– Meetings throughout the year with
existing and prospective banking partners
– Press releases (including
LSE announcements)
– Addressing regular analysts’ enquiries
Continued access to capital is important
to the long-term performance of our
business. We work to ensure that
our investors and analysts have a
good understanding of our strategy
and performance.
– Financial performance and economic/
political impact
– Capital allocations and dividends
– Mergers and acquisitions
– Safety, Health and
Environment performance
– Alignment of shareholder and
management interests
– Governance and transparency
– Sustainability of performance
Engagement undertaken Reason for engagement Stakeholders’ key interests
– Annual individual performance reviews
– Works councils and their representatives
– Employee engagement groups
– Internal intranet and communications,
suggestion boxes and grievance
mechanisms
– Annual Report and accounts
– Safety, Health and Environment briefings
and Toolbox Talks
– Twitter and LinkedIn communications
Employee engagement is vital for our
success. We work to create a diverse
and inclusive workplace where every
employee can reach their full potential.
We engage with our people to ensure
we are delivering to their expectations
and making the right business decisions.
This ensures we can retain and develop
the best talent.
– Reputation
– Wages, benefits and social packages
– Employee development/engagement
– Talent retention/career opportunities
– Safety, Health and
Environment performance
– Diversity and inclusion
– Management of ongoing
customer relationships
– Participation in industry forums/events
– Full customer marketing communication
programme including utilisation of the
corporate website
Engaging with our customers helps us
to understand their needs and identify
opportunities and challenges.
We collaborate with our customers
to improve our customers’ product
characteristics and to develop a
project pipeline.
– Customer satisfaction
– Service performance, efficiency
and quality
– Sustainable performance
– Supply chain transparency
Customers
Employees
– Individual employee volunteering
– Corporate website
– Local site community activities
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.
– Local employment
– Future talent pipeline
– Local operational impact
– Environmental impact
– Safety, health and
environmental performance
Society/Communities
Investors
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The Bodycote ‘B’ next to a component journey stage shows whereBodycote’s vital services have been applied.
Rough machining is
carried out, usually
to within 1/16th inch
of the final part size.
The component
begins life as a
steel bar from
which a forging
is made.
Aerospace engine shaft.
The main drive shaft in a civil aircraft engine is a safety critical component. In service, part
failure could mean disaster. Thermal processing is essential to ensure this part has the
necessary material properties to operate effectively, keeping the aircraft in the air.
A component journey
Safety critical service
End application:
aircraft, or land-based
gas turbine, engine.
The part
undergoes
final machining
and grinding.
Post-nitriding, the
plating and the white
layer (nitrogen-rich
layer which does
not diffuse on to the
surface) are removed.
The shaft is stabilised
at approximately
50°C below the
final tempering
temperature
to remove any
machining stresses.
The forged shaft is hardened
and tempered to give the
correct tensile strength.
Areas that do not require surface
hardening are masked using
bronze, tin or copper plating, and
the shaft is then gas nitrided at
a temperature not exceeding
the stabilising temperature.
This diffuses nitrogen on to the
surface to provide high hardness
and excellent wear resistance.
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Strategy Performance People Governance
At every Board meeting the
Directors review, with the
management team, the progress
against strategic priorities and the
changing shape of the business
portfolio. This collaborative
approach by the Board, together
with the Board’s approval of the
company strategy, helps it to
promote the long-term success
of the Group. Ultimately Board
decisions are taken against the
backdrop of what it considers
to be in the best interest of the
long-term financial success of
the Company and the Group’s
stakeholders, including investors,
employees, customers and
society. Following on from
our successful restructuring
programme, we are in a good
position to benefit from the
continued recovery of our
end-markets. The Company’s
strong underlying financial
position enables us to pursue
new opportunities for the
Group within our disciplined
financial framework.
The Board regularly reviews and
monitors the Group’s safety,
reliability and environmental
performance, with the aim of
continually making Bodycote
safer for our entire workforce
and minimising our impact on
climate change.
In 2021 a recordable injury
frequency rate of 2.8 was
achieved. The number of
recordable injuries fell 12% versus
2017. The safety, health and
well-being 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 also focuses on
maintaining financial discipline and
delivering strong earnings, cash
flow, and returns to shareholders.
A core pillar of the Group’s
strategy is growth via selected
acquisitions. In 2021, Bodycote
acquired a new HIP facility in
Western Europe, thereby further
strengthening our Specialist
Technologies business.
Bodycote’s workforce is key to
its 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.
Bodycote operates Employee
Engagement Groups on a bi-
annual basis which are chaired
by a Non-Executive Director.
The feedback from these forums
is reported to the Board and the
Executive Directors charged with
addressing any particular items
that arise. In 2021 these forums
were held virtually. Feedback was
generally very positive and no
material concerns were expressed
by employees during the year.
The Board believes that strong
governance is essential to
the success of the company.
The Board regularly commissions
the external evaluation of its
performance, which most recently
took place in 2021. The Board
discussed the findings of this
review and recommendations,
such as reviewing the strategy in
depth including climate change,
ESG and focusing on people
and succession have been
implemented. The governance
framework continues to drive
the highest levels of business
standards and best practices,
aligning these with Bodycote’s
business purpose, values,
strategy, and culture. The Board
will continue to assess and
monitor culture and will look to
obtain useful insight through
effective dialogue with our key
stakeholders, taking feedback into
account in the Board’s decision-
making process.
Decision-making Decision-making
Relevant section 172 factors
Engagement
The Board
(including delegation of authority)
Investors Employees Customers Society/Communities
Capital is rewarded through
dividends and share price
increases. Our investment
proposition builds upon our
strengths to create value for
shareholders. We communicate
progress on our financial and non-
financial plans in order to cultivate
the support of our investors,
analysts, banks and proxy
voting agencies.
The knowledge, expertise, and
skill 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 services are provided to the
aerospace, defence, energy,
automotive and general industrial
markets. We work closely with
our customers to understand
their evolving needs so we can
continually improve and adapt to
meet them.
We are committed to building
positive relationships with the
communities where we operate.
We consult through our plant
network to gain valuable
perspectives on the ways in which
our activities could impact the
local community or environment.
£38m
in dividends
£253m
in staff remuneration
>40,000
customers worldwide
>165 facilities
in 22 countries
Compliance with Directors’ duties
Section 172 statement
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Section 172 cross reference
The Board, in line with their duties under section 172 of the Companies Act 2006, must act in the way they consider, in good faith, would
most likely promote the success of the Company for the benefit of the 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. Further information about
how these duties have been applied can be found throughout the Annual Report.
Section 172 duties Key examples Page
Consequences of decisions
in the long-term
Strategic progress 13, 16-17
Board activities in the year 20,47
Restructuring 12
Financial report 25-27
Going Concern and Viability statements 27, 34
Principal Risks 29-33
Interests of employees Chair and Chief Executive statements 10-13
Our stakeholders 18
Sustainability report 36-42
Board activities in the year 18, 20-21
Fostering business relationships with suppliers,
customers and others
Our stakeholders 10-13, 18
Sustainability report 36-42
Board activities in the year 50-53
Impact of operations on the community
and the environment
Sustainability report 36-42
Maintaining high standards of business conduct Sustainability report 36-42
Corporate governance statement 46
Acting fairly between members Shareholder engagement 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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Bodycote services all of the major
manufacturers in the aerospace
industry as well as a large portion
of their supply chains.
Within ADE, we have more than 55 facilities around the world,
including Hot Isostatic Pressing (HIP) and Surface Technology
facilities, alongside our Classical Heat Treatment plants.
The following review reflects constant currency growth rates
unless stated otherwise.
Revenue in 2021 was £245.6m, an increase of 2% (2% decline at
actual rates), including the benefit of the contribution to revenues
from the Ellison acquisition. On an organic basis, revenues declined
3% (down 7% at actual rates). Organic aerospace, defence and
energy revenues declined 9%, while general industrial revenues
increased 14%.
Despite the decline in revenues, headline operating profit increased
to £44.2m (2020: £36.8m), and headline operating margin increased
to 18.0% (2020: 14.8%), reflecting tight cost control and the benefit
of cost savings from the restructuring programme. Statutory operating
profit increased to £32.8m (2020: £12.1m, after a £16.9m restructuring
charge taken in the year).
Expansionary capital expenditure was £3.7m, with investment
predominantly in capacity growth for the HIP business. The Group also
invested £8.2m for the acquisition of a business in Western Europe to
strengthen its Specialist Technologies network.
Return on capital employed increased to 10.8% (2020: 10.3%)
as a result of the improved profitability.
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 tend to think and operate globally. Our AGI
business focuses on automotive and general industrial customers.
These include many multinational companies that tend to 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.
ADE revenue by market
sector and geography
£m
Aerospace and Defence 136.0
Energy 39.3
Automotive 12.3
General Industrial
58.0
Total
245.6
Market sector
Western Europe
136.0
North America
105.3
Emerging Markets 4.3
Total
245.6
Geography
The ADE Business
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Our extensive network of more than
100 AGI facilities enables the business
to offer customers the broadest range
of capability and security of supply.
Bodycote has a long and successful
history of servicing its wide-ranging
customer base.
Each of our AGI facilities works with their customers to respond with
the expertise and appropriate service level required, no matter the
size of the customer’s demand.
The following review reflects constant currency growth rates
unless stated otherwise.
Revenue was £370.2m, an increase of 10% on the prior year
(6% at actual rates).
Headline operating profit was £69.5m (2020: £41.0m), and headline
operating margin correspondingly increased to 18.8% (2020: 11.8%),
as the business benefited from the recovery in revenues, as well as
cost savings from the restructuring programme. Statutory operating
profit increased to £65.3m (2020: £1.6m, after a £35.3m
restructuring charge taken in the year).
We spent £11.4m on expansionary capital expenditure, with ongoing
expansion in emerging markets and expenditure on two new plants
in North America, which, in part, have facilitated the restructuring
programme. Return on capital employed increased to 15.9%
(2020: 8.8%), mainly reflecting the increased profitability.
The AGI Business
AGI revenue by market
sector and geography
£m
Aerospace and Defence 11.5
Energy 7.9
Automotive 155.2
General Industrial
195.6
Total
370.2
Market sector
85.3
217.0
Emerging Markets 67.9
Total
370.2
Geography
Western Europe
North America
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Cobalt chromium
alloy billets are
investment-cast to
form implant shape.
The Bodycote ‘B’ next to a component journey stage shows
where Bodycote’s vital services have been applied.
Medical implants.
The stress on a hip or knee joint when a person jumps off a chair is equal to around 100tonnes
per square inch. Our bones, effectively composites, absorb such stresses regularly and
effectively for much of our lifetime.
When joints fail, they are often replaced with metal alloy implants. These implants must
beincredibly strong, biocompatible, and able to last the lifetime of the patient. Acombination
ofheat treatment, hot isostatic pressing and coating makes this possible.
A component journey
Inner strength
The castings are thermally
sprayed with a biomedical
coating to allow a bond
to form between the
implant and body tissue,
promoting bone growth.
The implants are then
HIPed to eliminate porosity,
improve fatigue life, and
enhance the bonding of the
biocompatible coating.
Solution and
ageing heat
treatment is used
to strengthen
the implant.
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End application:
joint replacement
Financial overview
2021
£m
2020
£m
Revenue 615.8 598.0
Headline operating profit 94.8 75.3
Amortisation of acquired intangible assets (10.3) (9.8)
Acquisition costs (0.7) (2.1)
Exceptional items – (58.4)
Operating profit 83.8 5.0
Net finance charge (6.3) (6.5)
Profit/(loss) before taxation 77.5 (1.5)
Taxation (credit)/charge (17.5) 2.3
Profit for the year 60.0 0.8
Group revenue was £615.8m, representing an increase of 3.0% at actual exchange rates, and 7.1% at constant currency.
Headline operating profit for the year increased by 25.9% to £94.8m (2020: £75.3m), with a good improvement in the headline operating
margin to 15.4% (2020: 12.6%), reflecting the positive operational gearing from increased revenues, positive business mix and cost savings
from the 2020 restructuring programme. Statutory operating profit increased significantly to £83.8m (2020: £5.0m), as a result of the
increased headline operating profit, and the £58.4m exceptional charge taken in 2020.
Chief Financial Officer’s report
Free cash flow was £105m –
the Group continues its great
track record of converting
profits to cash.
D. Yates
Chief Financial Officer
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Finance charge
The net finance charge was £6.3m (2020: £6.5m) analysed in the
table below.
2021
£m
2020
£m
Interest on loans and bank overdrafts (1.3) (0.7)
Interest charges (2.0) (3.0)
Financing and bank charges (3.3) (3.0)
Total finance charge (6.6) (6.7)
Interest received 0.3 0.2
Net finance charge (6.3) (6.5)
As at 31 December 2021, headroom on the Group’s £250.9m
Revolving Credit Facility was £160.6m (2020: £199.2m). The Facility
has a remaining life of 4.4 years.
Profit before taxation
2021
£m
2020
£m
Headline profit before taxation 88.5 68.8
Amortisation of acquired intangibles (10.3) (9.8)
Acquisition costs (0.7) (2.1)
Exceptional items – (58.4)
Profit/(loss) before taxation 77.5 (1.5)
The statutory profit before taxation in the year increased to £77.5m
(2020: loss of £1.5m) while headline profit before tax increased to
£88.5m (2020: £68.8m).
Taxation
The tax charge for the year was £17.5m (2020: credit of £2.3m).
The headline tax rate for the Group was 22.3% (2020: 22.5%), being
stated before accounting for amortisation of acquired intangibles,
acquisition costs and exceptional items. This is in line with guidance
given to the market during the year. The Group's overall tax rate
reflects the blended average of the tax rates in 24 jurisdictions
around the world in which the Group trades and generates profit.
The effective statutory tax rate was 22.6%. Provisions of £24.0m
(2020: £22.1m) are carried in respect of potential future additional tax
assessments related to ‘open’ historical tax years. Reference is made
to note 6 to the financial statements for more information.
Bodycote has been advised by the UK tax authorities that the enquiry
into the possibility of State Aid in respect of the UK Group Financing
Exemption has been closed and, consequently, the Group believes
that there is no longer a contingent liability in respect of this issue.
Earnings per share
Basic headline earnings per share rose 29% to 35.8p (2020: 27.8p)
as a result of the higher headline operating profit. Basic earnings per
share for the year increased to 31.2p (2020: 0.2p).
2021
£m
2020
£m
Profit/(loss) before taxation 77.5 (1.5)
Taxation (charge)/credit (17.5) 2.3
Profit for the year 60.0 0.8
Basic headline EPS 35.8p 27. 8 p
Basic EPS 31.2p 0.2p
Return on capital employed
Return on capital employed (including right-of-use assets) rose in
the year to 12.0% from 9.8% in 2020. The increase mainly reflects
the improvement in the Group’s headline operating profit. The Group
continues to exert strong financial discipline over capital expenditure
projects in order to target strong returns.
Cash Flow
2021
£m
2020
£m
Headline operating profit 94.8 75.3
Depreciation and amortisation 73.4 82.0
Impairment of PPE – 0.4
Income from associates prior to disposal (0.1) (0.2)
Loss of disposal of associate 0.4 –
Loss on disposal of PPE – 0.6
Headline EBITDA
1
168.5 158 .1
Net maintenance capital expenditure (43.1) (4 5.1)
Net working capital movement (3.4) 17. 2
Headline operating cash flow 122.0 130.2
Restructuring (2.3) (11.6)
Financing costs (5.2) (4.7)
Tax (9.5) (7.8)
Free cash flow 105.0 10 6.1
Expansionary capital expenditure (15.6) (20.0)
Ordinary dividend (49.0) (25.1)
Acquisition spend (65.4) (99.3)
Own shares purchased less
SBP and others 4.7 (0.1)
Increase in net debt (20.3) (38.4)
Opening net (debt)/cash (98.1) (58.5)
Foreign exchange movements 2.0 (1.2)
Closing net debt (116.4) (9 8.1)
IFRS 16 lease liabilities 64.5 75.6
Net debt excluding lease liabilities (51.9) (22.5)
1 Refer to page 149 of the annual report for a reconciliation of Operating Profit to
Headline EBITDA.
Net debt (excluding lease liabilities) increased by £29.4m to £51.9m
after the payment of the remaining deferred consideration of £57.8m
for the acquisition of Ellison Technologies, and ordinary dividends of
£49.0m during the year. The Group’s headline operating cash flow
fell to £122.0m (2020: £130.2m), but still represents very healthy
headline operating cash flow conversion of 129% (2020: £173%).
The statutory measure, net cash from operating activities, increased
to £144.3m (2020: £139.1m). Free cash flow also remained strong at
£105.0m (2020: £106.1m), with free cash flow conversion of 111%
(2020: 141%). Net debt (including lease liabilities) was £116.4m at
31 December 2021, with well over 80% of the Group’s outstanding
lease liabilities relating to operational property leases.
Expansionary capital expenditure and acquisitions
The Group invested £15.6m (2020: £20.0m) in expansionary projects,
mainly related to investment in two new AGI plants in North America
and expansion activities in our North American HIP business.
The two new North American facilities facilitated some of the
restructuring activities undertaken during the year which, in turn, has
improved the overall quality of our operations.
The Group remains committed to invest in maintaining its assets to
the highest standards of quality and safety.
In December, the Group acquired a HIP business in Western Europe
for consideration of £8.2m, strengthening further the strategically
important Specialist Technologies’ businesses.
Chief Financial Officer’s report continued
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Dividend and Dividend Policy
The Group aims to pay ordinary dividends so that dividend cover
will be at or above 2.0 times earnings on a ‘normalised’ multi-year
basis. The Board may also recommend payment of a supplemental
distribution to shareholders. The amount of any supplemental
distribution will be assessed in light of the cash position of the
Group, along with funding requirements for both organic growth
and acquisitions.
In line with this policy, the Board has recommended a final
ordinary dividend of 13.8p (2020: 13.4p), bringing the total ordinary
dividend to 20.0p (2020: 19.4p). The interim dividend of 6.2p,
approved by the Board on 27 July 2021, was paid on 5 November
2021 to shareholders on the register at the close of business on
8 October 2021. The final ordinary dividend will be paid on 3 June
2022 to shareholders on the register at the close of business on
22 April 2022.
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
therefore currently deems this to be the most effective means of
long-term funding.
During the year, the Group extended its £250.9m Revolving Credit
Facility by one year and this will now expire in May 2026. As at
31 December 2021, £90.3m (2020: £51.7m) was drawn on this
facility, leaving headroom of £160.6m (2020: £199.2m) at year end.
Facility
Expiry
date
Facility
£m
Facility
utilisation
£m
Facility
headroom
£m
£250.9m Revolving
Credit
27 May
2026 250.9 90.3 160.6
Alternative performance measures
Bodycote uses alternative performance measures such as headline
operating profit, headline earnings per share, organic sales, headline
profit before taxation, headline operating cash flow, organic sales,
headline operating cash conversion, free cash flow 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 149.
Going concern
As described on pages 98 to 99 of the 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 current and 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.
D. Yates
Chief Financial Officer
14 March 2022
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The Bodycote ‘B’ next to a component journey stage shows where Bodycote’s vital services have been applied.
End application:
plasticextrusion
equipment
An empty cylindrical
steel capsule is
manufactured. The steel
bar is placed into the
centre and the free
volume is filled with
metal powder.
The extruder screw
begins life as a
forged steel bar.
The bar requires
cladding to add a
layer of wear-resistant
material. This material
will be produced
from high quality
steel powder.
The finished
screw is hardened
and tempered
using a thermal
cycle engineered
to allow the
material to retain
toughness whilst
allowing optimum
hardness
characteristics in
the (clad) surface.
K-Tech coating
applied for increased
wear resistance,
corrosion protection,
andanti-galling.
The capsule is
HIPed to fully
densify the powder
metal and bond the
steel bar creating
a coating.
Plastic extrusion technology is used to create a huge number of everyday
items for industries such as plastics, pharmaceuticals and food.
The equipment used to compound the polymer feedstock, such as extrusion screws and
barrels, must be highly resistant to brittleness, wear and abrasion.
Parts produced from monolithic materials cannot be optimised to produce the desired
specification, so the use of bi-metallic parts produced by hot isostatic pressing (HIP) and
powder metallurgy overcomes this limitation by bonding a high wear and abrasion resistant
powder alloy onto a tough substrate.
A component journey
A twist to resist – Bi-metallic extrusion screw
The outer profile is
machined to the final
shape and dimensional
tolerances.
28
Bodycote plc annual report 2021
Additional informationFinancial statementsGovernanceStrategic reportStrategic report
The Board is responsible for the Group’s risk management and
determining the Group’s risk appetite. The review of financial risk has
been delegated to the Audit Committee. Senior Management has
taken ownership of specific business risks. Each risk is evaluated
based on its likelihood of occurrence and severity of impact on our
strategy. Then, risks are 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 risks, as well as
consideration of the effect of current lines of defence in mitigation.
In addition, the Risk and Sustainability Committee, which met twice
during 2021, assists in the identification of critical risks. The meetings
are attended by a Vice President from each of the operating
divisions, the Group Head of Safety, Health and Environment and the
General Counsel.
The Group’s risk framework continues to operate as normal
despite the COVID-19 pandemic. These activities help embed risk
management and facilitate the identification and implementation
of risk management measures throughout the Group. In addition,
internal audit provides independent assurance that the Group’s
risk management, governance and internal control processes are
operating effectively.
An update is provided to the Executive and Audit Committees on the
Group’s risk activities at every meeting and a comprehensive review
of the Group’s business-critical and emerging risks are presented to
the Board in June and in December. The Board concluded that an
ongoing process of identifying, evaluating and managing the Group’s
significant risks has been in place throughout 2021 and a robust
assessment of the principal and emerging risks had been undertaken.
The tables on the following pages highlight the major risks that may
affect Bodycote’s ability to deliver the strategy, see page 14.
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 financial statements. The mitigating
activities described below 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.
Cross-border trading between the UK and the EU member states as
a result of the UK’s departure from the EU at the end of the Brexit
transition period on 31 December 2020 continues to be a very small
part of the Group’s business with the majority of the businesses
served through locally situated plants. Consequently, there is no
change to the view that Brexit does not present a material risk to
the Group.
We are mindful of developments in Ukraine in recent weeks.
We have no direct exposure to Russia, Belarus, or Ukraine.
Bodycote has no facilities, customers, or any suppliers in any of
these territories. Neither do we have any raw materials or energy
supply contracts from these territories. At this stage, it is too early
to predict the broader potential knock-on impacts on our customers,
end market developments and energy input costs, but we continue to
monitor the situation and will take any necessary actions warranted
by unfolding events.
Emerging risk
Bodycote’s emerging risk identification process is based on horizon
scanning. Each emerging risk is assessed 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,
including those conducted with the Executive Committee.
As in previous years, in 2021 each division was requested to identify
emerging risks for consideration. No additional emerging risks were
identified through this process. However, given the effects of climate
change on the Group’s emerging risk profile and the wider impacts
of both physical and transitional risk, the Group has refocused its
previous Environmental, Social and Governance risk to Climate
Change risk.
Our emerging risk process has identified a number of potential risks
including those arising from the effects of climate change risk on
the Group’s operations which have also been reflected in the 2021
risk review.
These emerging risks are:
– The acceleration in the transition to electric vehicles (EV); EVs tend
to have fewer components that require heat treatment and this
could reduce the number of components Bodycote has to process.
However, to capture more of this growing market, Bodycote has
already started to position itself as the supplier of choice to EV
manufacturers and OEMs. It is also the case that Bodycote has a
very strong market position in the technologies that are likely to be
more favoured in the production of electric vehicles.
– Continued environmental activism, as well as increased focus from
both regulators and the investment community around climate
change, has started to influence customers to reduce their carbon
footprints. There is the potential that this could start to impact some
of the sectors Bodycote operates in, such as civil aerospace. It also
presents opportunities for the Group as Bodycote tends to have
higher furnace fill rates than other heat treaters, and the consequent
energy consumption and emissions per component treated is lower.
Customers may, therefore, have a greater incentive to outsource
their heat treatment activities to Bodycote.
– Greater geopolitical risk, with increased international tensions,
tariffs and other barriers to international trade. If countries pursue
aggressive trade barriers that reduce the movement of goods this
could result in companies having to move their production locations.
As Bodycote sites tend to be located in close proximity to our
customers this could result in Bodycote having to relocate facilities
over time.
– The COVID-19 pandemic, as well as the potential for more
pandemics in the future, including the long-term effects for
which the full impacts are still not known. The pervasive impact
of COVID-19 on the Group has been reflected throughout the
identified risks.
Principal risks and uncertainties
29
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Risk description Risk rating Mitigation and control
Relevance
tostrategy
Market and customer risks
Markets Stable
Bodycote operates in 22 countries.
Changes in 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.
Cost inflation, if not passed on to
customers, also presents a risk to the
Group’s profitability.
COVID-19 had a material impact
on the markets in which Bodycote
operates. While considerable
uncertainty with new variants
remains, and end markets
(particularly automotive) have been
impacted by wider issues in global
supply chains, these markets have
begun to recover in 2021. 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. The emergence of
higher levels of cost inflation in
2021, most notably the significant
increase in energy prices, will
reduce the Group’s profitability if it
cannot be successfully passed on.
– 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 costs in response to revenue
shocks, protecting profitability and returns.
– The 2020 restructuring activity was aimed
at adapting the Group’s facilities’ footprint to
respond to trends in end markets.
– Bodycote has a long track record of passing
on cost inflation to its customers via price
increases and surcharges and has acted
quickly in the second half of 2021 to ensure
that the surge in cost inflation is offset by
price increases to our customers.
1 2
4 5
3
Competitor action Stable
The threat of new and existing
competitors into one or more of the
Group’s Specialist Technologies.
A number of small and mid-sized
HIP furnaces have been installed
by competitors, but investment
in large HIP furnaces, where
Bodycote has a very strong market
position, 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.
– 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.
5
Corporate and community risks
Safety and health Stable
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.
As well as the obvious increase in
risk to the health of our employees,
the COVID-19 pandemic has resulted
in a greater risk of potential working
time loss as a result of an increase
in sick days or prevention measures
employees may have to undergo.
Bodycote is committed to
providing a safe work environment
for its employees.
– Group-wide health and safety policies
developed by the Group Head of SHE, ratified
by the Risk and Sustainability Committee and
approved by the Chief Executive.
– OHSAS 18001 and ISO 14001 compliant SHE
management systems being used by the
Group Head of Safety, Health and Environment
with support of divisional safety, health and
environmental teams.
– Programme in place to focus on reduction of
incidents which could have a high impact.
– Safety compliance audits at all plants at least
every two years.
– Oversight of safety and health framework
provided by the Risk and Sustainability
Committee. In response to COVID-19,
where deemed required, facilities and offices
closed ahead of any local requirements to
allow remote working for office-based staff.
Additional precautions have also been adopted
in all plants with new SHE guidance including
temperature checks, additional checks, masks,
gloves, social distancing measures, and staff
communication and discussion sessions.
1
Principal risks and uncertainties continued
30
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Risk description Risk rating Mitigation and control
Relevance
tostrategy
Environment
Climate Change Increasing
Thermal processing by its very nature
consumes a significant amount
of energy. There is a risk that we
do not adapt competitively to the
requirement for lower emissions and
that we do not anticipate the impact
of climate change to ensure that the
Group’s operations are sustainable.
In addition, actual or potential
environmental contamination in any of
our facilities could lead to health risks,
disruption of business, financial costs
and loss of reputation.
Climate change risk is increasing
and has become a focus of interest
to the investment community and
Bodycote stakeholders specifically,
seeking to understand how we
manage environmental impact,
including carbon management.
Extreme weather events are
unlikely to materially impact
our operations.
– We manage, measure and report our impacts,
risks and opportunities due to climate change
through the TCFD model as described on
page 41.
– The Risk and Sustainability Committee
oversees the strategy and action plans to
reduce our carbon footprint.
– Environmental procedures and measures in
place conforming to ISO 14001.
– Remediation of contaminated sites or
additional emissions abatements.
1
Operational risks
Service quality Stable
The Bodycote brand is reliant on the
repeatable delivery of parts to agreed
specification to an agreed time.
There is a risk that Bodycote fails to
meet the needs of customers in terms
of quality, delivery, innovation and
problem solving.
The risk of poor quality or service
levels can cause serious long-term
damage to Bodycote’s reputation
with financial consequences such
as the loss of a customer and the
cost of damages or litigation.
– Bodycote has stringent quality systems in
place managed by qualified staff.
– Quality systems and processes operated
at plant level with oversight by divisional
quality teams.
– Where necessary, plants maintain industry
relevant accreditations, such as ISO 9001,
Nadcap and IATF 16949.
– Each facility has regular audits by quality staff,
accreditation bodies and customers.
2
Contract review Stable
There is risk that parts are not
treated according to contractually
agreed specification or additional
customers amendments.
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.
– Each facility has a robust quality management
system with regular audits by quality staff,
accreditation bodies and customers.
– 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.
2
Driving operational
improvement
2
Capitalising on, and investing
in,our Specialist Technologies
5
Investing in
Emerging Markets
4
Investing in structural
growth opportunities
3
Acquisitions
6
Safety and
Climate Change
1
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Risk description Risk rating Mitigation and control
Relevance
tostrategy
Operational risks continued
Loss of key accreditations Stable
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.
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.
– Each facility has a robust quality management
system with regular audits by quality staff,
accreditation bodies and customers.
– 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 and this enables work to be
transferred to another accredited facility.
2
Major disruption at a facility Stable
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.
Any significant incident at a site
could result in the service to
Bodycote’s customers from the
affected site being disrupted.
– Bodycote has a global network of more
than 165 facilities. These facilities create a
framework to provide backup capability.
– Business continuity plans are in place for
all plants.
– Independent insurer physical inspections
to 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.
2
3
Machine downtime
Stable
Bodycote relies upon its operational
equipment, across the network
of plants, being available to meet
the requirements of its customers.
Therefore unexpected equipment
breakdowns would potentially affect
Bodycote’s ability to service its
customers. Moreover, without an
effective preventative maintenance
programme there is a risk that
equipment redundancy would need to
be built in to facilities in order to cope
with equipment breakdowns.
Significant periods of equipment
downtime would impact customer
service and revenue.
– A project is underway to further study
and mitigate the risk, for example, by
using historical maintenance data to
develop a comprehensive preventative
maintenance programme.
– Bodycote has a global network of facilities
with robust business continuity plans to
minimise the impact of equipment downtime,
and work can be transferred to another facility
in the network.
2
3
Principal risks and uncertainties continued
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Risk description Risk rating Mitigation and control
Relevance
tostrategy
Operational risks continued
Information technology
and cybersecurity
Increasing
The Group relies upon its IT systems,
including a range of ERP solutions,
to manage its operations. Therefore,
IT systems interruptions could lead
to business process disruption and
interruption to key business services.
A cyber attack breach could result in
the theft, manipulation or destruction
of confidential and sensitive
information and severely disrupt
business operations.
There is an increase in the risk
of sophisticated cyber attacks,
including ransomware and
phishing, and the impacts of these
attacks has also been increasing.
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.
– 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.
– Bodycote maintains a focus on improving
information security and has well-protected
data centres supported by effective
business recovery planning and data
backup procedures.
During the year, we deployed multifactor
authentications for a number of our key
applications and we also increased phishing
awareness via a targeted training exercise.
2
Regulatory risks
Regulatory and legislative
compliance
Stable
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.
Failure to comply with legislation
could lead to substantial financial
penalties, disruption to business,
diversion of management time,
personal and corporate liability and
loss of reputation.
– Business 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.
2
Driving operational
improvement
2
Capitalising on, and investing
in,our Specialist Technologies
5
Investing in
Emerging Markets
4
Investing in structural
growth opportunities
3
Acquisitions
6
Safety and
Climate Change
1
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In preparing this statement of viability, the Directors have considered the prospects of the Group over the three-year period immediately
following the 2021 financial year. This longer-term assessment process supports the Board’s statements on both viability, as set out below,
and going concern (on page 98). The Directors have determined that a three-year period is an appropriate period over which the business
could be restructured in the event that any material changes to demand for the Group’s services transpired. This period is also consistent with
that used for the Group’s planning process. As a result, the Board determined that a period of three years would be used for the purpose of
concluding on longer term viability.
The base case forecasts which underpin this assessment are based on the Board approved 2022 budget and the approved three-year strategic
plan. These projections reflect an ongoing recovery of 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 98, and the Group’s liquidity.
In conducting the review of the Group’s prospects, the Directors assessed the three-year plan alongside the Group’s current position, the
Group’s strategy and the principal risks facing the Group (all of which are detailed in the Strategic Report on pages 1 to 43). 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 no order backlog. The Directors’ viability assessment included a review of the
sensitivity analysis performed on the three-year financial forecasts. The assessment included two scenarios designed to stress-test the
Group’s base case forecasts, and were as follows:
– Plausible downside scenario which reflected the impact of another significant, global pandemic or other economic shock. This assumed a
25% reduction in revenues from the base case, followed by a recovery profile that was more conservative than what the Group experienced
following the initial impact of the COVID-19 pandemic. This scenario was designed to be severe, but plausible, as they incorporate potential
financial impacts identified in our principal risks and uncertainties, specifically market and operational risks.
– An even more severe downside scenario. This scenario assumed a 36% reduction in revenue compared to the base case, with a very slow
recovery in revenues, which is significantly more severe than has been experienced with the COVID-19 pandemic. Whilst this scenario is not
considered plausible, it was designed to stress-test the financial resilience of the Group.
In both scenarios, capital expenditure was reduced, reflecting the reduced maintenance capital expenditure required in a scenario with
lower furnace utilisation, and the lower levels of growth capital expenditure that would be invested in the economic climate modelled in
these scenarios.
In all scenarios there were no breaches of 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 2021, with available liquidity of £202.8m and a history of strong and resilient cash flow generation. Uncommitted facilities were
not taken into account in performing the assessment, and there is no requirement for refinancing in the viability period given the Group’s RCF
extends to May 2026.
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 2024.
Viability statement
34
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Additional informationFinancial statementsGovernanceStrategic reportStrategic report
The Bodycote ‘B’ next to a component journey stage shows
whereBodycote’s vital services have been applied.
The ball studs are
cold-forged from
heat-treatable steel.
The part surface
is machined and
roller burnished.
Ball studs.
Used in virtually every automobile made, ball studs are located within the ball joints in a vehicle’s
steering system, between the wheels and suspension, allowing rotating movement – similar to
the way a human hip joint works. Because of their function and position within the vehicle, they
must be extremely strong, corrosion resistant and able to cope with weight and stress. Their
effective operation is critical to the safety of the vehicle and, therefore, the driver. Bodycote’s
proprietary Corr-I-Dur
®
process ensures the parts achieve the necessary material properties.
A component journey
Stress ball
The parts are inspected
and tested for roughness,
surface and core hardness,
and corrosion resistance.
The parts are
polished to achieve
specified roughness
values – essential
for the function of
the joint and the
steering behaviour
of the vehicle.
The parts are quenched
and tempered to obtain
the necessary core
material strength.
The ball studs receive
Bodycote’s proprietary
Corr-I-Dur
®
process to
improve their corrosion
resistance and hardness.
35
Bodycote plc annual report 2021
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End application:
vehicle
Sustainability report
Our approach to sustainability
Bodycote’s approach to sustainability begins
with ensuring we operate our business
responsibly and prioritise the safety of
ourpeople, customers, and communities.
We recognise that the long-term success of our business depends
on our ability to create lasting value for our stakeholders and
local communities. Our Core Values provide a framework for our
sustainable progress. Sustainability has long been part of our DNA
through the contribution that our solutions have in reducing the
impact on the environment. Pushing forward with our sustainability
approach, in 2021, Bodycote committed to the Science Based
Targets initiative (SBTi), thus reinforcing our steadfast commitment to
reducing our carbon footprint and minimising our impact on climate
change while improving the business.
Through our Sustainability strategy, we aim to reinforce our services
that make the world more resilient and sustainable, thus helping to
maintain our competitiveness today, and in the future. Bodycote is
dedicated to improving the management of sustainability issues and
has policies and initiatives to achieve this goal. We are committed to
being accountable for all reporting requirements.
Our people
The Group’s strength comes from our diverse and talented network
of people who are experts in their fields and share common Core
Values. Throughout 2021, as the world continued to navigate
the pandemic, Bodycote came together to manage challenging
circumstances for a second consecutive year. Our people enable
the Group to be well-positioned for today and the future. The Group
kept the health and well-being of our employees at the forefront of
all decisions.
Our sustainability approach focuses on the broader impact
we have on the environment, the communities where we
operate, our employees, shareholders, and society as a whole.
Bodycote’s stakeholder model (see page 18) shows how its
interactions on various levels contribute towards socio economic
growth and development. Our people are at the heart of our
sustainability activities.
The Group is committed to providing the appropriate skills and
training to allow its employees to operate effectively and safely
in their roles and deliver results. Bodycote invests in the training
and development of its people both at local and Group levels.
Regular internal satisfaction surveys are undertaken that provide
feedback on the level of satisfaction of centrally provided services.
Overall satisfaction ratings reach appropriate levels.
We use performance management tools globally to track our
progress and growth as individuals and as an organisation to track
skills, competency progression, and annual achievements throughout
our management population. By communicating clear objectives,
coupled with skills development, the organisation aims to raise its
management capability in driving performance.
Culture and Core Values
It is not just important what we do but how we do it, and how
we behave in our Company. How we operate as a Group and the
behaviours that we expect from all our employees are expressed
in our Core Values. Our values represent Bodycote and its
people and our commitment to the Company and the business.
Our Core Values are straightforward and are as follows:
Honesty and Transparency
We are honest and act with integrity. Trust stems from
honesty and trust is at the heart of everything we engage in:
our customers trust us to deliver what we say we will, our
colleagues trust us to act in their best interests and our suppliers
trust us to conduct business according to agreed terms. This is
not something we take for granted. Bodycote lives by a culture
of honest and transparent behaviour, which is at the core of all
our relationships.
Respect and Responsibility
We manage our business with respect, applying an ethical
approach to our dealings with those we interact with.
We respect our colleagues, who are all of the employees
of Bodycote. Part of our respect for our colleagues is our
commitment to safe and responsible behaviour and our
fundamental belief that no one should come to any harm at
work. We show respect for our customers, our suppliers and our
competitors. We respect the communities around us and behave
as responsible corporate citizens by being compliant with the
laws and regulations of the countries in which we do business
and by ensuring that our effect on the environment is minimal.
We believe in taking ownership for, and being mindful of, the
impact of our actions.
Creating Value
Creating value is the very essence of our business and is the
focus of our endeavours. We create value for our customers, our
employees and our shareholders. The realities are harsh. If we
do not create value for our customers then we have no reason
for existence. If we do not create value for our employees there
will be no one to create value for our customers.
Our shareholders rightfully require that we ultimately create
value for them as they are the owners of the business.
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Equality, diversity 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 that will provide sustainability
into the future. As such, we regularly review our recruitment and
working practices to identify how we can continue to attract and
retain a diverse workforce. We recognise that diversity and an
inclusive workplace enriches our solutions and adds value for
our stakeholders. Our Equality, Diversity and Inclusion Policy and
Recruitment Policy dictates that we maintain equal opportunities
and give full and fair 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.
Bodycote supports employees with a set of policies that fortify
our culture and Core Values. The policies help the organisation
‘do the right thing’ every time. Our employment policies are
non-discriminatory and 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. Due to the nature of our business, we operate with a
multi-cultural team and encourage inclusivity throughout the Group.
Harassment of any kind is not tolerated.
Female representation on our Board during 2021 was 38%
(2020: 38%) and at Senior Manager level, it is 28% (2020: 30%).
Females represent 19% (2020: 18%) of our total workforce.
Male Female Total Male Female Total
Directors 5 3 8 62% 38% 100%
Senior managers 36 12 48 72% 28% 100%
Other staff 3794 907 4701 81% 19% 100%
3835 922 4757 81% 19% 100%
The overall U.K. gender pay gap figures are published on our website
www.bodycote.com. The U.K. mean gender pay gap is 5% in favour
of women.
Health and well-being
Bodycote has a long history of supporting the health and well-being
of our employees. Throughout 2021, as the variants of the COVID-19
virus spread, protecting the well-being of our employees took on a
new meaning. Adapting workspaces, schedules, locations, and plans
became second nature as we took care of employees first.
We recognise that individuals work best, and can achieve sustainable
high-performance over time, when they are healthy and feeling
valued. Bodycote promotes an environment that encourages line
management to support the health and well-being of all employees.
Bodycote sponsors Group-wide fitness initiatives that encourage
employees to be more active and regularly supports local fitness
activities. The Group promotes total well-being through regular
communications on managing stress and supporting mental well-
being through the pandemic.
Safety, Health and Environment
Bodycote is committed to continuous improvement in our safety,
health, and environmental performance (SHE). We are committed to
complying with all local legislative requirements as a minimum and
establishing consistent and robust best practices at all of our sites,
enabling the delivery of consistently high performance across all
aspects of Safety, Health and Environment management.
A key element in our approach to Safety, Health, and Environment
is the development of a vigorous safety and health culture that
values the identification and reporting of near misses, unsafe acts or
conditions, and suggestions for improvement. Bodycote manages
hazards and minimise risks to employees through the deployment of
robust safety management systems and procedures. Bodycote uses
a global incident reporting and Safety, Health and Environment
management tool at every site. This enables consistent and thorough
reporting of workplace injuries, near misses, and unsafe conditions.
During the year, we upgraded our global SHE reporting system to
improve the overall quality of reporting and track SHE incidents.
By installing this new, more robust safety management system,
we are more able to identify improvement areas to support the
organisation’s occupational health and safety goals.
In Bodycote the most frequent cause of reportable cases remains
related to manual handling of parts and lifting operations and has a
number of underlying causes. In 2021, there was continued Group
Safety, Health and Environment investment in manual and material
handling improvement. Reportable cases and lost time injuries are
reviewed during Executive Committee meetings and by the Board.
The Executive Committee not only reviews incidents that result in
injury but also incidents that are considered to have had the potential
to cause a high impact.
The rapid increase in the amount of activity in 2021 post the lull
caused by the pandemic in 2020 led to the 2021 Total Reportable
Case (TRC) rate to increase to 2.8 (2020: 2.3), and the Lost Time
Injury (LTI) rate to increase to 1.7 (2020: 1.3).
Total Reportable Case rate (TRC)
Total Reportable Cases (TRC) include:
– Any lost time incident (>1 day or shift, not including the day of
the accident)
– Any restricted work case (where the injured person cannot do their
usual work)
– Any medical treatment case (specialist medical treatment, not
first aid)
‘17 ‘18 ‘19 ‘20 ‘21
2.8
2.6
2.8
2.3
2.8
Total Reportable Case Rate (TRC)
The increase in TRC rate for 2021 is visible in the chart above.
1 Total reportable case rate is the number of lost time injuries, medical treatment cases and restricted work cases X 200,000 hours, divided by the total number of employee hours worked.
37
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Human rights
As an international business, Bodycote’s Human Rights policy is
aligned with the Universal Declaration of Human Rights and the U.N.
Global Compact’s ten principles. The Group’s Human Rights Policy
applies to all our worldwide businesses.
We prohibit forced, compulsory, and underage labour and any form of
discrimination based on age, race, gender, ethnic origin, nationality,
religion, health, disability, marital status, sexual 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.
By publicly posting our Human Rights Policy and Equality, Diversity
and Inclusion Policy on www.bodycote.com, stakeholders worldwide
can alert us to potential breaches of the policy. Our internal systems
also support compliance with our policy, and we have a robust Open
Door Line, which is our third-party confidential whistleblower’s
programme, for employees to report alleged violations of law and/or
our policies on a confidential basis and in their own language. In the
jurisdictions in which we employ a majority of our employees, there
are laws applicable to many of the areas dealt with in our Human
Rights Policy and our Equality, Diversity and Inclusion Policy.
We have a Code of Conduct that sets out our policy on compliance
with legislation, child labour, anti-slavery and human trafficking, and
conditions of employment, health, safety and the environment.
The Modern Slavery Act
Bodycote plc has conducted a risk assessment on our supply
chain using the U.K. Government’s published guidance entitled
’Transparency in Supply Chains’. Suppliers in those countries
identified in Walk Free Foundation’s 2016 Global Slavery Index as
being the most vulnerable to human rights issues in the supply
chain have been identified for further review and audit. All relevant
employees undergo Anti-Slavery training.
The Anti-Slavery and Human Trafficking Statement is published on
our website and reviewed by the Board of Directors annually.
Suppliers
Bodycote’s operations are such that the Group does not have
significant suppliers who are wholly dependent upon the Group’s
business and has no significant suppliers on which the Group is
dependent upon for a substantial part of its business. We manage
our suppliers with respect, honesty, and integrity, no matter the size
of the transaction. Suppliers are paid in line with contractual and legal
obligations. We expect suppliers to adhere to our Supplier’s Code of
Conduct for all relevant items.
Customers
Service is at the core of our business; Bodycote works with
customers to fulfill their demands in the most productive manner
possible. We modify our methodologies to become a better thermal
processing solutions provider by surveying customer satisfaction
levels. We endeavour to respond quickly to changing customer
demands, identify emerging needs and improve service availability
and quality. We stay close to our current and potential customers by
building long-term relationships.
Community
Bodycote seeks to play a positive role in the local communities
in which it operates by providing employment opportunities and
building goodwill and a reputation as a good neighbour and employer.
Our operations are international but our strength lies in the local
nature of our facilities that are close to our customers. Our facilities
are relatively small plants that typically employ approximately 30
people. We encourage community involvement activities championed
by our plants and their employees locally.
Responsible business ethics
The Group has a robust governance structure to support business
ethics and a series of policies that detail its commitments and
standards in this area. We recognise that rules alone are not
sufficient to ensure wrongdoing is avoided – a combination of rules
and values is needed to help embed a healthy business culture.
The Group’s approach is to set the tone of an ethical business culture
from the top, demonstrating a commitment to the right values and
behaviours to all employees.
All Bodycote personnel are expected to apply a high ethical standard
in keeping with being an international UK-listed company. This is
outlined to every employee in our Core Values and business policies.
Directors and employees are expected to ensure that their personal
interests do not at any time conflict with those of Bodycote.
Shareholder employees are advised of, and comply with, the share
dealing code.
Bodycote has systems in place that are designed to ensure
compliance with all applicable laws and regulations and conformity
with all relevant codes of business practice. Furthermore, Bodycote
does not make political donations.
With regard to competition, Bodycote aims to win business in a high-
value manner. The Group does not employ unfair trading methods
and it competes vigorously, but fairly, within the requirements of
applicable laws. Employees are prohibited from either giving or
receiving any incentives.
Supporting employees who speak up
Our Open Door Policy is communicated in all languages used
throughout the Group. The policy allows employees to report their
concerns confidentially, verbally or in writing, to an independent
third-party provider, ensuring anonymity. Our whistleblower policy
provides employees with an avenue to address any number of
concerns in a confidential manner.
When incidents are reported, whether through internal or external
mechanisms, they are passed to the Head of Internal Audit for
investigation and determination of the appropriate steps to be taken
for the matter to be addressed.
When our employees do the right thing by speaking up against
instances of wrongdoing, we believe it is crucial that the Company
also does the right thing and ensures that there are no repercussions
for their actions.
Online training courses regarding Anti-Bribery, Information and Data
Protection, Tax Evasion, the Authority matrix, and Competition Law
have been designed and translated into the major languages used
throughout the Group. All relevant employees have completed the
interactive courses.
Sustainability report continued
38
Bodycote plc annual report 2021
Additional informationFinancial statementsGovernanceStrategic reportStrategic report
Environment
As the world’s leading provider of thermal processing services,
Bodycote plays an essential role in minimising climate change.
The services Bodycote supplies to its customers improve the lifespan
of products and enable a reduction in the environmental footprint of
their components. In addition by efficiently aggregating our many
thousands of customers’ thermal processing requirements, Bodycote
significantly reduces the overall required energy consumed compared
with the energy that would be consumed if each customer treated
their own products. In this regard, Bodycote can be considered to be
an enabler of the reduction in global industrial carbon emissions.
More information on Bodycote’s Task Force on Climate-related
Financial Disclosures (TCFD) can be found on page 41 of the
Annual Report.
Bodycote has committed to building near-term carbon reduction
targets in line with the Science Based Target initiative (SBTi).
Bodycote’s targets will be published later in the year. The SBTi is
a collaboration between CDP, the United Nations Global Compact,
World Resources Institute (WRI) and the Worldwide Fund for Nature
(WWF). The SBTi defines and promotes best practices in science-
based target setting and independently assesses companies’ targets.
Carbon footprint
Bodycote offers some of the most energy-efficient processes
available on the market, optimising the process to ensure full capacity
utilisation, thereby providing maximum benefit to our customers, the
Company and the environment. Since 2018, Bodycote has reduced
our CO
2
e emissions by 23%.
The total global energy consumption reduced by 9.3% in 2021
compared with the previous year.
Total Global Energy Consumption
Global energy consumption kWh
2021 2020
Scope 1 642,690,742 762,220,152
Scope 2 497,183,367 494,124,666
Total Energy Consumption kWh 1,139,874,109 1,256,344,818
One of our core competencies within Bodycote is to manage energy
efficiently, reducing our carbon footprint and creating value for
our shareholders.
We actively minimise energy use in many ways, optimising
production capacity and providing energy-efficient processes. It is
essential that we monitor energy usage to identify opportunities for
improvement so that we can react quickly to address any deficiency
in our energy use. To facilitate this, we align ourselves in many
countries to ISO 50001 (Energy Management Systems Standard),
allowing a consistent energy measurement approach and meeting
the Energy Efficiency Directive 2012/27/E.U. requirements. The U.K.
remains compliant with the directive through the Energy Savings
Opportunity Scheme (ESOS).
Bodycote’s total CO
2
e emission data is based on Scope 1 and Scope
2, and data relating to this has been calculated to include country-
specific electricity conversion factors from the International Energy
Agency (IEA). Scope 1 emissions are direct emissions resulting from
fuel usage and the operation of facilities. Scope 2 emissions are
indirect energy emissions resulting from purchased electricity, heat,
steam, or cooling for own use.
The Group collects electricity, natural gas, and LPG consumption
information from each facility every month. The Group then applies
the DEFRA and International Energy Agency (IEA) published national
carbon conversion factors to calculate the total tonnage of CO
2
e
produced, which along with the geographical sales for the year
provides the normalised tCO
2
e per £m of sales.
In 2021, Bodycote’s total carbon emissions (ktCO
2
e) reduced by 11%
compared with the previous year. The total CO
2
e emissions per £m
sales in 2021 were 420.5 Te (2020: normalised
1
486.0 Te).
All entities and facilities are included within the disclosure.
Emissions less than 2% of the Group’s total CO
2
e relating to fugitive
emissions and owned vehicles are not significant and are excluded.
There are no significant omissions from this disclosure.
Total Global CO
2
Emissions
CO
2
e emissions (ktCO
2
e)
2021 2020
2020
(normalised
1
)
Scope 1 118.0 140.4 140.0
Scope 2 140.9 150.3 150.1
Statutory total
2
258.9 290.7 290.1
CO
2
Emissions Intensity Ratios
Intensity ratio CO
2
e emissions (tCO
2
e/£m)
3
2021 2020
2020
(normalised
1
)
Scope 1 191.7 234.7 242.9
Scope 2 228.8 251.3 260.6
Statutory total
2
420.5 486.0 503.5
‘17 ‘18 ‘19 ‘20 ‘21
462.9
437.3
430.3
503.5
420.5
Carbon footprint
(tonne CO
2
e/£m sales
normalised)
‘17 ‘18 ‘19 ‘20 ‘21
340.1
336.9
317.0
290.7
258.9
Total global CO
2
emissions
(ktCO
2
e)
1 Normalised statistics restate prior-year figures using current year IEA carbon conversion factors and current year average exchange rates.
2 Statutory carbon reporting disclosures required by Companies Act 2006.
3 tCO
2
e/£m as a consumption intensity ratio to sales is defined as tonnes of CO
2
equivalent per million GBP of sales and is denoted as tCO
2
e/£m.
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Water
Bodycote’s processes by design are not intensive in water
consumption. However, minimal water is used for either cooling
operational equipment or washing customer parts during some
services and is typically recycled. Any water discharge resulting from
these operations is controlled using measures such as interception
tanks to capture water discharged. This allows the water to be
checked for any contaminant levels and ensures it is acceptable
prior to final discharge. Internal and external auditing verifies that
all such control measures are in line with ISO 14001:2015 to ensure
compliance with legal obligations.
The total water consumption, as a ratio of thousand m
3
per £ million
sales (103m
3
/£m), decreased by 4% in 2021.
‘17 ‘18 ‘19 ‘20 ‘21
9.2
9.6
9.3
8.8
9.0
Water
(10
3
m
3
)
‘17 ‘18 ‘19 ‘20 ‘21
1.38
1.45
1.35
1.52
1.46
Water consumption
(thousand m
3
/£m
sales normalised
)
1 Normalised water consumption is a thousand m
3
per £ million sales at a constant currency.
Waste
Bodycote provides services to our customers, and as such, most
of the customers’ parts that arrive in packaging or containers are
returned to the customers in the same packaging or containers.
Not only does this practice reduce environmental impact and
the waste produced, but it provides efficiency to our customers.
Bodycote has no significant waste streams. All waste is segregated
into waste streams and disposed of in accordance with local
legislation. Waste transfer arrangements are validated via internal
andexternal audit mechanisms.
ISO 14001 accredited facilities
Reducing the environmental impact of Bodycote’s activities is
taken very seriously. The actions we undertake to reduce our
environmental impact will align all our facilities to the compliance
requirements of ISO 14001. At the end of 2021, 97% (152 of our
operating facilities) had achieved or maintained ISO 14001: 2015
accreditation (2020: 92%).
Streamlined Energy and Carbon Reporting (SECR)
forUKlistedcompanies and their UK subsidiaries
Electricity, natural gas, LPG and transportation 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 CO
2
e produced.
Bodycote PLC and UK subsidiaries’ total CO
2
e emissions (ktCO
2
e)
for 2021 were 11.2. 100% of Bodycote PLC and its UK subsidiaries’
energy consumption was consumed in the U.K.
PLC and UK Subsidiaries 2021
CO
2
e
emissions
(ktCO
2
e)
Energy
Consumption
kWh
Scope 1 3.7 19,605,548
Scope 2 7.6 35,635,924
Scope 3 0.003 12,045
Total 11.2 55,253,516
Sustainability report continued
Supporting a more sustainable future…
Enabling component optimisation for
renewable energy.
Durability and robustness are of paramount importance in the
wave energy sector, and effective protection of devices in
the hostile ocean environment has always presented a major
challenge to the industry.
Bodycote expertise in the renewables market and global
approvals mean we are the trusted partner for component
manufacturers in the renewable energy market. Bodycote has
partnered with customer CorPower, to support the production
oftheir Wave Energy Converters (WECs).
Inspired by the pumping principles of the human heart,
Corpower WECs offer five times more energy per tonne
of device compared to previously known technologies.
Incorporating a series of unique features to boost storm
survivability and power capture, the WECs also benefit from
thermochemical treatment to protect against the harshest
marine conditions.
Bodycote Corr-I-Dur thermochemical solution was used to
simultaneously improve corrosion resistance and wear properties
of CorPower’s next-generation C4 WECs. Corr-I-Dur is favoured
for components that are subjected to a corrosive environment in
combination with wear.
40
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Task Force on Climate-related Financial Disclosures
We manage and measure our impacts, risks and opportunities in
regard to environmental and social impacts through the Task Force
onClimate-related Financial Disclosures (TCFD) model.
Governance
Strategy
Risk
Management
Metrics
and Targets
Governance
Accountability for managing climate-related risks and opportunities
is led by our Chief Executive with the support of both the Executive
Committee and the Risk and Sustainability Committee. The Executive
Committee led focus sessions on combatting climate change during
our annual strategic reviews.
The Board agenda included both climate change risk reviews and
deep dives into environmental strategies throughout the year where
they were advised of our plans over climate change and in defining
directional focus for the Group’s strategy to not only reduce carbon
emissions but also to work with our customers to develop strategies,
formulate additional initiatives andcollectively reduce our carbon
emissions together.
Strategy
Bodycote takes a highly proactive approach to improve sustainability
and energy efficiency. At every stage where Bodycote is involved in
the manufacturing cycle, our operational aim is to reduce the overall
impact on the environment, not just in our operations but also in
those of our customers. We have integrated the identification and
management of climate-related risks into our existing approach to risk
management. Within the TCFD framework, our risk and opportunity
assessment consider both the financial and strategic inputs that flow
into our annual budget process, strategic planning process and capital
expenditure reviews.
Without Bodycote, many companies would be using older in-house
technology and running their equipment at reduced capacity, draining
energy resources. Working with Bodycote enables our customers to
commit more easily to carbon reduction initiatives.
Our proactive carbon reduction initiatives are throughout operations
and extend to our service offering by encouraging customers to switch
to more efficient processes such as Gas Nitriding or our Specialist
Technologies which have an inherently low carbon footprint.
The Group is proud to have committed to setting near-term Group-
wide emission reductions in line with climate science with the
Science Based Targets Initiative (SBTi).
Climate-scenario analysis workshops were conducted whereby
the Group performed scenario analysis of the impact of potential
acute climate changes such as forest fires, extreme heat and
flooding on the Group’s operations. Workshops were held with each
of our operating divisions which helped to support and broaden
the knowledge and understanding of climate-related risks and
opportunities identified within the Group.
Risk and opportunity assessment
We recognise and report the impact of both transitional and physical
risks of climate change on our business over the short-to-medium
and long-term. Within the assessment process, the risks and
opportunities are identified and considered when building annual
budgets and our longer-term strategic planning review. The plans
include addressing the identified risks by developing mitigation
activities as well as the related financial impacts in both the future
capital expenditure and operating cash flow to address the risks and
opportunities described below.
Transition risks and opportunities: Short to medium term (1 to
10 years)
Transition risks and opportunities are examined based on policy,
technology, market and reputation to the Group. The identified risks
are assessed at different levels of the business for both financial and
strategic impacts. Mitigation factors for each risk are identified and
applied to our global risk management programme. Amongst the risks
identified are the impact of regulations to reduce carbon emissions
which might include the introduction of carbon surcharges, the impact
of future capital investment for the deployment of lower emissions
technologies and potential requirements to secure cleaner energy
sources. Bodycote is typically able to provide thermal processing
services to manufacturers with less of a carbon footprint than they
would be able to do in-house. As a result a major opportunity for
Bodycote is working with manufacturing companies in tackling
climate related risks by them outsourcing activities to us.
Physical risks and opportunities: Long-term (10 to 30 years)
Acute physical events are already happening in the short-term and
will likely continue to occur and become more widespread. Over the
long-term, these could impact the geographic areas where the
Group operates. Changes in weather precipitation patterns and
extreme weather conditions such as floods, droughts, and fires
may lead to events such as acute shortages of water, energy supply
issues or significant swings in commodity prices, which may impact
our operations.
Metrics and targets
We measure the material impacts and outputs from our business
based on standards and regulations relevant to our operations.
These emissions-related metrics are reported throughout the
Sustainability section of the report. The Group is currently developing
Scope 3 disclosures and plans to complete these in 2022.
41
Bodycote plc annual report 2021
Additional informationFinancial statementsGovernanceStrategic report
Sustainability 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 in our 2021 Annual Report.
Governance
– Describe the Board’s oversight of climate-related risks and opportunities.
TCFD
– Describe the management’s role in assessing and managing climate-related risks.
TCFD
Strategy
– Describe the climate-related risks and opportunities the organisation has identified over the short- ,
medium- and long-term.
TCFD
– Describe the impact of climate-related risks on the organisation businesses, strategy and
financial planning.
TCFD/Financial
statement
notes: pages
98, 99, 117
– Describe the potential impact of different scenarios, including a 2-degree scenario on the organisation
businesses, strategy and financial planning.
In process
Risks and Opportunities
– Describe the organisation’s processes for identifying and assessing climate-based risks
and opportunities.
Principal Risks
& Unc e r ta int ie s
report
– Describe the organisation’s processes for managing climate-based risks and opportunities.
TCFD/Principal
Risks &
Uncertainties
report
– Describe how processes for identifying, assessing and managing climate-based risks are integrated
into the organisation’s overall risk management.
Principal Risks
& Unc e r ta int ie s
report
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.
Sustainability
report
– Disclose Scope 1, Scope 2 and, if appropriate Scope 3 greenhouse gas emissions and the related risks. In process
– Describe the targets used by the organisation to manage climate-related risks and opportunities and
performance against targets.
In process
42
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The table below sets out where information relevant to the Non-Financial Reporting Directive can be found in our 2021 Annual Report and
on our website.
Our Core Values, Code of Conduct, and Group policies underpin everything we do at Bodycote. Our Values and Code of Conduct ensures
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.
Relevant to
UNSustainable
Development
Goals
Standards, policies
and actions which
govern our approach
Where to
find further
information
Key
metrics
Internal processes
to monitor
performance
Environmental
– Occupational Health &
Safety Policy
– Environmental Policy
– Carbon Footprintand
Water consumption
statements
– Reduction of greenhouse
gas emissions
For further information
pages: 39-40
Visit bodycote.com
– Progress on reductions
in carbon footprint and
water consumption
Energy and Greenhouse
gas management is
tracked per facility
monthly.
Social
– Graduate and
Apprenticeship
Programme
– Performance Goal
Management System
– Occupational Health &
Safety Policy
– Succession Planning
Process
– Equality, Diversity and
Inclusion Policy
– Equal Opportunities
Policy
– Data Protection Policy
– Open Door Policy
For further information
pages: 36-38
Visit bodycote.com
% of female representation
in total workforce and on
Executive Committee and
Board of Directors
Lost work case
incident rate
Recordable incident rate
U.K. Gender Pay Gap
Report
The ExecutiveCommittee
monitors SHE
performance on
a monthly basis.
Executive Committee
monitors employee
turnover rate performance
on a monthly basis.
Employee Engagement
Groups
Regular Open Door
incident update to the
Board and Executive
Committee.
Business Governance
– Core Values
– Code of Conduct
– Ethics Policy
– 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
For further information
pages: 36 to 37, 41
Visit bodycote.com
% of relevant employees
trained on our policies
# of breaches
The implementation
and effectiveness of
the training is overseen
by the Group General
Counsel and Group
Company Secretary.
Non-financial reporting statement
43
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Board of Directors
1
Stephen Harris
GROUP CHIEF EXECUTIVE
APPOINTED: November 2008
and Chief Executivefrom January 2009
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
plc 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.
2
Dominique Yates
CHIEF FINANCIAL OFFICER
APPOINTED: November 2016
External roles
None.
Past roles
Held various senior positions in Imperial
Tobacco Group plc followed by Chief
Financial Officer positions at Symrise AG,
LM Windpower and Regus plc.
Qualifications
Chartered Accountant, graduated
from BristolUniversity in Economics
and Accounting.
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).
Past roles
Started his early career at Novar plc until
2005 and prior to that worked at ICI and
management consultant, Arthur D. Litte.
He was CEO of Fiberweb plc from 2006
to 2013 and CEO of Linpac Group and
Klöckner Pentaplast Group from 2015 to
2019. From 2014 to 2015 he was Chair of the
Nonwovens Innovation & Research Institute,
Non-Executive Director and Chair of the
Remuneration Committee of Chemring
Group plc from 2016 to 2018, Chair of Low
& Bonar plc from 2018 to 2020 and Chair of
Portals International from 2020 to 2022.
Qualifications
Bachelor’s Degree in Engineering from the
University of Cambridge.
4
Ian Duncan
SENIOR INDEPENDENT DIRECTOR
APPOINTED: November 2014
External roles
None.
Past roles
Worked on a variety of audits with Deloitte
& Touche, followed by four years with
Dresdner Kleinwort Wasserstein. From 1990
to 1992 he worked for Lloyds Bank plc and
then switched to British Nuclear Fuels plc
from 1993 to 2006. In 2006 he took on the
role of Group Finance Director with Royal
Mail Holdings plc leaving in 2010. He was
Non-Executive Director of Fiberweb plc
during 2013, Mouchel Group from 2013 to
2015, WANdisco plc from 2012 to 2016,
Babcock International Group from 2010 to
2020 and SIG plc from 2017 to January 2021.
Qualifications
Chartered Accountant, qualified with
Deloitte& Touche after graduating from
Oxford University.
5
Eva Lindqvist
NON-EXECUTIVE DIRECTOR
APPOINTED: June 2012
External roles
Non-Executive Director of Tele 2 AB from
2014, Keller Group plc since 2017 as well as
Excillum AB (not listed) and Nominet US Inc
(not listed) since 2021.
Past roles
Began her career in various positions with
Ericsson working in Continental Europe,
North America and Asia from 1981 to 1990
followed by director roles with Ericsson
from 1993 to 1999. Joined Teliasonera in
2000 as Senior Vice President moving to
Xelerated initially as Chairperson and later as
Chief Executive from 2007 to 2011. Non-
Executive Director of Transmode Holdings
AB from 2007 to 2013, Blekinge Institute
of Technology from 2010 to 2013, Tieto
Corporation from 2010 to 2016, Assa Abloy
from 2008 to 2018, Caverion Oy from 2013
to 2018, Alimak Holding from 2015 to 2018,
Micronic Mydata AB from 2013 to 2016, Mr
Green & Co AB from 2016 to February 2019
and Sweco AB from 2013 to 2020.
Qualifications
Engineer, graduated with a Master’s degree
from Linköping Institute of Technology,
Diploma in Marketing from IHM Business
School and MBA Financial Analysis from
University of Melbourne.
Executive Directors Non-Executive Directors
1 3 52 4
44
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KEY TO COMMITTEES:
Executive
Nomination
Remuneration
Audit
Committee Chair
6
Patrick Larmon
NON-EXECUTIVE DIRECTOR
APPOINTED: September 2016
External roles
Non-Executive Director of Huttig Building
Products Inc., a NASDAQ listed international
distributor of construction products
since 2015.
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.
Qualifications
Graduated from Illinois Benedictine
University (major Economics & Business
Economics) followed by achieving Certified
Public Accountant, followed by an MBA
from Loyola University of Chicago and
a Master of International Business from
St.Louis University.
7
Lili Chahbazi
NON-EXECUTIVE DIRECTOR
APPOINTED: January 2018
External roles
Strategy consultant and since 2008 a
globalpartner 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.
8
Kevin Boyd
NON-EXECUTIVE DIRECTOR
APPOINTED: September 2020
External roles
Non-Executive Director of EMIS Group plc
since 2014 and Chair of the Audit Committee
since 2019. Non-Executive Director and Chair
of the Audit Committee of Genuit Group plc
since 2020.
Past roles
Held the positions of Chief Financial Officer
at Oxford Instruments plc and Radstone
Technology plc and, most recently, Chief
Financial Officer at Spirax-Sarco Engineering
plc which he stepped down from in
September 2020.
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.
9
Ute Ball
GROUP COMPANY SECRETARY
Registered office
Registered Number 519057
England and Wales.
Tel: +44 1625 505300
Fax: +44 1625 505313
D
Dayan
S
Harris
D
Yates
I
Duncan
E
Lindqvist
P
Larmon
L
Chahbazi
K
Boyd
Strategy
M&A
International
Recent and relevant
financial experience
Corporate finance/treasury
Accounting
Technology
Customer
Sales and marketing
Service industry
Environmental, including
climate change
Governance
Engineering
Leadership
Emerging markets
Manufacturing
Capital-intensive industries
Board skills and experience
876 9
45
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Additional informationFinancial statementsStrategic report Governance
Chair’s message
Dear Shareholders
On behalf of the Board, I am pleased to present Bodycote’s Corporate Governance Statement for 2021.
One of the most significant issues for the Board in 2021 was the continuing COVID-19 pandemic, which was initially declared in March 2020
and continued throughout 2021. It has brought significant human, social, economic as well as business uncertainty, and the Board has taken
steps to understand and mitigate the risks posed by and the impacts arising from the ongoing situation.
Most full meetings of the Board and its Committees have been conducted virtually during 2021 with a physical meeting in October and
a return to virtual meetings in December. The response to the pandemic continued to be the backdrop for the operational, financial and
commercial discussions at Board level.
Shareholder feedback and engagement have continued despite the continued COVID-19 outbreak with shareholder perspectives having been
received and considered.
The date for the 2021 Annual General Meeting in May remained as initially announced, but in view of social distancing and the requirement to
safeguard shareholders’, employees’, and advisers’ safety, the format of the Annual General Meeting was a meeting ‘behind closed doors’.
Regular, open and constructive dialogue with shareholders will continue in line with the Group’s broader commitment to meaningful
engagement with key stakeholder groups. The Group’s key stakeholders and their differing perspectives are identified and taken into account,
not only as part of the Board’s annual strategy and corporate planning discussions, but also in project assessments and general Board
conversations. These discussions and assessments focus not only on delivering value for shareholders, but also address the impacts of our
decisions and strategies on all stakeholders and are a key aspect of our culture.
In line with the Director’s Duties, the Board’s engagement with employees, shareholders, customers, and communities in 2021 is explained
inour stakeholder section on page 18.
The Directors receive regular reports on Safety, Health and Environmental performance to support their oversight and decisions. The Board
conducted a review of the existing sustainability processes and has established an initial ESG policy. The Board agreed to join the Science
Based Target initiative and management is working to establish targets. A further focus is on improving the effectiveness of communicating
current actions and the role of Bodycote as an energy, and therefore carbon optimiser in its customer supply chains. Further information on
Board activities can be found on pages 48 to 53.
Ensuring high standards of business conduct is critical for the success of the Group. Employee Engagement Groups led by the designated
Non-Executive Director, Patrick Larmon, are in place and virtual meetings took place during the year. The feedback from these forums is
reported to the Board and the Executive Directors charged with addressing any particular items that arise. Topics discussed at the Employee
Engagement Groups included COVID-19 and safety, IT improvements, communications and operational matters. Feedback was generally
positive, and no material concerns other than the general concerns over the pandemic were expressed by employees during the year.
Succession planning is a regular topic for discussion, although the outcome of these discussions is only visible from time-to-time when new
appointments are made. For each appointment we are looking to appoint an outstanding candidate, with a diverse range of experience, to
maximise Board effectiveness. When we think about diversity, we recognise that this can take many forms including diversity of gender,
nationality, social, ethnic background, and of cognitive and personal strength. Diversity at Board level and throughout the Group is a
valuable strength.
Daniel Dayan
Chair
Compliance Statement
In respect of the financial year 2021, Bodycote’s obligation under the Disclosure and Transparency Rules is to prepare a corporate governance
statement with reference to the UK Corporate Governance Code issued by the FRC in July 2018 (‘the Code’).
In respect of the year ended 31 December 2021, Bodycote has complied with the provisions of the Code with the exception of Provision 36,
a formal policy for post-employment shareholding requirements, and Provision 23, progress on achieving targets on diversity and inclusion.
Concerning Provision 36, the new Remuneration policy that will be presented for shareholder approval at the May 2022 AGM includes
a post-employment policy. In the meantime, whilst the Board does not currently have a formal policy for post-employment shareholding
requirements, a two-year holding period for share scheme awards as of the date of the approval of the last Remuneration Committee policy
in May 2019, as well as bonus deferral, are in place to provide a partial post-employment holding policy. Concerning Provision 23, the Board
believes it has a strong position on diversity and inclusion with female representation at 38% as at 31 December 2021 (with the retirement
of A Quinn and the appointment of D Dayan as Chair, female representation reduced to 25% on 1 January 2022. The Board is conscious of
this and has appointed Cynthia Gordon as Non-Executive Director effective 1 June 2022, when female representation will increase to 33%,
four different nationalities including a member who meets the ONS classification of mixed/multiple ethnics group. At the Senior Management
level, there is broad international representation and growing female representation. The Board and the management are committed to the
principles and practice of diversity and inclusion.
A further exception is provision 38, the alignment of pension contribution rates for Executive Directors. Whilst we were only partially
compliant during 2021; we have had a plan in place for pension contribution rates for Executive Directors to be aligned by 1 January 2022
and we are now compliant. Salary supplements in lieu of pension contributions have been reduced to 23.5% of base salary with effect from
1 January 2022. The Executive Directors’ pension contributions are now aligned with company pension contributions of the wider workforce
Corporate governance statement
46
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Additional informationFinancial statementsGovernanceStrategic report
Code principles – Board areas of focus
Area of focus
Strategic
priorities
Board leadership and Company purpose Read more on pages 10-13, 25-27
– Regularly discussing strategy at Board meetings during
the year
– Approving capital expenditure in excess of £4m
1 2
4 5
3
6
– Receiving presentations from operational management on
performance against the strategy
– Considering and approving strategic opportunities e.g.
acquisitions
– Considering and approving potential
acquisition opportunities
– Approving the Group’s strategy, budget, tax and dividend
Division of responsibilities Read more on pages 36-43, 46-53
– Review of Group policies – Modern Slavery review
2 1
– Review of schedule of matters reserved for the Board
– Review of corporate governance code and guidelines
– Convening the AGM, approval of shareholder materials
– Review of terms of reference of all committees
– Review of main policies
– Determining/maintaining the Group’s values and ensuring
that these are reflected in business practice
– Review of Safety, Health and Environmental updates at
each meeting
– Overview of stakeholder relationship/
workforce engagement
– Implementation of ESG strategy
Composition, succession and evaluation Read more on pages 56-58
– Considering proposals on succession planning, when
required, for the Board
– Reviewing proposals on senior executive
succession planning
2
– Considering the talent management programme and
the need to develop the managers and executives for
the future
– Reviewing the size, composition and diversity of both
theBoard and its Committees
– Ongoing Board training
– Approving further terms as Non-Executive Directors for
I.B. Duncan, E. Lindqvist and P. Larmon
– Tailored induction, when required
– Reviewing Board and Committee effectiveness
andDirectors’ conflicts
Audit, risk and internal control Read more on pages 29-34, 59-63
– Approval of year-end and interim results
– Recommending the final and interim dividends
– Review future scenarios and other factors in relation
toaudit, risk and internal control
– Review of viability statement
1 2
– Annual review of principal and emerging risks, risk
management and control systems
– Consider whether the Annual Report and Accounts are fair,
balanced and understandable
Remuneration Read more on pages 64-84
– Remuneration policy review and approval
(including Executive Directors’ and Senior
Management remuneration)
– Chair, and independent Non-Executive Directors’
fees review
2 3
5
4
in the countries where the Executive Directors live and work. A review of workforce policies was undertaken during the year and progress on
culture has been made and information provided to the Board.
In line with provision 41, engagement has taken place with the workforce via the Employee Engagement Groups concerning
executive remuneration.
The Board considers that P. Larmon, E. Lindqvist, I.B. Duncan, L. Chahbazi and K. Boyd are all independent for the purposes of the Code.
The Chair was also considered independent upon appointment.
Taken together with the Report of the Audit Committee, the Report of the Nomination Committee and the Board report on remuneration presented
on pages 64 to 84, this statement explains how Bodycote has applied the principles of good corporate governance as set out in the Code.
Core Values
Driving operational
improvement
2
Capitalising on, and investing
in,our Specialist Technologies
5
Investing in
Emerging Markets
4
Investing in structural
growth opportunities
3
Acquisitions
6
1
Safety and
Climate Change
47
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Corporate governance statement continued
Governance framework
The Board’s areas of focus in 2022 are expected to include:
– Increased emphasis on climate change, sustainability and, more broadly, ESG matters
– Group culture
– Board dynamics, diversity and development
– Execution of strategic priorities
– Continued monitoring of financial and operational performance
– Continued strong focus on safety improvements
– Principal and emerging risks review
Overseeing 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 pillars and principles against which the Board monitors how the culture exists and is viewed by employees.
These are:
– Values as explained in the Sustainability section on pages 36 to 43
– Attitudes as summarised in the Group policies
– 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 Committees support this role. The Board recognises that this will continue to be an evolving area.
Key responsibilities
– Oversight of the Group’s strategy
and the long-term success
of the Group’s business
Audit
Committee
Monitors the
integrity and
effectiveness
of the Group’s
financial
reporting and
performance
of audits and
assesses
financial risks
Nomination
Committee
Ensures an
effective Board
that consists
of individuals
with the
right balance
of skills,
knowledge
and experience
Remuneration
Committee
Determines
remuneration
policy
and senior
executives’
remuneration
packages
Finance
Committee
Implementation
of treasury and
tax policies
and, within
limits defined
by the Board,
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
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
Shareholders
Chair
Board
The Board structure
Group CEO
– Responsible for:
Risk & Sustainability Committee
and Executive Committee
Key responsibilities
– Effective running of the Board
– Guidance to Executive Directors
– Monitors progress of strategy and objectives
– Safeguards the interests of shareholders
48
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Finance Committee
In order that necessary actions can be taken promptly, a finance sub-committee, comprising the Chair, the Senior Independent Director, the
Group Chief Executive and the Chief Financial Officer is authorised to make decisions, within limits defined by the Board, in respect of certain
finance, treasury, tax or investment matters.
The Employee Engagement Groups
We have two Groups run in parallel, a European and a North American Engagement Group. Each Group meets either in person or virtually at
least annually. The Groups are led by Patrick Larmon, the designated Non-Executive Board Director. Representatives from across the business
are the members of the Groups. Participation of the Groups is rotated at certain intervals to allow a variety of opinions and voices to be heard.
Main activities of the Employee Engagement Groups
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 activity in the Group. However, individual grievance or employment conditions of individual employees are not
part of the remit of the Employee Engagement Groups.
The minutes of the meetings are part of the next set of Board meeting papers and are presented by the designated Non-Executive Board
Director to the Board. As a result of feedback received from employees, a communication improvement plan is in progress.
In addition, both the Board and the Executive Committee take every opportunity to meet with local employees when visiting different
business locations. During 2021, the Board and the Executive Committee were unable to visit sites due to COVID-19 restrictions but visits will
be resumed as soon as possible.
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 safety, health and environmental and risk management
issues and details of the safety and health performance of the Group, and each division, in terms of severity and frequency rates for accidents
at work. Senior Management from across the Group and advisers attend some of the meetings to provide updates and context. The exposure
to members of Senior Management from across the Group helps enhance the Board’s understanding of the business, the implementation of
strategy and the changing dynamics of the markets in which the Group operates.
Complementing the regular briefings from operational and functional management about Group-specific matters (such as a report at each
Board meeting from the CEO on health and safety), the Board also has a 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.
Matters reserved for the Board
Matters reserved for the Board were reviewed during the year and updated where required. Certain defined powers and issues reserved for
the Board to decide are, inter alia:
– Strategy;
– Approval of financial statements and circulars;
– Capital projects, acquisitions and disposals;
– Annual budgets;
– Directors’ appointments, service agreements, remuneration and succession planning; policies for financial statements, treasury, safety, health
and environment, donations;
– Committees’ terms of reference;
– Board and Committee Chairs and membership;
– Investments;
– Equity and bank financing;
– Internal control and risk management;
– Corporate governance;
– Key external and internal appointments;
– Employee share incentives and pension arrangements; and
– Whistle-blowing.
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Corporate governance statement continued
Leadership and engagement
Role and responsibilities of the Board and its principal committees
The Board is responsible to shareholders for good corporate governance, setting the Group’s strategic objectives, values and standards,
and ensuring the necessary resources are in place to achieve the objectives.
The Board met on seven occasions during 2021, including a specific meeting to review the Group’s long-term and ESG strategy.
The Board of Directors comprises eight members, of whom six are Non-Executive Directors and two are Executive Directors, led by the
Group’s Non-Executive Chair, A.C. Quinn, who also chaired the Nomination Committee (A.C Quinn retired on 31 December 2021 and D.
Dayan was appointed as Chair of the Board and as Chair of the Nomination Committee as of 1 January 2022). The Group Chief Executive
is S.C. Harris, and the Senior Independent Non-Executive Director is I.B. Duncan, who also chairs the Audit Committee. E. Lindqvist is
Chair of the Remuneration Committee and P. Larmon is the Chair of the Employee Engagement Groups. L. Chahbazi and K Boyd are
Non-Executive Directors. Brief biographical details of all Directors are given on pages 44 to 45. During the year the Board intended to visit
a number of overseas facilities, but due to COVID-19, the Board received plant presentations via video conferencing calls. Once physical
plant visits are possible again, such events will involve meeting with local management and the workforce to understand more clearly
technical and operational performance in countries where Bodycote has a significant presence.
Chair Group Chief Executive Chief Financial Officer
– leadership and governance of the Board
and Chairs the Nomination Committee
– Board effectiveness
– 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
– ensures effective communication
with shareholders
– ensures progress on ESG impact
tracking and reporting
– overall responsibility and leadership of
Group performance
– stewardship of Group assets
– plans and executes objectives
and strategies
– maintains a close working
relationship with the Chair, ensuring
effective dialogue with investors
and stakeholders
– ensures leadership and development
frameworks are developed to
generate a positive pipeline for future
opportunities for the Group
– has overall responsibility for the
Group’s sustainability performance, and
communicates the vision and values of
the Group
– manages the Senior Management team
– maintains strong financial management
and implements effective
financial controls
– provides financial and commercial
decision leadership, vision and support
– ensures the appropriateness of risk
management systems
– oversees all aspects of accounting/
finance operations including accounting
policies and integrity of financial data
and external financial reporting
– responsible for corporate finance
functions, financial planning and
budget management
– supports and advises the Senior
Management team
– leads the development of investor
relations strategy and communications
Senior Independent Director Non-Executive Directors Group Company Secretary
– acts as a sounding board for the Chair
– serves as an intermediary for
other directors
– is available to meet shareholders if
they have concerns which they have
not been able to resolve through the
normal channels
– conducts an annual review of the
performance of the Chair and convenes
a meeting of the Non-Executive
Directors to discuss the same
– provide constructive challenge
– help develop strategy
– ensure financial controls and systems
of risk management are robust
and defensible
– determine appropriate levels
of remuneration for the
Executive Directors
– monitor reporting of performance
– scrutinise performance of management
– are available to meet with
major shareholders
– secretary to the Board and
its committees
– ensures efficient information flows
within the Board and its committees
and between senior management and
Non-Executive Directors
– facilitates induction of new Directors
and assists with training and
development needs as required
– regularly updates the Board on
corporate governance matters,
legislative changes and regulatory
regimes affecting the Group
– ensures compliance with
Board procedures
– coordinates external Board evaluation
and conducts internal Board evaluation
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4
6
9
7
Anne Quinn Lili Chahbazi Patrick Larmon Ian Duncan
Eva Lindqvist
NED tenure per year Board diversity
4
2
Kevin Boyd
Male
62%
Female
38%
Board and Board Committees meeting attendance
Attendance of Directors at regular scheduled meetings of the Board and its Committees in 2021 is shown in the table below:
Board
Formal meetings
Audit
Committee
Nomination
Committee
Remuneration
Committee
Meetings held during the year 7
4 7 7
Executive Directors Meetings attended Meetings attended Meetings attended Meetings attended
Stephen Harris
n/a n/a n/a
Dominique Yates
n/a n/a n/a
Non-Executive Directors Meetings attended Meetings attended Meetings attended Meetings attended
Anne C. Quinn
n/a n/a
Eva Lindqvist
Ian Duncan
Patrick Larmon
Lili Chahbazi
Kevin Boyd
All Directors attended the maximum number of formal Board, Audit and Nomination Committee meetings that they were scheduled to
attend. Non-members A.C. Quinn, S.C. Harris and D. Yates attended by invitation some parts of the meetings of the Audit, Nomination and
Remuneration Committees, as relevant. Note that the Employee Engagement Groups are led by P. Larmon and supported by the Company
Secretary. There were four Employee Engagement Group meetings in 2021.
Diversity and length of service
Bodycote is a global business with operations in 22 countries and diversity is an integral part of how we do business and our culture.
The Nomination Committee considers diversity when making appointments to the Board, taking into account relevant skills, experience,
knowledge, personality, ethnicity, and gender. Our prime responsibility, however, is the strength of the Board and our overriding aim in
any new appointment must always be to select the best candidate. The Nominations Committee also considers capability and capacity to
commit the necessary time to the role in its recommendation to the Board. The intention is to appoint the most suitable qualified candidate
to complement and balance the current skills, knowledge and experience of the Board and who will be best able to help lead the Company
in delivering its long-term strategy. The Nomination Committee is advised by international search companies, who have been briefed on our
diversity policy and are required to reflect the policy in the long list submitted to the Committee.
In 2021 female representation on our Board was 38% (2020: 38%). At senior manager level, it is 28% (2020: 30%). Females represent
19% (2020: 18%) of our total workforce. Whilst we were above the 33% by 2020 voluntary target for female representation on Boards
recommended by the Hampton-Alexander review, we continue to believe it is difficult to set targets or timescales for increasing the proportion
of women, or any other minority group, on our Board and do not propose to do so. With the appointment of the new Chair on 1 January 2022,
our female representation has decreased to 25% but will increase to 33% on 1 June 2022 with the appointment of Cynthia Gordon which
was announced on 10 March 2022. We will increase female and/or other minority representation on the Board if appropriate candidates
areavailable when Board vacancies arise.
The Sustainability report contains further details regarding the male and female representation within the Group, including Board
representation. Our Equality, Diversity and Inclusion policy is available on our website.
E. Lindqvist was appointed as a Non-Executive Director on 1 June 2012 and has reached the end of her ninth consecutive year as a
Non-Executive Director and Chair of the Remuneration Committee. After careful consideration, the Board has asked E. Lindqvist to continue
to serve as a Non-Executive Director and Chair of the Remuneration Committee. The Board considers that this is in the best interests of
the Group and shareholders. In particular, it will ensure that there continues to be a smooth transition of Remuneration Committee Chair
responsibilities to E. Lindqvist’s successor. The Board considers that E. Lindqvist remains independent for the purposes of the Code. With the
exception of serving on the Board for more than nine years, none of the circumstances which can impair independence set out in provision 10
of the Code apply to E. Lindqvist.
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Corporate governance statement continued
Effectiveness
Board evaluation
The Board has undertaken its fourth external Board Evaluation during
2021. Following a review of proposals from external providers, the
Board appointed Lintstock to facilitate a review of its effectiveness.
The review was undertaken by P. Mackie and M. Underwood.
Neither of them or Lintstock have any connection with Bodycote.
The main steps of the process were:
– Questionnaires – Board, Chair and Individual performance
review questionnaires
– Interviews – with all Board members
– Report and presentation – the draft report was discussed with the
Chair prior to its finalisation and the findings presented at the June
Board meeting
The review looked at board composition and succession, stakeholder
oversight, management and focus of meetings, board support, board
committees, strategic oversight and risk oversight.
The results of the evaluation were considered by the Board
at its meeting in June 2021. The Directors discussed the
recommendations and considered how they will take them forward.
Some of the topics touched were re-establishing relationships after
COVID-19 through physical meetings, succession planning, reviewing
longer-term strategy and approach to ESG. The Board is considered
to be well balanced and runs smoothly benefitting from a reasonable
range of complementary skills and diversity. The overall conclusion is
that the Board and committees are well chaired and high governance
standards have been adopted. It is apparent that the Executive is
being strongly challenged by the non-executives when appropriate.
As in previous years, the Chair has assessed the performance
through individual performance review questionnaires and we
can confirm that all Directors continue to perform effectively and
demonstrate commitment to their roles.
The Executive Directors Messrs S.C. Harris and D.Yates will be
appraised in March 2022.
Led by the Senior Independent Director, the Directors carried out an
evaluation of the Chair’s performance in May 2021. The Board was
satisfied with the Chair’s commitment and performance.
Proposals for re-election
The Board decided, in line with the Code, that all Directors will
retire annually and, other than in the case of any Director who has
decided to stand down from the Board (Anne Quinn CBE retired on
31 December 2021), will offer themselves for re-election at the AGM.
Accordingly, S.C. Harris, E. Lindqvist, P. Larmon, I.B. Duncan, D.
Yates, L. Chahbazi and K. Boyd will stand for re-election at the AGM
in May2022. D. Dayan will stand for election in May 2022.
The Board recommends to shareholders that they re-elect all the
Directors. The performance of each Director, other than D. Dayan by
reason of his January 2022 appointment, was evaluated and the
Board confirms in respect of each that their performance continues
to be effective and that each continues to demonstrate commitment
to his or her respective role.
Meetings with shareholders
The Group Chief Executive and Chief Financial Officer regularly
talk with and meet institutional investors, both individually
and collectively, and this has enabled institutional investors to
increase their understanding of the Group’s strategy and operating
performance. In addition, internet users are able to view up-to-date
news on the Group and its share price via the Bodycote website at
www.bodycote.com.
Users of the website can access recent announcements and copies
of results presentations and can enrol to hear live presentations.
On a regular basis, Bodycote’s financial advisers, corporate brokers
and financial public relations consultants provide the Directors with
opinion surveys from analysts and investing institutions following
virtual visits and meetings with the Group Chief Executive and Chief
Financial Officer. The Chair and SID are available to discuss any
issues not resolved by the Group Chief Executive and Chief Financial
Officer. On specific issues, such as the review of remuneration
packages or elevated levels of votes against a resolution, the Group
has sought, and will continue to seek, the views of leading investors.
Where required, a Director may seek independent professional
advice, the cost of which is reimbursed by the Group. All Directors
have access to the Group Company Secretary, and they may also
address specific issues with the SID. In accordance with the
Articles of Association, all newly appointed Directors must submit
themselves for election. All Directors stand for yearly re-election.
Non-Executive Directors, including the Chair, are appointed for fixed
terms not exceeding three years from the date of first election by
shareholders (maximum of two three-year terms), after which the
appointment may be extended by mutual agreement on an annual
basis. A statement of the Directors’ responsibilities is set out on page
85. All Non-Executive Directors (excluding the Chair) serve on each
Board Committee.
In line with best practice provisions in the Pre-Emption Group
Statement of Principles, the Board confirms that it does not intend to
issue more than 7.5% of the issued share capital of the Group on a
non-pre-emptive basis in any rolling three-year period.
Training
We provide training 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 site trips, meets local management at operations and Directors
familiarise themselves with the technology used, logistics, health
and safety standards and customers served. Due to COVID-19 Board
site trips were not possible during 2021, but this programme will be
reinstated as soon as possible. As an alternative plant presentations
by video conference call from the London, Ohio USA; St Remy,
France; Camas, Washington USA; Wuxi, China; Izmir, Turkey and
Winchester, Kentucky USA plants have taken place. 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 the Directors regularly refresh and update
their skills and knowledge with both external and internal training
when necessary. Members of the Board individually attend
seminars, conferences and training events to keep up-to-date about
developments in key areas. Board meetings include presentations
from Group experts to ensure the Directors have access to the
wealth and knowledge within the Group as well as presentations
from external providers.
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Directors’ information and training sessions 2021 Board
June Insurances – market overview / SHE update
July IT Security Update
September ESG strategy including climate change
October Economist briefing, STBi explanatory session
December SHE Update and HR Policy Review
Audit Committee
October BDO Internal Audit Perspectives
March, May
and October
PwC updates on regulatory and
accounting changes
Remuneration Committee
July Remuneration review – market update (Deloitte)
Accountability
Internal control and risk management
In accordance with the FRC ‘Guidance on Risk Management,
Internal Control and Related Financial Business Reporting’ the Board
recognises that it is responsible for the Group’s system of internal
control and risk management. The system has been designed to
manage rather than eliminate the risk of failure to achieve business
objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss. This system has
continued to operate throughout the COVID-19 pandemic.
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 or indicate a need for more extensive monitoring.
The Audit Committee assists the Board in discharging these
review responsibilities.
The emerging risk review, based around horizon scanning, has
explored what the future might look like and seeks to identify early
warning signals. These 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. Risks that
have been considered by the Board have included:
– COVID-19 – the long-term effect of this and other
possible pandemics
– Geopolitical risks – increased international tensions and tariffs
– Move to electric vehicles
– Continued environmental activism, as well as increased focus from
both regulators and the investment community on climate change
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
2021 and continues to operate up to the date of the approval of this
report. The key elements of the Group’s system of internal control
that is monitored by the Board includes:
– 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.
A comprehensive financial planning, accounting and
reporting framework.
– Bodycote has engaged BDO to monitor and assist in improving
the Group’s internal control system. Internal audit (IA) reviews are
conducted on the basis of a risk-based plan approved annually by the
Audit Committee. To provide assurance on the continued operation
of controls, financial control self-assessments (CSA) have been
developed and implemented in each division. The results of these
CSA have been verified by IA. The findings and recommendations
from IA are reported on a regular basis to the Executive and
Audit Committees.
– An annual internal control self-assessment, with management
certification, is undertaken by every Bodycote plant. The assessment
covers the effectiveness of key financial, compliance and selected
operational controls. The results are validated by IA through spot
checks and are reported to the Executive and Audit Committees.
A Group-wide risk register and assurance map is maintained
throughout the year to identify the Group’s key strategic and
operational risks. Any changes to these risks during the year are
promptly reported to the Executive Committee and the Board.
During 2021, in compliance with provision 29 of the Code,
management performed an assessment of its risk management
processes for the purpose of this Annual Report. Management’s
assessment, which has been reviewed by the Audit Committee and
the Board, included a review of the Group’s key strategic, operational
and emerging risks. The review was based on work performed by the
Group’s Risk and Sustainability Committee and Risk Management
Team (by means of workshops, interviews, investigations, and by
reviewing divisional risk registers). These risks have been reviewed
throughout the year and no additional emerging risks were identified.
The 2021 emerging risk discussion focused on the wider effects
to the Group posed by climate change on Bodycote’s business.
As a result of the discussion, the ESG risk was refocused from
Environment to Climate Change. Further information regarding the
ways in which the principal business risks and uncertainties affecting
the Group are managed is shown on pages 29 to 33.
By order of the Board:
U.S. Ball
Group Company Secretary
14 March 2021
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire SK10 2XF
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Directors’ report
Directors’ report
The Directors are pleased to submit their report and the audited
financial statements for the year ended 31 December 2021.
The Chair’s statement, the Chief Executive’s review on pages 10
to 13, the Chief Financial Officer’s report and all the information
contained on pages 25-27, together comprise the Directors’ report
for the year ended 31 December 2021. Concerning going concern
please see the CFO statement on page 27 and pages 98-99 of the
financial statements.
Strategic report
The Strategic report is provided on pages 1 to 43 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 2021, key performance indicators and a description of
the principal risks and uncertainties facing the Group.
The Strategic report has been prepared solely to assist the
shareholders in assessing the Group’s strategies and the potential
of those strategies. It should not be relied on by any other party for
any other purpose. Forward-looking statements have been made
by the Directors in good faith using information available up to the
date of this report and such statements should be regarded with
caution because of the inherent uncertainties in economic trends
and business risks. Since the end of the financial year, no important
events affecting the business of the Group have occurred.
Dividends
The Board has recommended a final dividend of 13.8p (2020: 13.4p)
bringing the total ordinary dividend to 20.0p per share (2020: 19.4p).
If approved by shareholders, the final dividend of 13.8p per share
will be paid on 3 June 2022 to all shareholders on the register at the
close of business on 22 April 2022.
Share capital
The Company’s issued ordinary share capital as at 31 December
2021 was £33.1m. No shares were issued during the year. At the
Annual General Meeting on 27 May 2021, the shareholders
authorised the Company to purchase up to 22,046,468 of its own
shares. This authority expires at the conclusion of the forthcoming
Annual General Meeting to be held on 25 May 2022, at which time
afurther authority will be sought from shareholders.
Capital structure
Details of the issued share capital are shown in note 22.
The Company has one class of ordinary shares, which carries no
right to fixed income. Each share carries the right to one vote at
general meetings of the Company. There are no specific restrictions
on the size of a holding nor on the transfer of shares, both of which
are governed by the general provisions of the Articles of Association
and prevailing legislation. The Directors are not aware of any
agreements between holders of the Company’s shares that may
result in restrictions on the transfer of securities or on voting rights.
Details of employee share schemes are set out in note 26 and shares
held by the Bodycote Employee Benefit Trust abstain from voting
and waive dividend rights. No person has any special rights of control
over the Company’s share capital and all issued shares are fully paid.
The appointment and replacement of Directors is governed by the
Company’s Articles of Association, the UK Corporate Governance
Code, the Companies Act and related legislation. The Articles of
Association may be amended by a special resolution of shareholders.
The powers of the Directors are described in the Corporate
governance statement on page 46. Under the Articles of Association,
the Company has authority to issue ordinary shares with a nominal
value of £11,023,234.
There are also a number of other agreements that take effect, alter,
crystallise or terminate upon a change of control of the Company
following a takeover bid such as commercial contracts, bank loan
agreements, property lease agreements, employment contracts
and employee share plans. None of these are considered to be
significant in terms of their likely impact on the business of the Group
as a whole, and the Directors are not aware of any agreements
between the Company and themselves or employees that provide for
compensation for loss of office or employment that occurs because
of a takeover bid except where specifically mentioned in this report.
Directors
The current Directors and their biographies are listed on pages
44 to 45 and all with the exception of Daniel Dayan have served
throughout the year. In line with the UK Corporate Governance
Code, all Directors retired at the Annual General Meeting in
2021and stood for re-election by the shareholders. All Directors
will retire at the next Annual General Meeting and will stand for
re-election by the shareholders, if they wish to continue to serve
as Directors of the Company. Accordingly, those Directors retiring
and offering themselves for re-election at the 2022 Annual General
Meeting are S.C. Harris, D. Yates, I.B. Duncan, E. Lindqvist,
P.Larmon L.Chahbazi and K. Boyd. Daniel Dayan having joined the
Board on 1 January 2022 will stand for election. D. Yates announced
his retirement once a successor has been appointed on 7 February
2022 and therefore, may potentially, not stand for reappointment.
The service agreements for Messrs S.C. Harris and D. Yates are
terminable by 12 months’ notice. The remaining Directors do not
have a service agreement with the Company and their appointments
are terminable by six months’ notice.
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Directors’ interests in contracts and shares
Details of the Executive Directors’ service contracts and details of
the Directors’ interests in the Company’s shares and share incentive
plans are shown in the Board report on remuneration on pages 64
to 84. No Director has had any dealings in any shares or options in
the Company since 31 December 2021. 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 2021 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 fromthese exceptions, none of the Directors had a material
interest in any contract of significance in relation to the Company
andits subsidiaries at any time during the financial year.
Potential conflicts of interest
During 2008, the duties owed by Directors to a company were
codified and extended by the Companies Act 2006 so that Directors
not only had to declare actual conflicts of interest in transactions
as they arose, but also had a duty to avoid such conflicts whether
real or potential. Potential conflicts of interest could arise where a
single Director owes a fiduciary duty to more than one organisation
(a ‘Situational Conflict’) which typically will be the case where a
Director holds directorships in more than one company. In order
to ensure that each Director was complying with the duties, each
Director provided the Company with a formal declaration to disclose
what Situational Conflicts affected him or her. The Board reviewed
the declarations and approved the existence of each declared
Situational Conflict up until September 2022 and permitted each
affected Director to attend and vote at Bodycote Directors’ meetings,
on the basis that each such Director continued to keep Bodycote’s
information confidential, and provided overall that such authorisation
remained appropriate and in the interests of shareholders.
Where such authorisation becomes inappropriate or not in the
interests of Bodycote’s shareholders, the Chair or the Nomination
Committee can revoke an authorisation. No such revocations have
been made.
Employment
The Group recognises the value that can be added to its future
profitability and strength through the efforts of its employees.
The commitment of employees to excel is key to the Group’s
continued success. Through their attendance at or participation
in strategy, production, safety and health meetings at site level,
employees are kept up-to-date with the performance and progress
of the Group, the contribution to the Group made by their site, and
are advised of safety and health issues. Employees are able to voice
any concerns through the Group’s anonymous and confidential
Open Door Line, a phone line accessed in the local language.
Approximately 3,000 Bodycote employees are connected to the
Bodycote intranet, which improves knowledge of Group activities,
and assists greatly with technology exchange and coordination.
It isthe Group’s policy to give full and fair consideration to
applications for employment from disabled persons, having regard to
their particular aptitudes and abilities, and to encourage the training
and career development of all personnel employed by the Group,
including disabled persons. Should an employee become disabled,
the Group, where practicable, will seek to continue the employment
and arrange appropriate training. An equal opportunities policy is in
operation in the Group.
Stakeholder engagement
For details refer to page 18.
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 46 - 53.
Greenhouse gas emissions
Details of greenhouse gas emissions and Streamlined Energy and
Carbon Reporting (SECR) are included within the Environment, Social
and Governance section of this report.
Donations
There were no political contributions in 2020 or 2021.
Shareholders
An analysis of the Company’s shareholders and the shares in issue
at 23 February 2022 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 156.
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:
– so far as each Director is aware, there is no relevant audit information
of which the Company’s auditor is unaware; and
– each Director has taken all the steps that he or she ought to have
taken as a Director to make himself or herself aware of any relevant
audit information and to establish that the Company’s auditor is
aware of that information.
This statement is given and should be interpreted in accordance with
the provisions of section 418 of the Companies Act 2006.
Annual General Meeting
The 2022 Annual General Meeting will be held on 25 May 2022
in accordance with the notice being sent to shareholders under
separate cover.
By order of the Board:
U.S. Ball
Group Company Secretary
14 March 2022
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
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Report of the Nomination Committee
Committee
membership
No. of meetings 2021:
7 Main committee responsibilities
Director Attendance
– Regularly review the structure, size and composition (including the
skills, knowledge, experience, and diversity) of the Board and make
recommendations to the Board with regard to any changes.
– Give full consideration to succession planning for Directors and other senior
executives in the course of its work.
– Be responsible for identifying and nominating for the approval of the Board,
candidates to fill Board vacancies as and when they arise.
A.C. Quinn until 31 December 2021
D. Dayan as of 1 January 2022
I.B. Duncan
E. Lindqvist
P. L a r mon
L. Chahbazi
K. Boyd
Dear Shareholders,
I am pleased to introduce the Nomination Committee report for 2021. Board composition is a key focus for the Nomination Committee,
ensuring that the Board has the right skills and experience to direct the Company in the successful execution of its strategy.
Having been appointed to the Board and Chair of the Nomination Committee on 1 January 2022, the Committee will continue to focus on
ensuring that the present and future composition of the Board is appropriate for the delivery of the Group’s strategy and that all relevant UK
Corporate Governance Code requirements continue to be met.
Daniel Dayan
Chair of the Nomination Committee
Role of the Nomination Committee
The Nomination Committee is a sub-committee of the Board, the principal purpose of which is to advise on the appointment and, if necessary,
dismissal of Executive and Non-Executive Directors. The Committee’s terms of reference, which are listed on the Group’s website, include all
matters required by the UK Corporate Governance Code (‘the Code’). Further information on the Code can be found on the Financial Reporting
Council’s website www.frc.org.uk. The terms of reference are reviewed annually by the Group Company Secretary and the Chair, and any
changes are then referred to the Board for approval. No changes were made to the terms of reference during the year.
Key Activities
Board composition/succession planning Non-Executive Directors
– Reviewed and updated succession plans for the Board and
Senior Management
– Appointed a new Chair and started the recruitment process for a
Non-Executive Director to act as Chair of the Remuneration Committee
– Reviewed continued independence of the Non-Executive Directors
– Reviewed the Non-Executive Director time commitments and risk of
over-boarding
Diversity Governance and evaluation
– Reviewed the Group’s diversity policy on governance and evaluation – Reviewed the Committee’s Terms of Reference
– Evaluated the Committee’s effectiveness
– Reviewed the performance of Executive Directors
Succession
Planning
Board
composition
Recruitment
Selection
Interview
Balance
of skills
Appointment
Induction
– 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 international search consultancies are appointed to assist with the search
– A sub committee examines the long list of candidates against the role specifications
and a shortlist of candidates is identified
– Candidates are initially interviewed by the Chair and the Group Chief Executive for a
Non-Executive Director role. The final candidates then meet with all other Directors
– In order to maximise the effectiveness of the Board, candidates are carefully
considered ensuring that the Board has the right skills and experiences
– The new Director is announced as joining the Board
– The Committee and the Group Company Secretary play an active part in an induction
programme that is tailored to the needs, skills and experiences of the new Director
Recruitment Process
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Director appointment policy and progress
The Committee has developed a formal rigorous and transparent procedure for the appointment of new Directors. Prior to making any
appointment, the Committee, having evaluated the skills, experience, and diversity of the Board, determines the qualities and experience they
seek and then prepares a detailed description of the role with a view to appointing the most appropriate candidate. The Committee uses open
advertising or the services of independent external advisers to facilitate the search.
A long list of candidates is drawn up, from which an appropriate number will be selected for interview. Upon completion the Committee
recommends to the Board the appointment of the preferred candidate.
Composition of the NominationCommittee
As recommended by the Code, the Chair of the Board acts as the Chair of the Committee whose members also comprise the Directors listed
above. The Chair cannot chair the Committee when it is dealing with either the succession to the 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.
Directors’ induction and training
Induction programmes are individually tailored for all new Directors, following the appointment process as overseen by the Nomination
Committee. Each programme considers existing expertise and any prospective Board or Committee roles.
In advance of D. Dayan’s first Board meeting in March 2022, arrangements were made for plant visits, introductions and briefings to ensure
there was an appropriate opportunity to understand and ask questions about the strategic, financial and operational context. The ongoing
COVID-19 pandemic placed restrictions on the format with some briefings conducted by videoconferencing as well as face-to-face
engagements The site visit programme will be undertaken during 2022, COVID-19 permitting.
Board induction programme for Daniel Dayan – to be undertaken during 2022
Topic Activities
Business strategy Meetings with Group CEO and Senior Managers
Finance Meetings with Group CFO and meetings with Head of Internal Audit, Director of Finance, Group Financial Controller
and Head of Tax & Treasury
Governance Meeting with Group Company Secretary
Legal Meeting with General Counsel
IT Meeting with Head of IT Operations
Operations Meetings with the Group CEO, Executive Committee members, VPs of Finance, Shared Services and Tax & Treasury
were undertaken.
Facilities Eight visits have taken place; further visits to facilities will take place in due course.
As part of the mandatory training programme, all Directors are further required to complete courses which address areas most pertinent
to Bodycote and their role on the Board. This covers both statutory obligations and ethical considerations and include the legal duties of a
Director, competition law, anti-bribery and corruption, the share dealing code, data protection, IT security and anti-slavery regulations.
Board succession planning
D. Dayan joined the Board as Non-Executive Chair on 1 January 2022. In line with the UK Corporate Governance Code 2018 criteria, D.
Dayan was independent upon appointment. The recruitment process was led by the Senior Independent Director, who was advised by
international search consultancy Russell Reynolds in the process of identifying suitably qualified individuals. Russell Reynolds has no other
connections to Bodycote plc and A.C Quinn was not involved in the selection of her successor. The Company has appointed a new Non-
Executive Director Cynthia Gordon on 10 March 2022, the appointment is effective 1 June 2022. The recruitment process was led by the
Chair who was advised by international search consultancy Russell Reynolds. There were no further changes to the Board structure during
the year.
As in previous years the Committee spent time during 2021/22 considering the important topic of succession planning across the business.
The Committee received papers on Executive Director and Senior Management succession (this includes members of the Executive
Committee and all Senior Management roles in the business). The plans identify immediate successors for these roles and identifies
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 all types of diversity.
The Committee acknowledges that in a business the size of Bodycote, it is not always possible to identify internal successors for all roles.
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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
oftalented individuals is available to support the Group and meet its future business objectives and fulfil its strategic goals.
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
5%
10%
15%
70%
Main activities of the Nomination Committee
In 2021 the Committee met formally six times and reviewed the composition and skills of the Board, with a view to considering the current
and future skills and experience that the Board might require.
The Committee discussed Board diversity and reviewed the performance of the Group Chief Executive and other senior executives.
In particular, the Board discussed its membership with respect 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 51 as part of the Corporate Governance
statement. We are pleased to report that during 2021 the female representation on the Board remained at 38%. As of 1 January 2022 it
reduced to 25% with the retirement of A.C. Quinn and the appointment of D Dayan. With the appointment of Cynthia Gordon, effective 1 June
2022, female representation will increase to 33%.
The Committee considered and authorised the potential conflicts of interest which might arise where a Director has fiduciary responsibilities
in respect of other organisations. The Committee concluded that no inappropriate conflicts of interest exist. The Committee also assigned the
Chair to review and agree with the Group Chief Executive his personal objectives for the forthcoming year.
Following the internal Board evaluation in 2020, the Board agreed to undertake an external evaluation during 2021. Further details of the
review can be found in the Corporate Governance section of the Annual Report. Recommendations from the 2021 external Board evaluation
such as reviewing the strategy in depth including ESG have been addressed and focusing on people and succession arising are topics that are
in the process of being addressed.
In December 2021, the Nomination Committee reviewed the Board’s size and composition, the frequency of the process for Board and
Committee meetings, and best practice for dealing with Board issues including drawing up a training and/or induction programme for
the Directors. The terms of reference of the Committee were reviewed in conjunction with the Model Terms of Reference issued by
the Chartered Governance Institute UK & Ireland. The biographical details of the current Directors can be found on pages 44 and 45.
The Committee, having reviewed their independence and contribution to Board matters, confirms that the performance of each of the
Directors standing for re-election at this year’s 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. The Board, after careful review and
cognisant of Eva Lindqvist’s contributions to the Board both as a Non-Executive Director and as the Chair of the Remuneration Committee, is
proposing her reappointment as for a further year. Cynthia Gordon has been appointed on 10 March 2022, effective 1 June 2022. Accordingly,
the Committee has recommended to the Board that all current Directors of the Company be proposed for re-election at the forthcoming
Annual General Meeting.
As chair of the Committee, I will be available at the Annual General Meeting, in May 2022, to answer questions 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
14 March 2022
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Report of the Audit Committee
Committee
membership
No. of meetings
in 2021: 4 Main committee responsibilities
Director Attendance
– Encourage and safeguard the highest standards of integrity, financial reporting, financial
risk management and internal controls;
– Monitor the integrity of the financial statements including annual and half-yearly
reports, trading updates and any other formal announcements relating to its financial
performance. Reviewing and reporting to the Board on significant financial reporting
issues and judgements;
– Review the content of the Annual Report and advise the Board whether, taken as a
whole, it is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group’s position and performance, business model
and strategy;
– Monitor and review the adequacy and effectiveness of the Group’s internal financial
control and risk management systems, including the robust assessment of both
emerging and principal risks;
– 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 making 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; and
– Review and monitor the external auditor’s independence, effectiveness and objectivity.
The full terms of reference for the Committee can be found on the Group’s website.
I.B. Duncan
E. Lindqvist
P. L a r mon
L. Chahbazi
K. Boyd
Introduction
I am pleased to present the 2021 report of the Audit Committee. This report provides an overview of the Committee’s key activities and focus
areas during the year and the framework within which it operates.
Objective
The Committee’s objective is to provide effective governance over the Group’s reporting, including the adequacy of related disclosures, the
management and oversight of the Group’s systems of internal control, the management of financial risks, and the performance of internal
audit as well as the appointment and evaluation of the external auditors. 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.
The Committee will continue to keep its activities under review as the regulatory environment changes.
Committee membership and meetings
The members of the Audit Committee are all independent Non-Executive Directors. Their biographical details are shown on pages 44 and 45,
and their remuneration on page 69. The Group Company Secretary is the secretary to the Audit Committee.
I.B. Duncan is Chairman of the Audit Committee. He is a Chartered Accountant with substantial experience in senior finance roles. The Board
considers that I.B. Duncan has recent and relevant financial, accounting and sector experience required to Chair the Committee.
All Committee members have significant and widespread experience in both executive and non-executive capacities of multinational industrial
companies and are considered to have competencies relevant to their duties.
The Audit Committee met four times during 2021, in February and in March 2022, all members attended all the meetings. The Committee
Chairman also invited the Board Chair, Group Chief Executive, Group Chief Financial Officer, Group Director of Finance and Group Head of
Audit to attend all regular meetings. Other Senior Managers from the Group were also invited, as appropriate, to attend regular meetings
to provide a deeper level of insight into key issues. Furthermore, the external auditor PricewaterhouseCoopers LLP (PwC) attended every
meeting, and BDO LLP, who 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.
I.B. Duncan also held preparatory meetings separately with the external auditor, the Group Chief Financial Officer, the Group Director of
Finance and the Group Head of Audit before regular Committee meetings to review their reports and discuss issues in detail. PwC, the Group
Head of Audit and the internal auditors (BDO LLP) met with the Audit Committee without the executives present.
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Main activities of the Committee during the year
The Committee is 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;
– whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to
assess the Group’s strategy, business model and performance;
– reviewing with both management and the external auditor to ensure audit scoping was appropriate and that the external auditor had applied the
necessary level of professional scepticism in performing their work; and
– reviewing various materials to support the statements on risk management and internal control and related disclosures made in the Annual
Report and financial statements on this matter.
Reports from management were reviewed on significant matters, including litigation, accounting, treasury and tax matters and also reports
from the external auditor on the outcome of their work. A summary of the areas of focus considered by the Committee in respect of the 2021
financial statements is set out in the table below.
Going concern, viability statement and financial resilience
The Committee has reviewed the 2021 going concern and viability statements and challenged the 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. Sensitivity analysis was undertaken to understand the impact of changes to key variables and included severe but
plausible downside scenarios. The Committee was satisfied that these represented accurate assessments of the Group’s financial position.
For further detail on the Going Concern and Viability Statements please refer to pages 27 and 34 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 its 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 and accurate information, a collaborative approach between all parties required to contribute to the report and 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.
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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 reviews
the carrying amounts of goodwill, tangible and intangible
assets for impairment at least annually. Refer to note 9 of
the 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, growth factors and scenarios used
in the discounted cash flow calculations for each cash generating unit and the
sensitivity analysis applied. The Committee also considered the potential future
impacts of climate change on the assumptions 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 financial statements.
The Committee was satisfied with the carrying value of assets and goodwill and
the related disclosures.
Restructuring, reorganisation and environmental provisions
Assumptions and judgement are exercised in the
development of restructuring, reorganisation and
environmental provisions.
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 with management the key judgements behind the provisions, taking
note of the range of possible outcomes, and agreed with their recommendations.
The Committee agreed that certain changes in provisions recorded as part of
the Group's exceptional restructuring programme in 2020 should continue to be
presented as exceptional items.
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 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 financial statements
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 was satisfied with the Group’s tax approach and with the
accounting treatment and disclosure in respect of tax exposures.
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 28 of the 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 28 of the financial statements.
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External audit
The Committee is responsible for managing the relationship with the Group’s external auditor on behalf of the Board.
The Committee continues to review and make recommendations with regard to the reappointment of the external auditor each year. In making
these recommendations, the Committee considers auditor effectiveness and independence, partner rotation and any other factors which may
impact the external auditor’s reappointment.
The Group last undertook a tender for external audit services during 2018 which led to the appointment of PwC at the May 2019 Annual
General Meeting. 2021 was Mr. Simon Morley’s third year as the lead audit partner.
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.
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. 2021 audit fees were agreed at £2.0m.
Key audit matters and the audit approach to these matters are discussed in the Independent auditors’ report (pages 86 to 93), 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 engagement partner, other partners and the audit team;
– audit approach and scope, including identification of risk areas;
– execution of the audit;
– interaction with management;
– communication with, and support to, the Audit Committee;
– insights, management letter points, added value and reports; and
– independence, objectivity and scepticism.
An assessment questionnaire is completed by each member of the Committee, the Group Chief Executive, the Group Chief Financial Officer,
and other senior finance executives. The feedback from the process is considered by the Audit Committee and provided to the external
auditor and management. 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 their 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; and
– 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) 2020/21 report on Audit Quality Inspections which included a review of
audits carried out by PwC. If the audit is selected for quality review, the Committee understands that any resulting reports will be sent to the
Committee by the FRC. After considering all of the relevant matters, the Committee concluded that the external audit had been effective and
objective. During 2021, 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.
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 confirmed by PwC at the July 2021 Audit Committee and was confirmed again in March 2022. 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. 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 2021 were for the half-year interim
review and a mandatory assurance requirement from the Dutch government concerning COVID-19 assistance. Both are shown in note 2
representing 7% (2020: 9%) of the audit fee.
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Internal audit
The internal audit plan for 2021 was presented to the Committee in October 2020. The plan took into account the Group’s strategic objectives
and risks and provides the degree of coverage deemed appropriate by the Committee. The Committee reviewed and accepted the plan
following discussions and challenge as to the scope and areas of focus. As a result of the ongoing COVID-19 pandemic, the internal audit
approach for 2021 was focused on delivering assurance over the Group’s principal risks and the key financial and IT controls. IT controls and
cybersecurity risk remains a continued area of focus and are reviewed annually.
At each regular meeting, the Group Head of 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 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.
Additional financial control assurance has been obtained through a number of control self-assessments. Internal auditors have received self-
certification from every plant that internal controls have been complied with and noting any non-compliance. A control self-assessment has
also been introduced for each of the divisional finance teams. The accuracy of returns was monitored by Internal Audit by verification visits to
a sample of sites.
The effectiveness of internal audit is reviewed and discussed annually with the Group Head of 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 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 updates at each meeting
from the Group Head of Audit who has responsibility for developing the Group’s risk management and internal controls framework.
The Committee reviewed changes to the principal financial risks and mitigating actions identified by management and also monitored the
emerging risk identification process. Refer to the Principal Risks and Uncertainties report on pages 29 to 33.
Internal control
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
concluded the system to be effective and in accordance with the Guidance on Risk Management, Internal Control and Related Financial and
Business Reporting as issued by the FRC (September 2014). Refer to page 53 for further information.
Committee evaluation
The Committee’s activities formed part of an internal review of Board effectiveness which was undertaken in May 2021 and approved by
the Board in June 2021. There were no material deficiencies noted in the review and Directors indicated a high level of satisfaction with the
work of the Committee. Based on this, and as a result of the work done during the year, the Committee has concluded that it has acted in
accordance with its terms of reference and carried out its responsibilities effectively.
On behalf of the Audit Committee:
I.B. Duncan
Chairman of the Audit Committee
14 March 2022
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Board report on remuneration
Committee
membership
No. of meetings
2021: 7 Main committee responsibilities
Director Attendance
– Responsibility for setting and reviewing the remuneration policy for all Executive
Directors, Senior Management and the Company’s Chair.
– Recommend and monitor the level and structure of remuneration for
Senior Management.
– Review workforce remuneration and related policies and the alignment of incentives and
rewards with culture, taking these into account when setting the policy for Executive
Director 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.
E. Lindqvist
I.B. Duncan
P. L a r mon
L. Chahbazi
K. Boyd
Chair’s letter
As Chair of the Remuneration Committee (‘the Committee’) and on behalf of the Board of Directors, I am pleased to present our Board report
on remuneration for 2021.
The 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 64-65)
– An ‘at a glance’ of remuneration decisions (page 66)
– The Annual Report on Remuneration, which describes how our Directors’ Remuneration Policy was applied during 2021 (pages 64-84)
– The proposed Directors’ Remuneration Policy for which we will be seeking shareholder approval at the 2022 Annual General Meeting
(page 67)
Review of the Directors’ Remuneration Policy
Our current Policy was approved by shareholders at our 2019 Annual General Meeting (with a vote in favour of 97%) and is approaching the
end of its three-year term. A new Policy will be put to shareholders for approval at the 2022 Annual General Meeting.
The Committee has undertaken a comprehensive review of the executive remuneration framework and concluded that it continues to support
the delivery of business strategy and the creation of shareholder value. Therefore, no significant changes are proposed to the framework.
Refinements have been proposed to the Policy to provide greater alignment with best practice corporate governance principles and ensure
that there is sufficient flexibility over the next three years to support the execution of strategy. As part of the review, the Committee consulted
with the top 30 major shareholders (representing approximately 80% of the Company’s issued share capital) and three proxy voting agencies.
The Committee values the feedback from shareholders and has taken this into account. The proposed key refinements are as follows:
– Introduction of a post-employment shareholding guideline. Executive Directors will be required to hold shares equivalent to their full
in-employment shareholding guideline (200% of salary, or actual shareholding at the point of departure if lower) for two years post-
employment, in line with guidance from the Investment Association. The guideline will apply to all shares acquired pursuant to deferred
share awards or Bodycote Incentive Plan (BIP) awards granted after 1 January 2022.
– Malus and clawback. The circumstances in which malus and clawback may apply to annual bonus, deferred share and BIP awards have been
expanded to include corporate failure, therefore providing alignment with best practice.
– Maximum BIP opportunity. The Committee proposes to introduce an overall maximum limit of 200% of salary that may be used to grant
on going BIP awards. This is intended to ensure that there is flexibility in the Policy over the next three years to provide competitive
remuneration packages in order to retain and/or attract Executive Directors of the required calibre, taking into account the size and complexity
of the business and potential changes to business needs. The Committee does not have any current intention to increase the normal maximum
opportunity which is set at 175% of salary (and has been maintained at this level since the BIP was first introduced in 2006) and it is proposed
that the 2022 BIP awards will be granted at this level.
Should the Committee consider that an increase in the maximum opportunity is appropriate in respect of future awards it will engage with
key shareholders and their representatives as appropriate.
– BIP vesting for threshold performance. The Committee proposes to include flexibility to increase threshold vesting up to 25% of maximum
opportunity (currently 0% would normally vest at threshold). This is in order to provide a modest vesting outcome for achieving threshold
performance and is aligned with the typical threshold vesting level across the FTSE 350. The Committee will ensure that any increase in the
level of vesting at threshold is commensurate with an increase in the stretch in targets.
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Business performance and incentive outcomes for 2021
During the year, the remainder of the 2020 restructuring programme was implemented, and permanent costs savings are being delivered in
line with the original projections. Good progress was made against the Group strategy, with strong revenue growth in Emerging Markets, and
ADE and AGI focused Specialist Technologies’ revenues once again outperforming their respective Classical Heat Treatment market sector
revenues’ development. The strong cost control and positive revenue performance helped headline operating margins climb from 12.6% in
2020 to 15.4% in 2021.
We believe that the incentive payouts we have made to our Executive Directors are aligned with the overall performance of the Company.
As such, the Committee determined that no discretionary adjustments (either upward or downward) would be required from the formulaic
outcomes of the annual bonus and BIP.
Annual bonus
The 2021 annual bonus award was based on headline operating profit (77%), headline operating cash flow (10%) and a personal scorecard
(13%). Headline operating profit and cash flow are our key internal financial metrics and therefore form the core annual bonus metrics.
Headline operating profit at constant currency increased to £99.2m and cash flow at constant currency increased to £127.3m. The measures
are our core annual bonus metrics.
The personal scorecard primarily reflects how Executive Directors have delivered on our strategic goals, and in particular our investments in
growth. For further details please see the personal scorecards on page 70.
The annual bonus therefore paid out at 96% of maximum for the Group Chief Executive and 96% of maximum for the Chief Financial Officer,
of which 35% will be deferred into shares for three years.
Bodycote Incentive Plan (BIP)
The 2019 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 2021.
Whilst ROCE and EPS performance improved compared to last year, the EPS underpin as well as the targets were not achieved and the 2019
BIP award lapsed in full.
Application of Policy for 2022
An overview of our intended application of Policy for 2022 is set out below.
Base salaries: The Group Chief Executive and Chief Financial Officer received salary increases of 4.0% and 1.2% respectively, in line with
the average inflationary increases awarded to the Czech Republic and Swiss employee populations. This is to reflect pay practices and salary
inflation in the countries in which the Executive Directors live and work. In determining the salary increases for the Executive Directors, the
Committee also considered salary increases awarded to Group employees across the UK and Europe more generally.
Benefits: There will be no changes to benefits provided to the Executive Directors.
Pension: Salary supplements in lieu of pension contributions are equal to 23.5% of base salary with effect from 1 January 2022. This is
aligned with the company pension contributions of the wider workforce in the country that the Executive Directors live and work.
Annual bonus: The maximum bonus opportunity remains at 200% of salary for the Group Chief Executive and 150% of salary for the Chief
Financial Officer, with 35% of any bonus earned being deferred in shares for three years. The measures and weightings have been reviewed
and we believe a bonus consisting of 77% headline operating profit, 10% headline operating cash flow and 13% personal objectives continues
to enable the annual bonus to be aligned to the Group's strategy and ensures that our executives are focused on delivery of improved
profitability and control on working capital.
BIP: The maximum opportunity remains at 175% of salary for Executive Directors. The measures and weightings have been reviewed and
we believe the equal focus on returns and earnings is strongly aligned with our strategic priorities. The growth of our business and our ability
to deliver strong and sustainable returns to investors is based on delivery of an effective deployment of capital in rapid growth areas and on
acquisitions, which ROCE and EPS continue to create alignment to.
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.
I look forward to receiving your support at our 2022 Annual General Meeting, where I will be pleased to answer any questions you may have
on this report, our proposed Policy refinements or in relation to any of the Committee’s activities.
E. Lindqvist
Chair of the Remuneration Committee
14 March 2022
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Remuneration at a glance
Total single figure table for Executive Directors
Fixed pay Variable pay
Financial
year
Salary/
fees
(£000)
Pension
(£000)
Taxable
benefits
1
(£000)
Subtotal
(£000)
Annual
bonus
2
(£000)
BIP
(£000)
Subtotal
(£000)
Total
(£000)
Executive Directors
S.C. Harris 2021 609 146 40 795 1,174 –
3
1,174 1,969
2020 597 146 40 783 – –
4
– 783
D. Yates 2021 420 101 28 549 606 –
3
606 1,155
2020 412 101 28 541 – –
4
– 541
Notes accompanying the total single figure table for Executive Directors
1 Taxable benefits consist of company car (or allowance), family level private medical insurance, life assurance cover and sick pay. Certain other expenses incurred in pursuit of bona fide
business activities are, under UK tax regulations, treated as a taxable benefit in-kind, and the Directors have received grossed-up compensation for this in order to leave him/her in a
neutral position.
2 35% of the annual bonus will be deferred in shares.
3 The 2021 figures relate to BIP awards granted on 26 March 2019 with a performance period ended on 31 December 2021. Based on performance against the targets the awards lapsed
in full.
4 The 2020 figures relate to BIP awards granted on 12 April 2018 with a performance period ended on 31 December 2020. Based on performance against the targets the awards lapsed in full.
Incentive outcomes for 2021
Annual bonus
The Group Chief Executive and Chief Financial Officer earned a bonus equal to 96% and 96% of maximum respectively.
Outcome
S.C. Harris D. Yates
% of award Threshold Target
2
Maximum
Actual
performance
achieved
1
% of max
% of
salary % of max
% of
salary
Headline operating profit 77% £75m – £94m £99.2m 100.0% 154.0% 100.0% 115 . 5%
Headline operating cash
flow 10% £100m – £115m £127.3m 100.0% 20.0% 100.0% 15.0%
Personal score card 13% n/a 72.0% 18.7% 70.0% 13.7%
Total 96.4% 192.7% 96.1% 144.2%
1 Figures quoted are at constant currency rates.
2 No target was set for 2021.
BIP
The EPS underpin and the threshold targets were not achieved and the awards therefore lapsed in full as set out in the table below.
ROCE
1
Headline EPS
Performance target
(pre IFRS 16)
Vesting of element
(% of maximum)
Performance
target
Vesting of element
(% of maximum)
Maximum performance 23% 100% 64p 100%
Threshold performance 15% 0% 56p 0%
Performance achieved 13.8% 0% 35.8p 0%
1 For the purposes of the BIP, pre-tax ROCE is calculated using actual exchange rates. Capital Employed includes the acquired goodwill existing as at the start of the performance period
(1 January 2019) only.
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Implementation of the proposed Policy in 2022
Set out below is a summary of the key elements of the proposed Remuneration Policy for Executive Directors, together with how the Policy is
intended to be implemented in 2022.
Key features Implementation for 2022
Salary
and fees
– Base salaries are reviewed in January
every year
– Salary reviews are based on role, experience,
performance, internal increases and the
external market
– The Group Chief Executive receives a salary of £633,567, an
increase of 4.0%
– The Chief Financial Officer receives a salary of £425,297, an
increase of 1.2%
– The salary increases are in line with the average increases
awarded to the workforce in the countries where the Executive
Directors live and work. In determining the salary increases for
the Executive Directors, the Committee also considered salary
increases awarded to Group employees across the UK and Europe
more generally
– Non-Executive Director fees will next be reviewed at the March
2022 meeting and the outcome will be disclosed in the 2022
Directors’ Remuneration Report
Benefits – A range of cash benefits and benefits in kind – In line with benefits provided in 2021
Pension – Contribution to the company’s defined
contribution scheme, or cash equivalent
– 23.5% of base salary with effect from 1 January 2022
– Aligned with the company pension contributions of the wider
workforce in the countries where the Executive Directors live
and work
Annual Bonus – Maximum opportunity of 200% and 150% of
base salary for the Group Chief Executive 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 deferred
into shares for three years, conditional on
continued employment
– Maximum opportunity of 200% and 150% of base salary for the
Group Chief Executive and Chief Financial Officer respectively
– The annual bonus is split 77% in respect of headline operating
profit, 10% in respect of headline operating cash flow and 13% on
personal strategic objectives
– Performance targets are considered commercially sensitive and
will be fully disclosed in the 2022 Directors’ Remuneration Report
Bodycote
Incentive Plan
(BIP)
– Annual grants up to 200% of base salary,
subject to a three-year performance period and
two-year holding period
– Maximum opportunity of 175% of salary for both
Executive Directors
– Awards are based on performance against ROCE (50%) and
headline EPS (50%) targets over a three-year period ended
31 December 2024
– Performance targets are set out below
Shareholding
requirement
– Executive Directors are required to build up a
holding of 200% of base salary over five years
– Post-employment shareholding requirements
also apply
– Both Executive Directors have met the shareholding requirement
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2022 BIP awards
The targets for the 2022 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.
ROCE
1
(50% of award) Headline EPS (50% of award)
Performance target
Vesting of element
(% of maximum)
Performance
target
Vesting of element
(% of maximum)
Maximum performance 20.0% 100% 63.9p 100%
Threshold performance 13.5% 25% 46.0p 25%
1 For the purposes of the BIP, pre-tax ROCE is calculated using actual exchange rates. Capital Employed includes the acquired goodwill existing as at the start of the performance period
(1 January 2022) only.
If headline EPS at the end of the performance period is below 39p, 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. This includes consideration
of any potential ‘windfall gains’ at the point of vesting.
Annual Report on remuneration
This section provides details of remuneration outcomes for Directors who served during the financial year ended 31 December 2021.
This section of the report is audited and the Annual Report on Remuneration is subject to an advisory vote by shareholders at the 2022 Annual
General Meeting.
Auditable section
Total single figure table
Fixed pay Variable pay
Financial
year
Salary/
fees
(£000)
Pension
(£000)
Taxable
benefits
1,6
(£000)
Subtotal
(£000)
Annual
bonus
5
(£000)
BIP
(£000)
Subtotal
(£000)
Total
(£000)
Executive Directors
S.C. Harris 2021 609 146 40 795 1,174 –
2
1,174 1,969
2020 597 146 40 783 – –
3
– 783
D. Yates 2021 420 101 28 549 606 –
2
606 1,155
2020 412 101 28 541 – –
3
– 541
Non-Executive Directors
A. C. Quinn 2021 243 – 0 243 – – – 243
2020 239 – 0 239 – – – 239
P. L a r mon 2021 71 – 4 75 – – – 75
2020 69 – 0 69 – – – 69
E. Lindqvist 2021 71 – 2 73 – – – 73
2020 69 – 0 69 – – – 69
I.B. Duncan 2021 81 – 0 81 – – – 81
2020 79 – 0 79 – – – 79
L. Chahbazi 2021 61 – 0 61 – – – 61
2020 59 – 0 59 – – – 59
K. Boyd
4
2021 61 – 0 61 – – – 61
2020 20 – 0 20 – – – 20
Notes accompanying the total single figure table
1 Taxable benefits consist of company car (or allowance), family level private medical insurance, life assurance cover and sick pay. Certain other expenses incurred in pursuit of bona fide
business activities are, under UK tax regulations, treated as a taxable benefit in kind, and the Directors have received grossed-up compensation for this in order to leave him/her in a
neutral position.
2 The 2021 figures relate to BIP awards granted on 26 March 2019 with a three-year performance period ended on 31 December 2021. Based on performance against the targets the awards
lapsed in full.
3 The 2020 figures relate to BIP awards granted on 12 April 2018 with a three-year performance period ended on 31 December 2020. Based on performance against the targets the awards
lapsed in full.
4 K. Boyd was appointed to the Board on 1 September 2020.
5 35% of the annual bonus will be deferred in shares.
6 Four of the Non-Executive Directors received benefits in the year of less than £500.
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Salary
The base salaries of the Executive Directors are reviewed in January every year. The Group Chief Executive and Chief Financial Officer
received salary increases in line with the average increases awarded to the Czech Republic and Swiss wider workforces respectively. This is
to reflect pay practices and salary inflation in the countries in which the Executive Directors work and live. The table below sets out the base
salary figures for 2022 along with comparative figures for 2021.
Executive Director
Salary from
1 January 2021
Salary from
1 January 2022
Salary
increase
S.C. Harris £609,199 £633,567 4.0%
D. Yates £420,254 £425,297 1.2%
Pension
The Executive Directors received a salary supplement in lieu of pension at a rate of 24% of base salary during 2021.
Salary supplements in lieu of pension contributions has been reduced to 23.5% of base salary from 1 January 2022. This is so that they are
aligned with the company pension contributions of the wider workforces in the countries 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 Car/car allowance Fuel Healthcare
S.C. Harris £13,600 £2,400 £24,225
D. Yates £12,000 £1,200 £14,325
Incentive outcomes for 2021
Annual bonus
The maximum annual bonus opportunity for the Group Chief Executive and Chief Financial Officer was 200% and 150% of base salary
respectively. The annual bonus 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 2021, the Group Chief Executive
earned a bonus equal to 96% of maximum and the Chief Financial Officer 96% of maximum. 35% of the amount earned will be deferred into
shares for three years subject to continued employment.
The performance targets and actual performance are set out below.
Outcome
S.C. Harris D. Yates
% of
award Threshold Target
2
Maximum
Actual
performance
achieved
1
% of max
% of
salary % of max
% of
salary
Headline operating profit 77% £75m – £94m £99.2m 100.0% 154.0% 100.0% 115 .5%
Headline operating cash flow 10% £100m – £115m £127. 3m 100.0% 20.0% 100.0% 15.0%
Personal score card 13% n/a 72.0% 18.7% 70.0% 13.7%
Total 96.4% 192.7% 96.1% 144.2%
1 Figures quoted are at constant currency rates.
2 No target was set for 2021.
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Personal Scorecard
S.C. Harris Link to strategy
Overview For 2021 Stephen’s objectives were: to ensure the completion of the restructuring
programme, progress Group Strategy, support the Enterprise Resource Planning
(ERP) implementation, strengthen the leadership team, continuous improvement in
SHE and implementation of ESG measurements.
Key achievements in the year – The restructuring programme was successfully completed during 2021.
– The Board was taken through the Strategy as it evolved during the last 10 years
and progress was demonstrated.
– Bench strength in operational direct supports and finance support structure was
increased with several new appointments.
– The SHE agenda was progressed. Commitment to the SBT initiative during 2021
and target setting in progress.
Rating The Committee assessed achievement for all personal scorecard objectives with
an overall rating of 72%.
D. Yates
Overview For 2021 Dominique’s objectives were: continue the delivery of the ERP
implementation, filling and onboarding a number of key vacant finance roles,
improve forward planning and specific process management as well as to ensure
the finance transformation plan is on track.
Key achievements in the year
– Good progress was made with the ERP implementation in 2021.
– Most key roles were filled within the required timeframe.
– Forward planning and specific processes were updated reasonably well.
– Good progress was made with the finance transformation plan for 2021.
Rating The Committee assessed achievement for all personal scorecard objectives with an
overall rating of 70%.
Bodycote Incentive Plan (BIP)
BIP awards granted on 26 March 2019 had a three-year performance period ended 31 December 2021, 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 47.6p,
then no awards would vest.
The underpin and the threshold targets were not achieved and the awards therefore lapsed in full.
The threshold and maximum targets along with performance achieved and the vesting outcome are set out in the table below.
ROCE
1
Headline EPS
Performance target
(pre IFRS 16)
Vesting of element
(% of max)
Performance
target
Vesting of element
(% of max)
Maximum performance 23% 100% 64p 100%
Threshold performance 15% 0% 56p 0%
Performance achieved 13.8% 0% 35.8p 0%
1 For the purposes of the BIP, pre-tax ROCE is calculated using actual exchange rates. Capital Employed includes the acquired goodwill existing as at the start of the performance period
(1 January 2019) only.
Grant date
Number
of shares
granted
End of
performance
period
% award
vesting
Number
of shares
vesting
Dividend
equivalents
Total
estimated
value of
awards on
vesting
1
Vesting
date
End of
holding
period
S.C. Harris 26 March 2019 115, 2 3 2 31 Dec 2021 0% none n/a n/a n/a n/a
D. Yates 26 March 2019 83,144 31 Dec 2021 0% none n/a n/a n/a n/a
BIP awards granted during the financial year
Awards consisting of conditional shares were granted to both Executive Directors, equivalent in value to 175% of their base salaries on 15
April 2021, and will vest after three years in March 2024. The performance period will end on 31 December 2023. 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 as a result of the pandemic.
2
2
1
1 2 4
Driving operational
improvement
2
Capitalising on, and investing
in,our Specialist Technologies
5
Investing in
Emerging Markets
4
Investing in structural
growth opportunities
3
Acquisitions
6
Safety and
Climate Change
1
2
2
2
3 5 6
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ROCE
1
Headline EPS
Performance target
Vesting of element
(% of max)
Performance
target
Vesting of element
(% of max)
Maximum performance 19.5% 100% 64.0p 100%
Threshold performance 13.0% 0% 42.0p 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
2021) only.
If headline EPS at the end of the performance period is below 36.0p, then no awards will vest. 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.
Grant date
Number of
shares granted
Market price
at grant date
1
Face value at grant
date
S.C. Harris 15 April 2021 131,107 £7.972 £1,045,185
D. Yates 15 April 2021 90,444 £ 7. 972 £721,019
1 The three-day volume weighted average share price following the announcement of results for 2020 (12, 15 and 16 March 2021).
The Committee has discretion to amend the vesting outcome where it considers that it is not a fair and accurate reflection of business
performance. This includes consideration of any potential ‘windfall gains’ at the point of vesting.
Chair and Non-Executive Directors’ fees
Chair of the Board and other Non-Executive Directors fees were as follows:
Roles
2
Fee for
2020
Fee for
2021
% increase in
NED role fees
A.C. Quinn – Non-Executive Chair
– Chair of Nomination Committee
£238,703 £243,477 2%
P. L a r mon – Non-Executive Director
– Chair of Employee Engagement Groups
– Member of Audit, Remuneration and Nomination Committees
£69,151 £70,534 2%
E. Lindqvist – Non-Executive Director
– Chair of Remuneration Committee
– Member of Audit and Nomination Committees
£69,151 £70,534 2%
I.B. Duncan – Non-Executive Director
– Chair of Audit Committee
– Member of Remuneration and Nomination Committees
– Senior Independent Director
£78,946 £80,525 2%
L. Chahbazi – Non-Executive Director
– Member of Audit, Remuneration and Nomination Committees
£59,356 £60,543 2%
K. Boyd
1
– Non-Executive Director
– Member of Audit, Remuneration and Nomination Committees
£59,356 £60,543 2%
1 K. Boyd was appointed to the Board on 1 September 2020, but the £59,356 shown is the annual fee which was not paid for the full 12 months.
2 D Dayan was appointed as Chair to the Board on 1 January 2022 and his fee for 2022 will be shown in the 2022 Remuneration Committee report.
Non-Executive Director fees were increased for 2021 based on market benchmarking against Non-Executive Director fees in the FTSE 250
and other companies of similar size and complexity in line with the Policy approved at the 2019 AGM.
At 31 December 2021 the aggregate annual fee for all Non-Executive Directors, including the Chair, was £586,156, which is below the
maximum aggregate fee allowed by the Company’s Articles of Association of £1,000,000 p.a.
The Non-Executive Director fees comprise of the following elements:
Fees for 2021
Base fee £60,543
Remuneration Committee Chair/Audit Committee Chair £9,991
Senior Independent Director £9,991
Chair of Employee Engagement Groups £9,991
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Board changes in 2020
Payments for loss of office
No payments for loss of office were made during the year.
Payments to past Directors
No payments to past Directors were made during the year.
Directors’ shareholdings
The Board operates a shareholding retention policy under which Executive Directors and other senior executives are expected, within five
years of appointment, to build up a shareholding in the Company. For the purposes of this requirement, only beneficially-owned shares and
the net of tax value of deferred shares under the annual bonus (as they are not subject to further performance conditions) will be counted.
The shareholding requirement for the Executive Directors is 200% of salary.
The interests in ordinary shares of Directors and their connected persons as at 31 December 2021, including any interests awarded under the
annual bonus or BIP, are presented below along with whether Executive Directors have met the shareholding guidelines. Share awards under
the annual bonus and the BIP are conditional on continued employment until vesting.
Counted towards the
shareholding requirement
Outstanding interests (not counted
towards the shareholding requirement)
Beneficially
owned
Deferred shares
granted
under the
annual bonus
1
Shares
subject to
performance
conditions BIP
2
Shareholding
requirement
met as at
31 December 2021
3
Executive Directors
S.C. Harris (200% of salary min holding requirement) 424,430 66,608 429,950 Yes
D. Yates (200% of salary min holding requirement) 313,994 35,431 306,071 Yes
Non-Executive Directors
A.C. Quinn 20,000 – – n/a
P. L a r mon 5,000 – – n/a
E. Lindqvist 12,200 – – n/a
I.B. Duncan – – – n/a
L. Chahbazi – – – n/a
K. Boyd 3,000 – – n/a
1 Figures relate to deferred shares granted in 2019 and 2020.
2 Figures relate to unvested awards granted under the BIP in 2019, 2020 and 2021. The BIP awards granted on 26 March 2019 lapsed in full in March 2022.
3 Closing share price on 31 December 2021 was £8.66.
As at 9 March 2022, 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.
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 2021 are as follows.
Interests as at
1 January 2021
Granted in
year
Vested
in year
1
Lapsed
in year
Interests as at
31 December
2021
BIP S.C. Harris 395,754 131,107 – 9 6 , 911 429,950
D. Yates 285,551 90,444 – 69,924 306,071
Deferred bonus
shares
S.C. Harris 10 6,168 – 39,560 – 66,608
D. Yates 49,444 – 14,013 – 35,431
1 The BIP awards granted on 26 March 2019 lapsed in full in March 2022.
End of auditable section
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Fees retained for external Non-Executive Directorships
To broaden the experience of Executive Directors, the position of Non-Executive Director may be held in other companies, provided that
permission is sought in advance. Any external appointment must not conflict with the Directors’ duties and commitments to Bodycote plc.
SC Harris had held the position of Non-Executive Director of Mondi plc since 1 March 2011 and stepped down as of May 2021. In accordance
with Group policy he retained fees for the year of £33,164.
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 ten years
FTSE All Share Industrial Index comparison based on spot values
Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17
Dec 18 Dec 19 Dec 20
Bodycote
FTSE All Share
Industrial Index
Dec 21
£500
£450
£400
£350
£300
£250
£200
£150
£100
£50
£0
The table below shows how total remuneration for the Group Chief Executive, S.C. Harris, developed over the last ten years.
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Single figure of remuneration (£000) 3,840 3,089 1,803 771 875 2,280 2,728 1,862 783 1,969
Annual bonus (% of max) 73% 46% 73% 20% 19% 98% 68% 50% 0% 96%
Long-term incentive (% of max) 100% 99% 44% 0% 0% 48% 89% 84% 0% 0%
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.
2019 to 2020 2020 to 2021
Salary/fees Benefits
3
Annual bonus
4
Salary/fees Benefits
3
Annual bonus
4
Executive Director
S.C. Harris 7.0% 2.8% (100%) 2% 0.1% 100%
D. Yates 2.3% 0.8% (100%) 2% -0.5%
5
100%
Non-Executive Directors
A.C. Quinn 3.0% -70.6% – 2% 144.6% –
P. L a r mon 3.0% -83.2% – 2% 1934.9% –
E. Lindqvist 3.0% -93.3% – 2% 3984.5% –
I.B. Duncan 3.0% -61.5% – 2% 23.4% –
L. Chahbazi 3.0% -70.6% – 2% 19.0% –
K. Boyd
1
n/a n/a – 2% -8.3% –
Average employee
2
4.1% 2.4% (100%) 2.9% 10.0% 100%
1 K. Boyd was appointed to the Board on 1 September 2020.
2 The annual percentage change of the average remuneration of the listed Parent entity employees (excluding Directors), calculated on a full-time equivalent basis.
3 Percentage change in Benefits is calculated on unrounded figures. Non-Executive Directors received benefits in 2020 of less than £500. Hence not showing 100% reductions from 2019.
2021 benefits remained below £500 for four of the Non-Executive Directors.
4 No bonuses were paid to Executive Directors or the Company’s employees in respect of 2020.
5 Benefits received in Swiss francs, negative change in the benefits due to the strengthening pound against the Swiss franc.
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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 Method
25
th
percentile
pay ratio
Median
pay ratio
75
th
percentile
pay ratio
2021 Option A 69:1 52:1 36:1
2020 Option A 28:1 21:1 15:1
2019 Option A 70:1 55:1 40:1
Option A methodology was selected on the basis that it is a robust approach and is preferred by shareholders and proxy voting agencies.
The calculations for the representative employees were performed as at the final day of the relevant financial year.
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, and may fluctuate year-to-year.
2021 pay ratios have increased from 2020 due to an increase in the Group Chief Executive’s total remuneration. Please note that no bonus and
BIP were paid in 2020. In 2021 the Group Chief Executive's bonus remuneration equated to 60% of total remuneration, which is in comparison
the same proportion of what the Group Chief Executive’s bonus and BIP 2019 remuneration was on 2019 total remuneration. The median pay
ratio trend shows slight decrease from 2019 which signifies increased remuneration of UK average employee over the Group Chief Executive,
reflecting the fact that the bonus and BIP proportion on total remuneration did not change between 2019 and 2021.
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.
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.
Group Chief Executive
(£)
25
th
percentile
2,3
(£)
Median
2,3
(£)
75
th
percentile
2,3
(£)
2021
Total pay and benefits 1,969,680
1
28,704 37,716 55,442
Salary component 609,199 26,889 35,635 48,283
2020
Total pay and benefits 783,454
1
27,728 36,895 51,090
Salary component 597,25 4 26,150 34,859 47, 373
2019
Total pay and benefits 1,861,501
1
26,512 33,685 46,206
Salary component 558,181 25,248 32,16 6 42,643
1 The Group Chief Executive remuneration is the total single figure remuneration for the relevant financial year.
2 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.
3 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 2020 and 2021.
2021 (£m) 2020 (£m) % change
Staff and employee costs 252.5 23 5.1 7.4%
Distribution to shareholders 49.0 25.1 95.2%
Committee membership
During 2021 the Committee was chaired by E. Lindqvist. The Committee also comprised I.B. Duncan, P. Larmon, L. Chahbazi and K. Boyd.
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.
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Committee activities
During 2021 the Committee met seven times to consider, amongst other matters:
Theme Agenda items
Best practice – Consideration of feedback from shareholders and proxy agencies following the 2021 AGM
– Update on market practice and corporate governance
Executive Directors’ and senior
executive’s remuneration
– Base salary increases
– Granting annual bonus and BIP awards, including the setting of targets
– Assessment of annual bonus and BIP outcomes
Remuneration Policy – Review of the current Remuneration Policy and consideration and approval of proposed refinements
Reporting – Consideration and approval of the Directors’ Remuneration Report
Advisers to the Committee
The Committee appointed Deloitte LLP as Committee advisers as of 1 January 2020, following a competitive tender process. Deloitte LLP 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 LLP 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 LLP for their services to the Committee during the year, based on time and expenses, amounted to £60,600.
Deloitte LLP 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 in particular consulted with the Group Chief Executive and
received recommendations from him in respect of his direct reports.
Statement of shareholder voting
The table below sets out the voting results in respect of the remuneration resolution to approve the Annual Report on Remuneration at the
2021 AGM and to approve the Remuneration Policy at the 2019 AGM.
Annual Report
on Remuneration
(% votes)
Directors’
Remuneration Policy
(% votes)
Votes cast 88% 81%
For 99% 97%
Against 1% 3%
Number of abstentions 1,048,825 613,242
E. Lindqvist
Chair of the Remuneration Committee
14 March 2022
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Board report on remuneration continued
Directors’ Remuneration Policy
Changes to the Remuneration Policy and summary of the decision making process
During 2021, the Committee conducted a review of our Remuneration Policy and concluded that it continues to support the delivery of
business strategy and the creation of shareholder value. Therefore, no significant changes are proposed to the framework. The proposed
refinements (as noted on page 64) provide greater alignment with the UK Corporate Governance Code, take account of feedback from
shareholders and ensure that there is sufficient flexibility over the next three years to support the execution of strategy.
In determining the Remuneration Policy the Committee followed a robust process which included discussions on the content of the Policy at
the July, September and October Committee meetings. The Committee considered input from management and its independent advisers and
consulted with major shareholders (representing circa 80% of the Company’s issued share capital). No Executive Director is a member of the
remuneration committee.
How the Committee addressed the factors in Provision 40 of the UK Corporate Governance Code
Our Remuneration 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 Corporate Governance Code.
Principle How the Committee has addressed the principle
Clarity and simplicity The Committee ensures that remuneration arrangements are transparent, comprising
a simple incentive structure that is commonplace in the market and best practice
remuneration provisions.
Risk 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.
Predictability The ‘illustration of application of remuneration policy’ chart on page 80 indicates the
potential values that may be earned through the remuneration arrangements.
Proportionality 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.
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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Executive Remuneration Policy
The table below sets out the key components of Executive Directors’ pay packages, including why they are used and how they are operated
in practice.
Remuneration Policy Table
Element and how
itsupports
our strategy Operation of the element
Maximum opportunity
under the element Performance measures
Base salary
To award competitive
salaries to attract
and retain the talent
required to execute
the strategy while
ensuring the Group
pays no more
than is necessary
Base salaries for Executive Directors
are typically reviewed annually
(or more frequently if specific
circumstances necessitate this) by
the Committee.
Salary levels are set and reviewed
taking into account a number of
factors including:
– Role, experience and performance
of the executive.
– The Company’s guidelines for
salaries for all employees in the
Group for the forthcoming year.
– The competitiveness of total
remuneration assessed against
companies of similar size and
complexity, as appropriate.
Whilst the Committee has not
set a maximum level of salary,
ordinarily, salary increases will be
determined taking into account the
average increases awarded to: (1)
employees in the country in which
the Executive Director lives and/
or works; and (2) Group employees
across Western Europe, including
the UK.
Higher increases may be awarded
in exceptional circumstances, which
may, for example, include:
– Increase in scope or responsibility.
– A new Executive Director who is
being moved to market positioning
over time.
None.
Benefits
Provides market-
competitive benefits
at an appropriate cost
The Company provides a range of
cash benefits and benefits in-kind
to Executive Directors in line with
market practice.
These may include the provision of a
company car (or allowance), private
medical insurance, short- and long-term
sick pay and death in service cover.
The Company may also meet certain
mobility costs, such as relocation
support, expatriate allowances,
temporary living and travel and
subsistence expenses.
Benefits provision will also extend to
the reimbursement of taxable work-
related expenses, such as travel.
The provision of other benefits
payable to an Executive Director
is reviewed by the Committee
on an annual basis to ensure
appropriateness in terms of the type
and level of benefits provided.
In the case of non-UK executives,
the Committee may consider providing
additional allowances in line with
relevant market practice, including
expatriate benefits.
The Committee has not set a
maximum level of benefit, given
that the cost of certain benefits will
depend on the individual’s particular
circumstances.
However benefits will be set at an
appropriate level taking into account
market practice and the needs
for specific roles and individual
circumstances.
None.
Pension
Provides an
appropriate
levelofprovision for
post-retirement
income
The Group operates a defined
contribution scheme. Executive
Directors are provided with a
contribution to this scheme or a
cash allowance of equivalent value.
Base salary is the only pensionable
element of remuneration.
Company contribution (or cash
equivalent) is aligned with the
contributions available to the wider
workforce in the country where the
Executive Director lives and/or works.
None.
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Element and how
itsupports
our strategy Operation of the element
Maximum opportunity
under the element Performance measures
Annual bonus
To incentivise delivery
of strategy on an
annual basis and
reward superior
performance. The
deferred portion
of the bonus
supports longer-
term shareholder
alignment
The level of bonus is determined
by the Committee after the year
end based on performance against
targets.
65% of the bonus earned is paid
in cash shortly after the financial
year end with the remaining 35%
deferred into shares which vest after
three years subject to continued
employment.
Dividend equivalents are payable in
respect of the shares which vest.
Malus and clawback provisions apply
(see table on page 80).
The maximum opportunity is 200%
of base salary for the CEO and
150% of base salary for the CFO
and other Executive Directors.
Up to 30% of maximum may be
earned for threshold performance.
Awards are earned progressively
between threshold and maximum
performance.
At least 70% of the bonus will be
based on Group financial metrics with
the remainder based on non-financial
strategic and/or personal metrics.
The metrics, their weightings and
specific targets are reviewed on an
annual basis to ensure alignment to
strategy, with financial targets set by
reference to budget. Details of the
metrics, weightings and targets will
be fully disclosed on a retrospective
basis in the relevant year’s Annual
Report on Remuneration.
Discretion may be exercised in cases
where the Committee believe that
the bonus outcome is not a fair
and accurate reflection of business
performance. The exercise of this
discretion may result in a downward
or upward movement in the amount
of bonus earned resulting from the
application of the performance metrics.
Bodycote Incentive
Plan (BIP) 2016
To incentivise
delivery of long-term
strategic goals and
shareholder value
and aid retention of
Senior Management
Awards will normally be granted
annually under the Bodycote Incentive
Plan which vest after three years
subject to stretching performance
metrics and continued employment.
Awards will be subject to a two-year
post-vesting holding period.
Dividend equivalents are payable in
respect of the shares which vest.
Such amounts will normally be paid
inshares.
Malus and clawback apply (see table
on page 80).
A maximum opportunity of up
to 200% of base salary may be
awarded in respect of a financial
year.
For 2022, the maximum opportunity
will be equal to 175% of base salary.
Up to 25% of maximum may vest
for threshold performance.
Awards vest progressively
between threshold and maximum
performance.
Performance metrics are determined
annually reflecting the Group’s
strategic priorities and key
performance indicators.
It is expected that 2022 awards will
be based on ROCE (50%) and EPS
(50%).
Shareholding
requirement
To provide alignment
of interest between
Executive Directors
and shareholders
Executive Directors are expected to
build up and retain a holding in shares
equal to 200% of salary, within five
years from appointment.
Executive Directors who step down
from the Board following 1 January
2022 are required to retain a holding
in ‘guideline shares’ equal to 200% of
salary (or their actual shareholding at
the point of stepping down if lower)
for two years following them stepping
down.
‘Guideline shares’ do not include shares
which the Executive Director has
purchased or which have been
acquired pursuant to deferred share
awards or BIP awards granted before
1 January 2022. Unless the Committee
determines otherwise, an Executive
Director or former Executive Director
shall be deemed to have disposed
of shares which are not ‘guidelines
shares’ before ‘guideline shares’.
Board report on remuneration continued
Remuneration Policy Table continued
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Choice of performance metrics
Annual bonus performance metrics are selected to appropriately support the Group’s strategic objectives and provide a balance between
generating profit and cash to enable the Group to pay a dividend, reward its employees and make future investments; and achieve other
strategic goals to drive long-term sustainable return.
It is expected that the 2022 BIP awards will be based on ROCE and EPS. Due to the nature of the Company’s activities the Committee
consider ROCE to provide shareholders with an appropriate measure of how well the Company is performing and is being managed, while
headline EPS provides a measure of the level of value created for shareholders. ROCE and headline EPS are our top two KPIs as shown on
page 16 of the Annual Report.
The Committee retains discretion to adjust or set different performance metrics, weightings and/or targets if there is a material event (such as
a change in strategy, a material acquisition and/or divestment of a Group business or a change in prevailing market conditions) which causes
the Committee to determine that the original performance metrics, weightings and/or targets are no longer appropriate and the amendment
is required so that they achieve their original purpose. Should there be an adjustment to targets, the Committee will ensure that they are not
materially less challenging to satisfy than originally intended.
Share awards may be adjusted in the event of a variation of share capital or a demerger, delisting, special dividend or other event that may
affect the Company’s share price.
If the Committee were to make such adjustments, an explanation would be provided at the time of the event and/or in the following year’s
Annual Report on Remuneration.
Application of malus and clawback
Malus and clawback apply to annual bonus, deferred bonus and BIP awards as follows:
Malus Clawback
Annual bonus To such time as payment is made. Up to three years following payment.
Deferred bonus To such time as the award vests. No clawback provisions apply (as malus
provisions apply for three years from the date
of award).
BIP To such time as the award vests. Up to two years following vesting.
Malus and/or clawback may be applied in the following scenarios:
– Discovery of a material misstatement resulting in an adjustment in the audited accounts of the Group or any Group Company;
– The assessment of any performance condition was based on error, or inaccurate or misleading information;
– The discovery that any information used to determine the cash payment under the bonus, the number of shares subject to deferral or the
number of shares subject to an award was based on error, or inaccurate or misleading information;
– Action or conduct of a participant which amounts to fraud or gross misconduct;
– Action or conduct of a participant which results in reputational damage to the Group; or
– The Committee determining that there has been a material corporate failure.
Legacy arrangements
The Committee reserves the right to make any remuneration payments and payments for loss of office notwithstanding that they are not in line
with the Remuneration Policy set out on pages 77 to 79 where the terms of the payment were agreed: (i) before the Policy came into effect
(provided that the terms were consistent with any shareholder approved Remuneration Policy in force at the time they were agreed); or (ii) at a
time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration
for the individual becoming a Director of the Company. For these purposes ‘payments’ include the Committee satisfying awards of variable
remuneration and, in relation to an award over shares, the terms of the payment being ‘agreed’ at the time the award is granted.
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Illustration of application of remuneration policy for 2022
The remuneration packages for the Executive Directors are designed to provide an appropriate balance between fixed and variable
performance-related components. The Committee is satisfied that the composition and structure of the remuneration package is appropriate,
clearly supports the Group’s strategic ambitions and does not incentivise inappropriate risk taking. This is reviewed on an annual basis.
The chart below sets out illustrations of the value of each Executive Director’s remuneration package, should they achieve minimum, on-target
or maximum performance.
35%
39%
26% 22%
34%
44%
100%
29%
29%
42%
38%
33%
29%
28%
24%
48%
£822,680
£2,137,332
100%
38%
36%
26%
Minimum Maximum
with 50%
share price
increase
On-target
Maximum
Group Chief Executive – Stephen Harris Chief Financial Officer – Dominique Yates
Minimum Maximum
with 50%
share price
increase
On-target
Maximum
£3,198,556
£3,752,928
£552,767
£1,307,669
£2,307,117
£4,000,000
£3,500,000
£3,000,000
£2,500,000
£2,000,000
£1,500,000
£1,000,000
£500,000
Fixed pay
1
Annual Bonus
BIP
£1,934,982
For the purposes of the above analysis, the following methodology has been used:
Minimum performance – Fixed remuneration only
On-target performance – Fixed remuneration
– 60% of maximum annual bonus is earned
– 50% of maximum BIP vests
Maximum performance – Fixed remuneration
– 100% of maximum annual bonus is earned
– 100% of maximum BIP vests
Maximum performance +50% share price growth – As per the maximum performance illustration, but also assumes for the purposes
of the BIP that share price increases by 50% over the vesting period
1 Fixed remuneration comprises base salary as at 1 January 2022, benefits received in 2021 and pension opportunity applying from 1 January 2022.
Board report on remuneration continued
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Non-Executive Director (NED) Fee Policy
The Policy on Non-Executive Chair and Non-Executive Director (NED) fees is set out below.
Element and how
itsupports
our strategy Operation of the element
Maximum opportunity
under the element Performance measures
Fees for Non-
Executive Directors
To attract NEDs who
have a broad range
of experience and
skills to oversee the
implementation of
our strategy
The fees for the NEDs are determined
by the Non-Executive Chair and the
Group Chief Executive.
The fee for the Non-Executive Chair is
set by the Remuneration Committee.
The Non-Executive Chair and NED
fees are reviewed on an annual
basis. When reviewing fees, the
primary source of comparative market
data is companies of similar size
and complexity.
The fees for the Non-Executive Chair
and NEDs are set at a level that will
attract individuals with the necessary
experience and ability to make a
significant contribution to the Group’s
affairs. The fees reflect the time
commitment and responsibilities of
the roles.
The Non-Executive Chair and NEDs
are not entitled to any pension or
other employment benefits and do not
participate in any incentive plan.
The Company will pay reasonable
expenses incurred by the Non-
Executive Chair and NEDs and may
settle any tax incurred in relation
to these.
Fees for the Non-Executive Chair
and NEDs for the following year
are set out in the statement of
implementation of Policy on page 71.
The Company’s Policy is that the
Non-Executive Chair and NEDs
receive a fixed fee for their services
as members of the Board and its
Committees. The fee structure
may also include additional fees for
chairing a Board Committee and/or
further responsibilities (for example,
Senior Independent Directorship).
None.
Fees retained for External Non-Executive Directorships
To broaden the experience of Executive Directors, they may hold positions in other companies as NEDs provided that permission is sought in
advance. Any external appointment must not conflict with the Directors’ duties and commitments to Bodycote plc.
Statement of considerations of employment conditions elsewhere in the Group
The Company adopts a policy of positioning fixed pay for all its employees at a level which is competitive to the market but which does not
require the Company to pay any more than is necessary. Senior and high-performing individuals at all levels and across all functions within the
organisation are invited to participate in both annual and long-term incentive arrangements, similar to the Executive Directors to ensure reward
strategy is calibrated to provide substantive reward only on achievement of superior performance.
We operate Employee Engagement Groups (see page 49 of the Corporate Governance Statement), where a range of topics are actively
discussed with employees, including executive remuneration and employment conditions of all employees. Feedback from the Employee
Engagement Groups, alongside information provided by the Human Resources function, on pay and conditions across the Group and
employee satisfaction surveys is considered by the Committee as part of its discussions and decision making on executive remuneration.
Statement of consideration of Shareholders’ views
The Committee always welcomes the views of shareholders in respect of pay policy as well as those views expressed on behalf of
shareholders by their respective proxy advisers. The Committee documents all remuneration-related comments made at the Company’s
AGM and feedback received during consultation with shareholders throughout the year. Any feedback received is fully considered by
the Committee.
In developing the proposed Remuneration Policy for 2022 and beyond the Committee engaged with the Company’s major shareholders
(representing circa 80% of the Company’s issued share capital) and their representative bodies. Through this process the Committee
took on board the feedback received and refined the proposed Remuneration Policy as appropriate to ensure it meets the expectations of
our shareholders.
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Approach to Recruitment Remuneration
When recruiting new Executive Directors, the Company’s policy is to pay what is necessary to attract individuals with the skills and
experience appropriate to the role to be filled, taking into account remuneration across the Group, including other senior executives, and that
offered by companies of similar size and complexity. New Executive Directors will generally be appointed on remuneration packages with the
same structure and pay elements as described in the Policy table on pages 82 to 84.
Component Policy
Notice period The initial notice period may be longer than the Company’s one-year policy (up to a maximum of two
years). However, this will reduce by one month for every month served, until the Company’s one-year
policy position is reached.
Base salary Base salary levels will be set at an appropriate level to recruit the best candidate in consideration of
the individual’s existing salary, location, skills and experience and expected contribution to the role, the
current salaries of other Executive Directors in the Company and current market levels for the role.
If it is considered appropriate to appoint a new Executive Director on a below market salary (for example,
to allow them to gain experience in the role) their salary may be increased to a market level by way of
above wider workforce salary increases over two to three years. These increases will be subject to
continued development in the role.
Pension and benefits Pension contribution levels will be aligned with the contributions available to the wider workforce in the
country where the new Executive Director lives and works, in line with the Remuneration Policy.
Benefits will be considered in line with the Remuneration Policy. If the new Executive Director is required
to relocate, reasonable relocation, travel and subsistence payments may be provided (either via a one-off
or ongoing payments and benefits).
Annual bonus and
long-term incentives
Annual bonus and BIP awards will ordinarily be granted in line with the Remuneration Policy.
The new Executive Director may be invited to participate in the bonus on a pro-rated basis in the first year
of appointment.
The new Executive Director may be invited to participate in ‘in flight’ BIP awards on a pro-rated basis
when appointed.
The Committee may alter the performance metrics, performance period, vesting period, holding period
and deferral period of annual bonus or BIP awards, subject to the rules of the BIP, if the Committee
determines that the circumstances of the recruitment merit such alteration. An explanation would be
provided at the time of recruitment and/or in the following year’s Annual Report on Remuneration.
Long-term incentives Awards will be made under the BIP in line with the Remuneration Policy. The new Executive Director may
be invited to participate in ‘in flight’ BIP awards on a pro-rated basis when appointed.
Maximum level of
variable pay
The Company is required to set out the maximum amount of variable pay which could be paid to a new
Executive Director in respect of his/her recruitment. The Committee has set this figure as 400% of
base salary and this covers the maximum annual bonus and the maximum face value of any long-term
incentive awards. For the avoidance of doubt, this 400% variable pay limit excludes the value of any
‘buyout’ awards.
“Buyout” awards The Committee may make awards on hiring an individual to ‘buyout’ awards which will be forfeited on
leaving their previous employer. Our approach to this is to carry out a detailed review of the awards
which the individual will forfeit and calculate the estimated value of them. In doing so, we will consider
the vesting period, the option exercise period if applicable, whether the awards are cash or share-
based, performance-related or not, the Company’s recent performance and payout levels and any other
factors we consider appropriate. If a ‘buyout’ award is to be granted, the structure and level will be
carefully designed and will generally reflect and replicate the previous awards as accurately as possible.
Where considered appropriate, the award will be subject to forfeiture or malus and clawback provisions
in the event of early departure. An explanation would be provided at the time of recruitment and/or in the
following year’s Annual Report on Remuneration of why a ‘buyout’ award has been granted.
Internal promotions For internal promotions any commitments made prior to appointment may continue to be honoured as the
individual is transitioned to the new remuneration arrangements.
Other elements
of remuneration
Other elements may be included in the following circumstances:
– An interim appointment being made to fill an Executive Director role on a short-term basis.
– If exceptional circumstances require that the Non-Executive Chair or a NED takes an executive function on
a short-term basis.
– If an Executive Director is recruited at a time in the year when it would be inappropriate to provide an
annual bonus or BIP award for that year, subject to the limit on variable pay set out above, the quantum in
respect of the period employed during the year may be transferred to the subsequent year.
Any share award referred to in this section will be granted as far as possible under the Company’s share plans. To the extent that this is not
possible, share awards may be granted outside of these plans as permitted under the Listing Rules.
Board report on remuneration continued
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Shareholders will be informed of any Director appointment and the individual’s remuneration arrangements as soon as practicable following
the appointment.
Fee levels for a new Chairman or new Non-Executive Directors will be determined in accordance with the Remuneration Policy set out on
page 81.
Service Contracts
All Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office.
A summary of the key terms of the Executive Directors’ service contracts is set out below:
S.C. Harris, Group Chief Executive D. Yates, Chief Finance Director
Date of service
contract
6 October 2008 1 November 2016
Notice period 12 months’ notice to be provided by the Company
6 months’ notice to be provided by the Group
Chief Executive
12 months’ notice to be provided by either the Company or
Chief Finance Director
Remuneration – Annual base salary
– Potential for cash in lieu of pension
– Reimbursement of expenses (if satisfactory
evidence provided)
– Private medical insurance
– Company car allowance
– Entitlement to participate in an annual performance-
related bonus award
– Entitlement to participate in a long-term incentive plan
– Annual base salary
– Potential for cash in lieu of pension
– Reimbursement of expenses (if satisfactory
evidence provided)
– Private medical insurance
– Company car allowance
– Entitlement to participant in an annual performance-
related bonus award
– Entitlement to participate in a long-term incentive plan
Termination Company has right to terminate on payment of a
termination payment with agreement of executive
Company has right to terminate on payment of a
termination payment
Non-competition During employment and for 12 months thereafter During employment and for 12 months thereafter
Other than the contents of the contracts, there are no obligations that may give rise to remuneration.
All Non-Executive Directors (including the Chair) are engaged for an initial period of three years which thereafter may be extended by a
further three years and then on an annual basis. Non-Executive Directors (including the Chair) are subject to re-election at each AGM.
The appointment of Non-Executive Directors (including the Chair) may be terminated by either side on six months’ notice. The dates of each
Non-Executive Director’s initial appointment are set out below.
Director Date of initial appointment Expiry of current term
P. L a r mon 13 September 2016 AGM 2023
E. Lindqvist 1 June 2012 AGM 2023
I.B. Duncan 17 November 2014 AGM 2023
A. Quinn 1 January 2018 Retired 31 December 2021
L. Chahbazi 1 January 2018 AGM 2023
K. Boyd 1 September 2020 31 August 2023
D. Dayan 1 January 2022 AGM 2025
The Non-Executive Directors of the Company (including the Non-Executive Chair) do not have service contracts. The Non-Executive Directors
are appointed by letters of appointment. Each independent Non-Executive Director’s term of office runs for a maximum three year period.
Termination Remuneration Policy
It is the Company’s policy that Executive Directors have service contracts with a one-year notice period and terminable by one-year’s notice
by the employer at any time, and by payment of one year’s basic salary and other fixed benefits in lieu of notice by the employer. All future
appointments to the Board will comply with this requirement.
The Committee will honour Executive Directors’ contractual entitlements. Service contracts do not contain liquidated damages clauses.
If a contract is to be terminated, the Committee will determine such mitigation as it considers fair and reasonable in each case. There are
no contractual arrangements that would guarantee a pension with limited or no abatement on severance or early retirement. There is no
agreement between the Company and its Executive Directors or employees, providing for compensation for loss of office or employment that
occurs because of a takeover bid.
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Component Policy
Compensation for loss of office
in service contracts
Under the terms of the Chief Executive’s contract, the Company may at its choice, in lieu of giving notice,
terminate his service contract by making a payment equivalent to; one year’s annual base salary, 25%
of base salary in respect of all other remuneration and benefits (other than annual bonus and incentives)
and annual bonus equal to the average bonus paid up to three years prior to the date of notice. For the
purposes of transparency, if the Chief Executive had left Bodycote in 2021, and the Group had chosen to
make a compensation payment in lieu of giving notice, this would have comprised: £601,199 (one year
of base salary) +£152,300 (25% of base salary) +£282,750 (3 year average bonus over 2018-2020) =
£1,036,249.
Under the terms of the Chief Financial Officers’ contract, the contract is terminable by one year’s notice
by the employer at any time, and by payment of one year’s basic salary and other fixed benefits in lieu of
notice by the employer.
Treatment of cash element
of the bonus under
Plan rules
If the Committee determines that the individual is a ‘good leaver’ in accordance with the plan rules, the
level of bonus will be measured at the bonus measurement date. Bonus will normally be pro-rated for
the period worked during the financial year and subject to the achievement of the original performance
metrics. The Committee retains the discretion:
– not to pro-rate the bonus to time; and/or
– pay the bonus at the time of cessation of employment (with performance measured at the time
of payment).
Under all other circumstances no bonus will be earned on cessation of employment (other than set out
above in the legacy arrangements for the Chief Executive).
Any bonus earned for the year of departure and, if relevant, for the prior year may be paid wholly in cash
at the discretion of the Committee.
Treatment of unvested
deferred bonus awards
under Plan rules
If the Committee determines that the individual is a ‘good leaver’ in accordance with the plan rules,
deferred shares may be released to the participant at the normal vesting date. The Committee retains
the discretion:
– not to pro-rate the deferred shares to time; and/or
– to vest deferred shares at the date of cessation of employment.
Under all other circumstances unvested awards will lapse on cessation of employment.
Treatment of unvested
BIP 2016
On cessation of employment during the vesting period, awards under the BIP will lapse in full, unless
the Committee determines that the individual is a ‘good leaver’ in accordance with the plan rules.
In instances where the Committee determines that award should not lapse in full, awards will normally
vest at the normal vesting date, pro-rated for time served between the date of grant and date of cessation
of employment and subject to the achievement of the original performance metrics. To the extent that
awards vest, a two-year holding period will then apply.
The Committee retains the discretion to:
– not to pro-rate the awards to time;
– to vest and release awards at the date of cessation of employment (with performance measured at the
time of vesting); and/or
– to reduce or not to apply the two-year holding period.
On cessation of employment during the two-year holding period, awards under the BIP will normally
remain subject to the holding period. The Committee retains the discretion to reduce or not to apply the
remainder of the holding period.
Exercise of discretion In the event that an Executive Director leaves the Company, the Committee’s policy for exit payments
is to consider the reasons for cessation and consequently whether any exit payments other than those
contractually required are warranted.
Further, in the event of a compromise or settlement agreement, the Committee may agree payments it
considers reasonable in settlement of legal claims. This may include an entitlement to compensation in
respect of their statutory rights under employment protection legislation in the UK or in other jurisdictions.
The Committee may also include in such payments reasonable reimbursement of professional fees in
connection with such agreements.
Change of control On change of control the awards under the Company’s incentive plans will generally vest subject to
performance and time apportionment as determined by the Committee and in accordance with the rules
of the relevant Plan.
Other payments In appropriate circumstances, payments may also be made in respect of accrued holiday, outplacement
and legal fees.
The discretions noted in the table above will only be used in circumstances where there is an appropriate business case. If the Committee
were to use such discretion, an explanation would be provided at the time of cessation of employment and/or in the following year’s Annual
Report on Remuneration.
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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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ofBodycote plc
Report on the audit of the financial statements
Opinion
In our opinion:
– Bodycote plc’s Group financial statements and Company financial statements (the ‘financial statements’) give a true and fair view of the state of
the Group’s and of the Company’s affairs as at 31 December 2021 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;
– the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law); and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the Group consolidated balance sheet and
the Company balance sheet as at 31 December 2021; the Group consolidated income statement and the Group consolidated statement of
comprehensive income, the Group consolidated cash flow statement, and the Group 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 Group financial statements, we have provided no non-audit services to the Company
oritscontrolled 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. During 2021,
the Group continued its recovery from the COVID-19 pandemic and progressed with the restructuring programme announced in 2020,
resulting in an improved level of profitability for the financial year. In planning our work, we were also mindful of the increased focus on
the impacts of climate change risk on the companies and their financial reporting. As part of our audit we made enquiries of management
to understand the process that they have adopted to assess the extent of the potential impact of climate change on the Group's financial
statements. Management considers that the impact of climate change does not give rise to a material financial statement impact. We used
our knowledge of the Group to evaluate management's assessment. We particularly considered how climate change risks would impact the
assumptions made in the forecasts prepared by management and used in their impairment analyses and going concern. We also considered
the consistency of the disclosures in relation to climate change made in the other information within the Annual Report with the financial
statements and our knowledge from our audit.
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 component teams to perform full scope audit procedures over additional components to ensure
we achieved an appropriate level of audit coverage.
Key audit matters
– Impairment assessment of goodwill (Group)
– Uncertain tax positions (Group)
– Valuation of defined benefit pension schemes (Group and Company)
Materiality
– Overall Group materiality: £5,700,000 (2020: £5,200,000) based on professional judgement considering a number of potential benchmarks
(specifically revenue and certain profit based benchmarks, both for the current year and over a number of years), given that using 5% of a three
year average of profit before tax and exceptional items (as used in the prior year) would have resulted in a lower level of materiality in 2021 than
in 2020 despite the fact that the Group's profit before tax has increased year-on-year.
– Overall Company materiality: £5,100,000 (2020: £5,500,000) based on approximately 1% of total assets.
– Performance materiality: £4,275,000 (2020: £3,900,000) (Group) and £3,825,000 (2020: £4,125,000) (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
aseparate opinion on these matters.
This is not a complete list of all risks identified by our audit.
The valuation of defined benefit pension schemes is a new key audit matter this year. The impact of COVID-19, restructuring costs and the
acquisition of Ellison Surface Technologies, which were key audit matters last year, are no longer included because of the lower impact that
these matters have had on the Group's financial statements in 2021. Otherwise, the key audit matters below are consistent with last year.
Key audit matter How our audit addressed the key audit matter
Impairment assessment of goodwill (Group)
The Group has goodwill of £213.9 million as at 31 December
2021 (2020: £215.5 million). Refer to note 9 of the Group financial
statements and the Audit Committee’s views set out on page 60.
For the CGUs to which goodwill relates (which require an
annual impairment test), the determination of the recoverable
amount, being the higher of value-in-use (VIU) and fair value
less costs of disposal (FVLCD), requires judgement and
estimation by management. This is because the determination
of a recoverable amount includes management’s consideration
of key internal inputs and external market conditions such as
future market 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.
There is ongoing uncertainty around the timing of recovery for
many key sectors in which the Group operates, as the global
economy moves on from the COVID-19 pandemic. Therefore,
weconsidered the impairment assessment of goodwill to be a
keyaudit matter.
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 CGU and the material goodwill balances held in
those CGUs.
We obtained the Group’s impairment assessment and tested the
integrity of the calculation. We corroborated the 2022 forecast to the
Board-approved Strategic Plan, understanding the rationale behind any
variances, and assessed the assumptions made by management in
the budgeting process. We also understood management’s process
for forecasting longer-term cash flows, in particular focusing on the
assumptions used through to 2025 and the expected recovery in the
Group’s revenues and underlying margin performance.
We agreed the underlying carrying values of the CGUs to audited
financial information.
We challenged management’s key assumptions for profit and cash
flow budgets by comparing them with third-party forecast market data,
where available, and considered the allocation of central costs to CGUs.
We also performed look back testing to understand how accurate
management had been in its forecasting historically, taking into account
the unforeseen impact of COVID-19.
Our valuations experts compared 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 the weighted
average cost of capital (‘WACC’), and considered whether the rate
used by management was within a supportable range. We used this
independently calculated WACC and our estimate of the long-term
growth rate, alongside our view of an appropriate allocation of corporate
overheads to each CGU and certain other assumptions, to calculate our
view of the recoverable amount.
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 related disclsoures in note 9
to the Group financial statements.
Based on the procedures performed, we noted no material issues from
our work.
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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 notes
6, 19 and 29 of the Group's financial statements, and the Audit
Committee’s views set out on page 61.
In particular, the interpretation of complex tax regulations and
the unknown future outcome of any 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 £24.0 million (2020: £22.1 million), and
forthis reason, we considered uncertain tax positions to be
akey 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 factors
such as possible penalties and interest that could be imposed by the
local tax authorities. We also determined whether the tax provisions
were recognised and measured in accordance with the relevant
accounting standards.
Where provisions have not been established, we evaluated the basis for
management’s judgements, including an assessment of the treatment
of similar exposures at comparable companies. We evaluated third party
advice obtained by the Group as we independently formed our view
about the likelihood of these possible tax risks crystallising in future
cash outflows. In relation to EU State Aid, we reviewed correspondence
from the UK tax authorities to determine if a contingent liability was still
required to be disclosed.
We considered the appropriateness of the related disclosures in notes
6, 19 and 29 to the Group financial statements.
We noted no material issues from our work, based on our audit
procedures performed.
Independent auditors’ report continued
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Key audit matter How our audit addressed the key audit matter
Valuation of defined benefit pension schemes (Group and Company)
The Group operates a number of defined benefit pension
schemes across a number of territories. Accounting for these
schemes can be complex, and necessitates a higher level of
audit effort. See the Group’s accounting policies, note 28 of the
Group's financial statements and the Audit Committee’s views
set out on page 61.
The Group’s net retirement benefit obligation is £13.9 million
(2020: £16.2 million). This net position also includes the UK
scheme, which had an accounting surplus of £14.0 million as at
31 December 2021, which is unrecognised.
The assets of the Group’s schemes total £128.1 million.
Auditing the valuation of assets can be complex given the
schemes invest in Pooled Investment Vehicles (PIVs), which
may not have coterminous year ends with the Group’s financial
statements, or hold complex underlying assets.
The obligations of the Group’s schemes total £125.9 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.
Given the UK surplus remains unrecognised, the likelihood
of a material misstatement in relation to retirement benefit
obligations is low and consequently the risk for the audit is
identified as normal. However, since this audit area involves
relatively high audit effort for both the Group and the Company,
we have included it as a Key Audit Matter.
With respect to the UK scheme 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
liabilities during the year was reasonable.
Independent investment manager confirmations were obtained for all
material PIVs and bank letters obtained for all scheme bank accounts.
The total value was agreed to the Group’s asset listing.
An assessment was performed on each PIV to determine whether it is
inherently simple or more complex in nature. More complex funds were
subject to additional procedures and additional evidence was obtained
to corroborate the valuation. This included a review of transactions
around the year end (if any), where the fund valuation date and the
financial year end were not coterminous, to establish the completeness
and accuracy of the valuation, and obtaining and reviewing the
investment manager’s latest internal controls report to assess any
issues with the control environment or exceptions noted with controls
relating to the valuation of assets (and obtaining bridging letters for
the gap between the report and the year end). Prior year PIV audited
financial statements were also obtained and reviewed in comparison
with unaudited statements and the year end valuation provided.
We assessed management’s rationale for not recognising the surplus
on the UK scheme, in line with accounting standards. We confirmed
the appropriateness of this judgement with our internal actuarial and
accounting experts.
Certain of the above procedures were also performed by component
teams in their related audit work on overseas schemes, where relevant.
We considered the appropriateness of the related disclosures in note 28
of the Group financial statements.
Based on this work, no material issues were noted.
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How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
awhole, 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,
asthe Group engagement team, or component auditors operating under our instruction.
We identified one component (2020: one) as financially significant in 2021 (as defined within ISAs (UK)). We obtained full scope audit
reporting from a further twelve components (2020: eleven), where we concluded that the component engagement leader is a Key Audit
Partner, and an additional nine (2020: ten) 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 80% of the Group’s revenue (2020: 80%)
and78% of consolidated absolute profit before tax (2020: 73%).
Specified procedures over specific financial statement line items were performed at one further component (2020: 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 component's 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. Due to the ongoing travel restrictions caused by COVID-19, all interactions
with component auditors were virtual but, through the utilisation of technology, our interactions included attending certain component audit
clearance meetings, as well as considering and assessing any matters reported. The Group engagement team also reviewed selected audit
working papers for certain in-scope component teams, including those components where we concluded that the component engagement
leader is a Key Audit Partner. In addition, given the extent of testing performed by our Czech Republic team at the Group’s Prague Shared
Services Centre, which supports the financial accounting for the majority of the Group’s European businesses, a working paper review was
also conducted of this team’s work.
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:
Financial statements – Group Financial statements – Company
Overall
materiality
£5,700,000 (2020: £5,200,000). £5,100,000 (2020: £5,500,000).
How we
determined it
Based on professional judgement considering a number of
potential benchmarks (specifically revenue and certain profit
based measures), given that using 5% of a three-year average of
profit before tax and exceptional items (as used in the prior year)
would have given us a lower level of materiality in 2021 than
in 2020 despite the fact that the Group's profit before tax has
increased year-on-year.
Approximately 1% of total assets.
Rationale for
benchmark
applied
As noted above, 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 improved
performance of the Group in the current year. The materiality
selected is equivalent to approximately 7% of current year profit
before tax (2020: approximately 5% of a three-year average of
profit before tax and exceptional items).
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 £450,000 and £3,000,000.
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.
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Our performance materiality was 75% (2020: 75%) of overall materiality, amounting to £4,275,000 (2020: £3,900,000) for the Group financial
statements and £3,825,000 (2020: £4,125,000) 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 £285,000 (Group
audit) (2020: £260,000) and £255,000 (Company audit) (2020: £275,000) 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 2022 used in the base case scenario to the Board approved budget and testing the assumptions used in determining
these cash flows;
– For the period of the assessment not covered by the budget, we analysed the forecasts projected by management and considered these in the
context of wider market data; and
– We assessed the severe but plausible downside scenario adopted by management, ensuring that it was appropriate in the context of the
Group’s performance during the COVID-19 pandemic.
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
12 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
ofthe 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, which includes reporting based on the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations. 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 theUK 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
asdescribed 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 2021 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 Board report on remuneration to be audited has been properly prepared in accordance with the Companies Act 2006.
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.
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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
toadd 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
soovera period of at least 12 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
theperiod 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 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 and the Listing Rules. We evaluated management’s incentives and opportunities for
fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were
related to posting inappropriate journal entries and management bias in accounting estimates and judgements. The Group engagement team
shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in
their work.
Independent auditors’ report continued
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Strategic report Financial statements
Audit procedures performed by the Group engagement team and/or component auditors included:
– Discussions with management, Internal Audit and the Group’s internal legal counsel, including consideration of potential instances of
non-compliance with laws and regulation and fraud;
– Assessment of matters reported through the Group’s whistle-blowing 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 uncertain
tax positions and the impairment assessment 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
Part16 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
notvisited by us; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– the Company financial statements and the part of the Board 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 three years, covering
the years ended 31 December 2019 to 31 December 2021.
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
14 March 2022
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Consolidated income statement
For the year ended 31 December 2021
Note
2021
£m
2020
£m
Revenue 1 615. 8 5 9 8. 0
Cost of sales and overheads excluding exceptional items (5 33 .2 ) (5 35.0 )
Net impairment gains on financial assets 1. 2 0. 4
Operating profit prior to exceptional items 1,2 8 3.8 6 3.4
Exceptional items 4 – (58.4 )
Operating profit 2 83 .8 5 .0
Finance income 5 0. 3 0. 2
Finance charge 5 (6 .6 ) (6.7 )
Profit/(loss) before taxation 7 7. 5 (1. 5 )
Taxation (charge)/credit 6 (1 7. 5 ) 2.3
Profit for the year 6 0.0 0 .8
Attributable to:
Equity holders of the Parent 59. 5 0. 4
Non-controlling interests 0.5 0. 4
Earnings per share 8
Pence Pence
Basic 31. 2 0 .2
Diluted 31. 2 0. 2
All activities have arisen from continuing operations. Total cost of sales and overheads, including exceptional items, was £5 3 3. 2 m
(2020: £5 93 .4 m).
Consolidated statement of comprehensive income
For the year ended 31 December 2021
Note
2021
£m
2020
£m
Profit for the year 60 .0 0. 8
Items that will not be reclassified to profit or loss:
Actuarial gains on defined benefit pension schemes 28 1.7 0.5
Tax on items that will not be reclassified 19 0 .1 (0 .1 )
Total items that will not be reclassified to profit or loss 1. 8 0. 4
Items that may be reclassified subsequently to profit or loss:
Exchange losses on translation of overseas operations (14 . 8 ) (1. 4 )
Movements on hedges of net investments 18 0.5 1 .1
Movements on cash flow hedges 0.5 –
Total items that may be reclassified subsequently to profit or loss (13 . 8 ) (0. 3 )
Other comprehensive (expense)/income for the year (12 . 0 ) 0 .1
Total comprehensive income for the year 4 8.0 0. 9
Attributable to:
Equity holders of the parent 4 8. 2 0. 8
Non-controlling interests (0. 2 ) 0 .1
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Strategic report Financial statements
Consolidated balance sheet
At 31 December 2021
Note
2021
£m
2020
£m
Non-current assets
Goodwill 9 213 .9 215 . 5
Other intangible assets 10 1 0 8 .1 10 8 . 0
Property, plant and equipment 11 4 89. 3 52 2.6
Right-of-use assets 12 5 7. 6 6 9.0
Investment in associate 24 – 4 .1
Deferred tax assets 19 2 .2 2. 4
Trade and other receivables 14 1. 6 2 .1
Current assets
Inventories 13 19.3 15 . 8
Current tax assets 20.6 2 0.7
Trade and other receivables 14 11 7. 0 11 6 . 2
Cash and bank balances 15 3 9.3 3 0.7
Derivative financial instruments 18 0. 5 –
Assets held for sale 16 0.4 2. 9
Total assets 1, 0 69 . 8 1 ,11 0 . 0
Current liabilities
Trade and other payables 20 110 . 0 17 0 . 9
Current tax liabilities 34 .0 3 0 .7
Borrowings 17 91.7 5 3. 2
Lease liabilities 12 12. 9 13 . 6
Provisions 21 14. 4 2 6.0
Net current liabilities (6 5. 9 ) (1 0 8 .1 )
Non-current liabilities
Lease liabilities 12 51. 6 6 2.0
Retirement benefit obligations 28 13. 9 16 . 2
Deferred tax liabilities 19 4 7. 0 4 2.7
Provisions 21 7. 4 11 . 0
Other payables 20 1. 5 2.3
Total liabilities 3 84 .4 42 8.6
Net assets 6 8 5.4 6 8 1. 4
Equity
Share capital 22 3 3 .1 3 3 .1
Share premium account 1 7 7.1 17 7.1
Own shares (6. 2 ) (6.9 )
Other reserves 13 6 .5 13 2. 6
Translation reserves 24 .8 3 7. 9
Retained earnings 319. 4 3 0 6 .7
Equity attributable to equity holders of the parent 68 4 .7 6 8 0.5
Non-controlling interests 0.7 0.9
Total equity 6 85.4 6 8 1. 4
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue on
14 March 2022.
They were signed on its behalf by:
S.C. Harris D. Yates
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Consolidated cash flow statement
For the year ended 31 December 2021
Note
2021
£m
2020
£m
Net cash from operating activities 25 14 4 . 3 1 3 9 .1
Investing activities
Purchases of property, plant and equipment (4 5 .1 ) (5 7. 8 )
Proceeds on disposal of property, plant and equipment and intangible assets 11 .7 1. 9
Purchases of other intangibles assets (6 .9 ) (2 .1 )
Proceeds from disposal of investment in an associate 1. 5 –
Acquisition of businesses, net of cash acquired 23 (66 .0 ) (6 6 .7 )
Interest received 0. 3 0.3
Net cash used in investing activities (1 0 4 . 5 ) (12 4 . 4 )
Financing activities
Interest paid (5 .5 ) (5.0 )
Dividends paid 7 (4 9. 0 ) (2 5 .1 )
Principal elements of lease payments (14 . 4 ) (15 . 5 )
Drawdown of bank loans 155 .5 10 1. 9
Repayments of bank loans (11 6 . 9 ) (6 2 .1 )
Own shares purchased – (0.5 )
Net cash used in financing activities (30. 3 ) (6.3 )
Net increase in cash and cash equivalents 9. 5 8 .4
Cash and cash equivalents at beginning of year 29. 2 20 .9
Effect of foreign exchange rate changes (0. 8 ) (0 .1 )
Cash and cash equivalents at end of year 25 3 7. 9 29 .2
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Strategic report Financial statements
Consolidated statement of changes in equity
For the year ended 31 December 2021
Share
capital
£m
Share
premium
account
£m
Own
shares
£m
Other
reserves
£m
Translation
reserves
£m
Retained
earnings
£m
Equity
attributable
to equity
holders of
the parent
£m
Non-
controlling
interests
£m
Total
equity
£m
1 January 2020 3 3 .1 17 7. 1 (11 . 6 ) 13 6 .7 3 7. 9 3 3 1. 8 70 5. 0 0. 8 70 5. 8
Profit for the year – – – – – 0 .4 0. 4 0. 4 0 .8
Exchange differences on translation of
overseas operations – – – – (1.1 ) – (1.1 ) (0.3 ) (1. 4 )
Movements on hedges of net investments – – – – 1 .1 – 1 .1 – 1.1
Actuarial gains on defined benefit pension
schemes net of deferred tax – – – – – 0 .4 0. 4 – 0 .4
Total comprehensive income for the year – – – – – 0 .8 0. 8 0 .1 0. 9
Acquired in the year/settlement of share
options – – 4 .7 (4.5 ) – (0.8 ) (0.6 ) – (0.6 )
Share-based payments – – – 0 .4 – – 0 .4 – 0. 4
Dividends – – – – – (2 5 .1 ) (2 5 .1 ) – (2 5 .1 )
31 December 2020 3 3 .1 1 7 7.1 (6. 9 ) 13 2 .6 3 7. 9 3 06 .7 68 0.5 0. 9 6 8 1.4
Profit for the year – – – – – 5 9.5 5 9.5 0. 5 60 .0
Exchange differences on translation of
overseas operations – – – – (1 4 .1 ) – (1 4 .1 ) (0 .7 ) (14 . 8 )
Movements on hedges of net investments – – – 0.5 – – 0 .5 – 0.5
Movements on cash flow hedges – – – 0. 5 – – 0. 5 – 0.5
Actuarial gains on defined benefit pension
schemes net of deferred tax – – – – – 1. 8 1.8 – 1. 8
Total comprehensive income for the year – – – 1. 0 (1 4 .1 ) 61. 3 4 8. 2 (0. 2 ) 4 8.0
Acquired in the year/settlement of share
options – – 0 .7 (0. 8 ) – 0 .1 – – –
Share-based payments – – – 4 .7 – – 4.7 – 4.7
Deferred tax on share-based payment
transactions – – – – – 0. 3 0. 3 – 0. 3
Dividends – – – – – (49 .0 ) (4 9.0 ) – (4 9.0 )
31 December 2021 3 3 .1 1 7 7.1 (6. 2 ) 1 3 7. 5 23 .8 31 9.4 6 8 4 .7 0 .7 68 5.4
Included in other reserves is a capital redemption reserve of £129.8 m (2020: £129.8 m) and a share-based payments reserve of £4.7 m
(2020: £2. 0 m). The capital redemption reserve arose from B shares which were converted into deferred shares in 2008 and 2009, and as a
result, £1 2 9. 8 m 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 2021: 775,962
(2020: 865,565) ordinary shares of 17
3
/
11
p each were held by the Bodycote International Employee Benefit Trust to satisfy share-based
payments under the Group's incentive schemes (see note 26).
Certain subsidiaries in the UK have taken an exemption to be audited. Refer to page 145 for further information.
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Group accounting policies
Year ended 31 December 2021
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. There are no differences for the Group
in applying each of these accounting frameworks.
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 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 management has considered the impact of climate change particularly in the context of the
disclosures included in the Strategic Report. These considerations did not have a material impact on the financial reporting judgements and
estimates, consistent with the assessment that climate change is not expected to have a significant impact on the Group’s going concern
assessment nor on the viability of the Group.
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 Group’s 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 COVID-19 on the Group’s activities, performance and revenue, in addition to other factors and risks,
has 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 and potential severe but plausible impacts on revenues, profits and cash flows which
envisages ‘stress’ or ‘downside’ scenarios.
Management has modelled a base case scenario, built upon the budgeting and forecasting processes for 2022 and extended up to March
2023. This model shows an improvement in performance in both revenue and profits compared to 2021, albeit with operating profit remaining
slightly below 2019 levels. The Group’s record of cash conversion was used to estimate the cash generation and level of net debt over that
period. Management then established a severe but plausible downside scenario which assumes a significant decline in revenues broadly
consistent with the decline experienced during the COVID-19 pandemic, with a significant revenue shortfall of around 20% below the base
case modelled through to the end of March 2023.
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 an 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 meets its gearing and interest cover covenants under the Revolving Credit Facility with
substantial headroom.
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 2026. The Group’s committed facilities at 31 December 2021
totalled £255.3m while uncommitted facilities totalled £54.6m. At 31 December 2021, the Group's Revolving Credit Facility had drawings of
£90.3m (2020: £51.7m) and the Group's net debt was £51.9m (2020: £22.5m). The liquidity headroom was £202.8m at 31 December 2021
(2020: £221.7m) excluding uncommitted facilities.
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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. 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 or disclosure
of contingent liabilities 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. Refer to notes 6, 19 and 29 for more information.
– The Group has taken the decision not to recognise an asset in relation to the surplus on the UK defined benefit pension scheme. See note 28
for further details.
– Certain items have been disclosed as exceptional costs where the Directors consider that they meet this definition as outlined in the Group’s
accounting policy below and note 4.
Significant accounting estimates
– Accounting for retirement benefit schemes under IAS 19 (revised) requires an assessment of the future benefits payable in accordance with
actuarial assumptions. The discount rate 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 28.
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 for more information.
– The impact of the COVID-19 pandemic brought considerable change to the risk landscape. The Group has implemented mitigation activities.
The Directors’ view is that there is no significant risk of the continuing COVID-19 pandemic causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year and therefore this does not represent a key source of estimation uncertainty.
– Climate change is a global challenge and a principal risk for the Group. Growing awareness of climate change contributes to the Group’s
business growth as we provide products, services and solutions that increase efficiency and reduce energy use. The Group does not view
climate change as a key source of estimation uncertainty. For further details, refer to the Strategic Report and note 9.
Group Accounting Policies
Revenue recognition
The Group predominantly has one revenue stream relating to thermal processing services with either identifiable customer contracts or
specific terms and conditions. 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 timeframe. 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 should validly be 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 profit on disposal of investment in associates, scrap sales, asset sales and other items of operating
income not generated in the normal course of business.
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.
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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 126); 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. The income is presented net against the applicable costs within cost of sales and overheads. Any general economic support is
presented within other operating income in the consolidated income statement.
Operating profit
Operating profit is stated after charging restructuring costs, goodwill impairment, impairment of intangible assets, amortisation of acquired
intangible assets, support from government grants and after the post-tax share of results of associates and any gains or losses on disposal of
investments in associates, but before finance income and finance costs.
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.
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 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.
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 not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each
cash-generating unit expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated
are tested for impairment at least annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable
amount of 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.
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%
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Amortisation is recognised within administration expenses, which is included in cost of sales and overheads.
Costs associated with maintaining software programs 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.
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.
Capitalised development costs are recorded as intangible assets and are amortised from the point at which the asset is available for its
intended use.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost of assets, other than freehold land and assets under construction which is not depreciated,
less their residual values, over their estimated useful lives, using the straight-line method, on the following bases:
Freehold buildings 2%
Leasehold improvements over the projected life of the lease
Fixtures and fittings 10%-20%
Plant and machinery 5%-20%
Motor vehicles 20%-33%
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in income 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 (revised) Employee Benefits respectively; and
– liabilities or equity instruments related to the replacement by the Group of an acquiree’s share-based payment awards are measured in
accordance with IFRS 2 Share-based 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, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are 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 cash
flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of
the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately 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.
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
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charged to the consolidated income statement. If the calculation results in a surplus, the recognised asset is limited, under the provisions of
IFRIC14, 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.
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 Group’s right to use the underlying leases 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 to 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.
Investments in associates
An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through
participation in the financial and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting.
Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net
assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest
in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are
recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Group’s share of the fair values of the identifiable assets, liabilities and contingent liabilities
of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment.
Any deficiency of the cost of acquisition below the Group’s share of the fair values of the identifiable assets, liabilities and contingent
liabilities of the associate at the date of acquisition (i.e. discount on acquisition) is credited in the consolidated income statement in the period
of acquisition.
Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in
the relevant associate. Losses may provide evidence of an impairment of the asset transferred, in which case appropriate provision is made
for impairment.
On sale of an associate, any gain or loss is calculated based on the carrying value at the date of disposal and is presented within other
operating income in the consolidated income statement.
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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, financial liabilities are not generally interest-bearing and are stated at their nominal value unless
otherwise described below.
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.
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.
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.
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Net investment hedge
The Group uses foreign currency debt to hedge its exposure to changes in the underlying value of net assets of overseas operations arising
from foreign exchange rate movements. The Group maintains documentation of the relationship between the hedged item and the hedging
instrument at the inception of a hedging transaction together with the risk management objective and the strategy underlying the designated
hedge. The Group also documents its assessment, both at the inception of the hedging relationship and subsequently on an ongoing basis, of
the effectiveness of the hedge in offsetting movements in the fair values or cash flows of the hedged items.
To the extent the hedge is effective, changes in the fair value of the hedging instrument arising from the hedged risk are recognised in the
consolidated statement of comprehensive income and accumulated in the translation reserve. 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. Bodycote utilises cross-currency
interest rate swaps where possible to manage the cash flow exposures of borrowings denominated in foreign currencies.
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 the translation reserve. 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 goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where
the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only
recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based
on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the
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.
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.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the fair value, net of transaction costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are accounted for on an 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.
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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
During the current year, the Group has applied a number of amendments to IFRS Standards and Interpretations issued by the International
Accounting Standards Board (IASB) and the IFRS interpretation committee (IFRS IC) that were effective for annual periods that begin on
or after 1 January 2021. Their adoption has not had a material impact on the disclosures or on the amounts reported in these consolidated
financial statements:
– Attributing pension benefits to periods of service (Interpretations Committee decision relating to IAS 19);
– Configuration or customisation costs in a cloud computing arrangement (Interpretations Committee decision paper relating to IAS 38); and
– Interest rate benchmark reform (Amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16) – At the end of 2021, the LIBOR reference rate was
phased out and transitioned to the sterling overnight index average (SONIA). This new reference only impacts the Group’s GBP borrowings
under its RCF agreement and its cross-currency swap for GBP borrowings which as of 31 December 2021 has become the new reference rate.
The impact of this change on these financial statements is not material.
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:
– IFRS 17 (insurance contracts);
– Amendments to IAS 16: Proceeds before intended use;
– Amendments to IAS 37: Cost of fulfilling a contract;
– Annual improvements to IFRS Standards 2018-2020 cycle;
– Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single Transaction; and
– Amendments to IAS 1: Classification of liabilities as current or non-current.
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 45.
The nature of the Group’s operations and its principal activities are included within the Group’s Strategic report.
Information on the Group’s objectives, policies and processes are included within the Group’s Strategic report.
Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment
in which the entity operates. The consolidated financial statements are presented in pounds sterling, which is the functional and presentation
currency of the Company. Foreign operations are included in accordance with the policies set out in the Foreign Currencies accounting policy
on page 141.
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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,
splitbetween the Aerospace, Defence & Energy (ADE) and Automotive & General Industrial (AGI) business areas, as follows:
– ADE – Western Europe;
– ADE – North America;
– ADE – Emerging Markets;
– AGI – Western Europe;
– AGI – North America; and
– AGI – Emerging Markets.
The split of operating segments by geography reflects the business reporting structure of the Group.
We have also presented combined results of our two key business areas, ADE and AGI. The split being driven by customer behaviour and
requirements, geography, and services provided. Customers in the ADE segment tend to operate and purchase more globally and have long
supply chains, whilst customers in the AGI segment tend to purchase more locally and have shorter supply chains.
Bodycote plants do not exclusively supply services to customers of a given market sector. Allocations of plants between ADE and AGI is
therefore derived by reference to the preponderance of markets served.
Group
ADE
2021
£m
AGI
2021
£m
Central costs
and
eliminations
2021
£m
Consolidated
2021
£m
Revenue
Total revenue 245.6 370.2 – 615.8
Result
Headline operating profit prior to share-based payments and
unallocated central costs 45.2 72.5 – 117.7
Share-based payments (including social charges)
1
(1.0) (3.0) (1.0) (5.0)
Unallocated central costs – – (17.9) (17.9)
Headline operating profit/(loss) 44.2 69.5 (18.9) 94.8
Amortisation of acquired intangible assets (6.7) (3.6) – (10.3)
Acquisition costs (0.5) – (0.2) (0.7)
Operating profit/(loss) prior to exceptional items 37.0 65.9 (19.1) 83.8
Exceptional items (4.2) (0.6) 4.8 –
Segment result 32.8 65.3 (14.3) 83.8
Finance income 0.3
Finance costs (6.6)
Profit before taxation 77.5
Taxation (17.5)
Profit for the year 60.0
1 £4.7m (2020:£0.4m) IFRS 2 share-based payment charge in the year plus £0.3m (2020: £1.3m credit) social security charges.
Inter-segment sales are not material in either year.
The Group does not have any one customer that contributes more than 10% of revenue.
Notes to the consolidated financial statements
Year ended 31 December 2021
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1. Business and geographical segments continued
Aerospace, Defence & Energy
Western
Europe
2021
£m
North
America
2021
£m
Emerging
Markets
2021
£m
Total ADE
2021
£m
Revenue
Total revenue 105.3 136.0 4.3 245.6
Result
Headline operating profit prior to share-based payments 21.7 23.3 0.2 45.2
Share-based payments (including social charges) (0.4) (0.6) – (1.0)
Headline operating profit 21.3 22.7 0.2 44.2
Amortisation of acquired intangible assets – (6.7) – (6.7)
Acquisition costs (0.5) – – (0.5)
Operating profit prior to exceptional items 20.8 16.0 0.2 37.0
Exceptional items (1.7) (2.5) – (4.2)
Segment result 19.1 13.5 0.2 32.8
Automotive & General Industrial
Western
Europe
2021
£m
North
America
2021
£m
Emerging
Markets
2021
£m
Total AGI
2021
£m
Revenue
Total revenue 217.0 85.3 67.9 370.2
Result
Headline operating profit prior to share-based payments 47.8 7.9 16.8 72.5
Share-based payments (including social charges)
1
(1.8) (0.5) (0.7) (3.0)
Headline operating profit 46.0 7.4 16.1 69.5
Amortisation of acquired intangible assets (0.5) (2.7) (0.4) (3.6)
Acquisition costs – – – –
Operating profit prior to exceptional items 45.5 4.7 15.7 65.9
Exceptional items (0.3) (0.1) (0.2) (0.6)
Segment result 45.2 4.6 15.5 65.3
1 £4.7m (2020:£0.4m) IFRS 2 share-based payment charge in the year plus £0.3m (2020: £1.3m credit) social security charges.
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
1. Business and geographical segments continued
Group
ADE
2020
£m
AGI
2020
£m
Central costs
and eliminations
2020
£m
Consolidated
2020
£m
Revenue
Total revenue 249.2 348.8 – 598.0
Result
Headline operating profit prior to share-based payments and
unallocated central costs 36.8 41.0 – 77.8
Share-based payments (including social charges)
1
– – 0.9 0.9
Unallocated central costs – – (3.4) (3.4)
Headline operating profit/(loss) 36.8 41.0 (2.5) 75.3
Amortisation of acquired intangible assets (5.7) (4.1) – (9.8)
Acquisition costs (2.1) – – (2.1)
Operating profit/(loss) prior to exceptional items 29.0 36.9 (2.5) 63.4
Exceptional items (16.9) (35.3) (6.2) (58.4)
Segment result 12.1 1.6 (8.7) 5.0
Finance income 0.2
Finance costs (6.7)
Loss before taxation (1.5)
Taxation 2.3
Profit for the year 0.8
1 £4.7m (2020:£0.4m) IFRS 2 share-based payment charge in the year plus £0.3m (2020: £1.3m credit) social security charges.
Aerospace, Defence & Energy
Western
Europe
2020
£m
North
America
2020
£m
Emerging
Markets
2020
£m
Total ADE
2020
£m
Revenue
Total revenue 103.1 143.3 2.8 249.2
Result
Headline operating profit/(loss) 17.0 20.0 (0.2) 36.8
Amortisation of acquired intangible assets – (5.7) – (5.7)
Acquisition costs – (2.1) – (2.1)
Operating profit/(loss) prior to exceptional items 17.0 12.2 (0.2) 29.0
Exceptional items (10.3) (6.5) (0.1) (16.9)
Segment result 6.7 5.7 (0.3) 12.1
Automotive & General Industrial
Western
Europe
2020
£m
North
America
2020
£m
Emerging
Markets
2020
£m
Total AGI
2020
£m
Revenue
Total revenue 203.7 83.5 61.6 348.8
Result
Headline operating profit/(loss) 26.7 (0.4) 14.7 41.0
Amortisation of acquired intangible assets (0.5) (3.2) (0.4) (4.1)
Operating profit/(loss) prior to exceptional items 26.2 (3.6) 14.3 36.9
Exceptional items (24.8) (9.4) (1.1) (35.3)
Segment result 1.4 (13.0) 13.2 1.6
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1. Business and geographical segments continued
Other information
Group
ADE
2021
£m
AGI
2021
£m
Central
costs and
eliminations
2021
£m
Consolidated
2021
£m
Gross capital additions 14.5 38.5 7.5 60.5
Depreciation and amortisation 33.8 47.7 2.8 84.3
Balance sheet
Segment assets 480.1 527.4 62.3 1,069.8
Segment liabilities (91.3) (133.3) (159.8) (384.4)
Segment net assets 388.8 394.1 (97.5) 685.4
Aerospace, Defence & Energy
Western
Europe
2021
£m
North
America
2021
£m
Emerging
Markets
2021
£m
Total ADE
2021
£m
Gross capital additions 6.0 8.4 0.1 14.5
Depreciation and amortisation 12.7 20.5 0.6 33.8
Balance sheet
Segment assets 170.3 304.7 5.1 480.1
Segment liabilities (46.2) (44.1) (1.0) (91.3)
Segment net assets 124.1 260.6 4.1 388.8
Automotive & General Industrial
Western
Europe
2021
£m
North
America
2021
£m
Emerging
Markets
2021
£m
Total AGI
2021
£m
Gross capital additions 20.3 10.5 7.7 38.5
Depreciation and amortisation 23.5 13.5 10.7 47.7
Balance sheet
Segment assets 232.0 167.4 128.0 527.4
Segment liabilities (79.0) (24.3) (30.0) (133.3)
Segment net assets 153.0 143.1 98.0 394.1
Group
ADE
2020
£m
AGI
2020
£m
Central costs
and eliminations
2020
£m
Consolidated
2020
£m
Gross capital additions 18.1 40.8 5.0 63.9
Depreciation and amortisation 35.8 53.2 2.9 91.9
Balance sheet
Segment assets 484.9 571.4 53.7 1,110.0
Segment liabilities (150.2) (16 4.1) (114.3) (428.6)
Segment net assets 334.7 4 07. 3 (60.6) 681.4
109
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
1. Business and geographical segments continued
Aerospace, Defence & Energy
Western
Europe
2020
£m
North
America
2020
£m
Emerging
Markets
2020
£m
Total ADE
2020
£m
Gross capital additions 6.8 9.0 2.3 18.1
Depreciation and amortisation 12.9 22.4 0.5 35.8
Balance sheet
Segment assets 168.6 310.9 5.4 484.9
Segment liabilities (47. 8) (100.5) (1.9) (150.2)
Segment net assets 120.8 210.4 3.5 334.7
Automotive & General Industrial
Western
Europe
2020
£m
North
America
2002
£m
Emerging
Markets
2002
£m
Total AGI
2020
£m
Gross capital additions 17.1 16.0 7.7 40.8
Depreciation and amortisation 27. 2 15.5 10.5 53.2
Balance sheet
Segment assets 267.9 171.6 131.9 571.4
Segment liabilities (97.1) (30.2) (36.8) (16 4.1)
Segment net assets 170.8 141.4 95.1 407. 3
Geographical information
The Group’s revenue from external customers and information about its segment assets (non-current assets excluding financial instruments,
deferred tax assets and other financial assets) by country are detailed below:
Revenue from external customers Non-current assets
2021
£m
2020
£m
2021
£m
2020
£m
USA 210.9 219.1 413.4 429.7
France 80.8 76.4 63.4 70.6
Germany 71.1 69.7 68.1 78.0
UK 45.2 44.3 79.9 83.2
Sweden 40.1 37. 9 36.6 42.6
Netherlands 27.8 24.9 23.1 23.1
Others 139.9 125.7 184.4 192.0
615.8 598.0 868.9 919.2
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2. Operating profit
2021
£m
2020
£m
Revenue 615.8 598.0
Cost of sales (379.8) (401.3)
Gross profit 236.0 196.7
Other operating income 3.8 4.4
Distribution costs (17.4) (15.6)
Administration expenses (126.4) (109.0)
Other operating expenses (1.2) (1.2)
Headline operating profit 94.8 75.3
Amortisation of acquired intangible assets (10.3) (9.8)
Acquisition costs (see note 23) (0.7) (2.1)
Operating profit prior to exceptional items 83.8 63.4
Exceptional items (see note 4) – (58.4)
Operating profit 83.8 5.0
Profit for the year has been arrived at after (crediting)/charging:
2021
£m
2020
£m
Net foreign exchange gain (0.2) (0.3)
Inventory expensed 48.4 48.8
Depreciation of property, plant and equipment 58.0 65.2
Depreciation of right-of-use assets 13.6 14.8
Amortisation of other intangible assets 12.1 11.9
(Gain)/loss on disposal of property, plant and equipment (4.8) 0.6
Gain on disposal of right-of-use assets – ( 0.1)
Employee costs (see note 3) 252.5 23 5.1
Pension scheme administration expenses 0.5 0.4
Government assistance support received (1.5) (4.3)
Acquisition costs 0.7 2.1
Impairment gain on trade receivables (1.2) (0.4)
Impairments – recognised in exceptional items (see note 4) 6.5 22.7
Impairment of property, plant and equipment and other assets – recognised in operating profit – 0.3
Share of profits of associate undertaking up to disposal (0.1) (0.4)
Loss on sale of associate 0.4 –
The analysis of auditors’ remuneration on a worldwide basis is as follows:
2021
£m
2020
£m
Fees payable to the auditor for the audit of the annual accounts 0.8 0.7
Fees payable to the auditor and its associates for other services:
The audit of the Group's subsidiaries 1.4 1.1
Total audit fees 2.2 1.8
Audit related assurance services
1
0.1 0.2
Other non-audit fees
2
0.1 –
Total fees payable to the auditor 2.4 2.0
1 This includes £0.1m for the review of the half year report (2020: £0.2m for the review of the half year report).
2 This includes £0.1m (2020: £nil) for a mandatory assurance requirement by the Dutch government concerning COVID-19 assistance (NOW), required as part of the programme conditions.
The audit fees disclosed for 2021 include £0.1m of fees in connection with the 2020 audit.
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
3. Employees
The average monthly number of employees (including Executive Directors) was:
2021
Number
2020
Number
1
ADE:
Western Europe 698 733
North America 799 947
Emerging Markets 62 12
AGI:
Western Europe 1,490 1,687
North America 641 692
Emerging Markets 775 737
Shared services 243 215
Head office 42 45
4,750 5,068
2021
£m
2020
£m
Their aggregate remuneration comprised:
Wages and salaries
1
214.6 198.6
Social security costs 30.9 30.8
Pension costs 7.1 5.7
252.5 235.1
1 For the year ended 31 December 2021 the Group received government and state employee support towards wages and salaries of £1.1m (2020: £3.6m) which are presented net against
staff costs.
Included in wages and salaries are share-based payments (excluding social charges) resulting in a charge of £4.7m (2020: £0.4m). Included in
pension costs are £6.4m relating to defined contribution schemes (2020: £7.3m) and a £1.2m charge relating to defined benefit schemes
(2020: £1.6m credit). Pension administrative costs not included above were £0.5m (2020: £0.4m) – see note 2 and note 28.
Disclosure of individual Directors’ remuneration, share interests, share options, long-term incentive schemes, pension contributions and
pension entitlements are shown in the tables in the Board report on remuneration on pages 64 to 84 and form part of these financial
statements. See also note 28 for more information on retirement benefit schemes.
4. Exceptional items
2021
£m
2020
£m
Severance and redundancy (release)/costs (2.7) 20.8
Impairment of assets 5.5 16.5
Site closure costs 1.9 12.0
Gains on sales of property, plant and equipment recognised in exceptional items (4.8) –
Environmental provisions – see note 21 0.1 2.9
Total exceptional restructuring items – 52.2
Impairment of other intangible assets – see note 10 – 6.2
Total exceptional items – 58.4
In 2020, the Group announced an organisational 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 were recorded as exceptional items in line with the Group’s accounting policy for exceptional items.
At 31 December 2021, management performed a detailed review of the restructuring activities in order to determine the best estimate of
future expenditure required to settle the present obligations. As a result of this assessment, a total of £2.7m of restructuring provisions
relating to severance and redundancy costs were released to exceptional items in the consolidated income statement.
During the year the Group incurred a further £8.5m of exceptional restructuring charges related to the 2020 restructuring initiatives.
These costs include additional impairments of assets totalling £5.5m and site closure costs totalling £1.9m (including £0.6m of depreciation on
sites mothballed as part of the restructuring initiatives).
The Group also disposed of several assets related to restructured sites for total cash proceeds of £11.7m resulting in a gain on sale of £4.8m.
At 31 December 2021, £10.2m was held as provisions. Refer to note 21 for more information.
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5. Finance charge and income
2021
£m
2020
£m
Interest on bank overdrafts and loans 1.3 0.7
Interest on deferred consideration 0.2 0.8
Interest on lease liabilities 1.8 2.2
Total interest expense 3.3 3.7
Net interest on the defined benefit pension liability 0.1 0.1
Other finance charges 3.2 2.9
Total finance charge 6.6 6.7
Interest received on bank deposits 0.1 0.1
Other interest receivable 0.2 0.1
Total finance income 0.3 0.2
Net finance charge 6.3 6.5
6. Taxation
2021
£m
2020
£m
Current taxation – charge for the year 18.9 9.4
Current taxation – adjustments in respect of previous years (5.9) (9.7)
Deferred tax (see note 19) 4.5 (2.0)
17.5 (2.3)
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 2021 is 24.7% (2020: 24.1%). The effect of changes in statutory tax rates
reflects the impact on deferred tax balances of the increase in the future UK tax rate from 19.0% to 25.0% which will take effect from 1 April
2023 as per the Finance Act 2021. Consequently, the deferred tax balances on the consolidated balance sheet relating to the UK have been
measured using these revised rates. The charge for the year can be reconciled to the profit/(loss) before taxation per the consolidated income
statement as follows:
2021
£m
2020
£m
Profit/(loss) before taxation 77.5 (1.5)
Tax at the weighted average country tax rate of 24.7% (2020: 24.1%) 19.1 (0.4)
Tax effect of expenses not deductible in determining taxable profit
1
2.3 0.3
Impact of recognition or derecognition of deferred tax balances (0.9) 2.0
Tax effect of other adjustments in respect of previous years:
Current tax
2
(5.9) (9.7)
Deferred tax
2
0.1 8.7
Effect of financing activities between jurisdictions
3
1.3 (2.8)
Impact of trade and minimum corporate taxes 0.6 0.8
Effect of changes in statutory tax rates on deferred tax assets and liabilities 0.2 (1.1)
Other tax risk provision movements
4
0.7 (0.1)
Tax expense/(credit) for the year 17.5 (2.3)
Tax on items taken directly to equity is a credit of £0.3m (2020: charge of £0.1m).
1 Those costs in various jurisdictions are not deductible in calculating taxable profits.
2 2021 and 2020 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. £5.1m of interest deductions were restricted in the US in 2021
(2020: £9.9m).
4 Includes provisions for local tax risks and non-financing cross border transactions.
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
6. Taxation 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. Tax provisions totalling £24.0m were recognised at 31 December 2021 (2020: £22.1m), of which £1.8m
(2020: £5.4m) are expected to crystalise within 12 months. 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.
Management judgement is exercised to determine the quantum of the tax risk provisions based on an understanding of the appropriate local
tax legislation, taking into consideration the differences of interpretation that can arise on a wide variety of issues including the nature of
ongoing tax audits and the experience from earlier enquires, and determining whether any possible liability is probable. The provisions relate
to six main areas of tax risk, varying in quantum from £0.4m to £7.2m.
Note 29 to the accounts refers to a previously disclosed contingent liability in respect of the European Commission state aid investigation into
the Group financing exemption in the UK-controlled foreign company rules, which is no longer required as at 31 December 2021.
7. Dividends
2021
£m
2020
£m
Amounts recognised as distributions to equity holders in the year:
Deferred dividend for the year ended 31 December 2019 of 13.3p per share – 25.1
Interim dividend for the year ended 31 December 2020 of 6.0p per share 11.4 –
Final dividend for the year ended 31 December 2020 of 13.4p per share 25.7 –
Interim dividend for the year ended 31 December 2021 of 6.2p per share 11.9 –
49.0 25.1
Proposed final dividend for the year ended 31 December 2021 of 13.8p per share 26.4 –
The Board approved the payment of an interim dividend for 2020 of 6.0p on 24 November 2020 to those shareholders on the register
of Bodycote plc on 8 January 2021. The 2020 interim dividend was paid on 12 February 2021. Furthermore, the Board approved a final
ordinary dividend for 2020 of 13.4p to shareholders on the register of Bodycote plc on 23 April 2021. The final ordinary dividend was paid on
4 June 2021.
The Board approved the payment of an interim dividend for 2021 of 6.2p on 27 July 2021 to those shareholders on the register of Bodycote plc
on 8 October 2021. The 2021 interim dividend was paid on 5 November 2021. The Board has proposed a 2021 final ordinary dividend of 13.8p
per share to be paid on 3 June 2022 to shareholders on the register at close of business at 22 April 2022 subject to approval by shareholders
at the Annual General Meeting. As the proposed dividend is subject to shareholder approval in 2022, 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.
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8. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
2021
£m
2020
£m
Earnings
Earnings for the purpose of basic earnings per share being net profit attributable to equity holders of
the parent 59.5 0.4
Number Number
Number of shares
Weighted average number of ordinary shares for the purpose of basic earnings per share 190,651,774 190,374,428
Effect of dilutive potential ordinary shares:
Shares subject to performance conditions
1
79,678 –
Shares subject to vesting conditions 192,117 –
Weighted average number of ordinary shares for the purpose of diluted earnings per share 190,923,569 190,374,428
Pence Pence
Earnings per share:
Basic 31.2 0.2
Diluted
1
31.2 0.2
£m £m
Headline earnings
Net profit attributable to equity holders of the parent 59.5 0.4
Add back:
Amortisation of acquired intangible assets (net of tax) 7.8 7. 4
Acquisition costs (net of tax) 1.0 1.5
Exceptional items (net of tax) – 43.6
Headline earnings 68.3 52.9
Pence Pence
Headline earnings per share:
Basic 35.8 27.8
Diluted
1
35.8 27.8
1 As at 31 December 2021, in accordance with IAS 33, the related performance conditions for most open plans have not been met resulting in nil dilution of earnings per share (2020: nil).
9. Goodwill
2021
£m
2020
£m
Cost
At 1 January 276.3 230.7
Exchange differences (1.8) (4.4)
Recognised on acquisition of businesses – 50.0
At 31 December 274.5 276.3
Accumulated impairment
At 1 January 60.8 60.9
Exchange differences (0.2) (0.1)
At 31 December 60.6 60.8
Carrying amount 213.9 215.5
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
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 as follows:
2021
£m
2020
£m
ADE:
Western Europe 26.8 27.0
North America 93.2 93.1
AGI:
Western Europe 27.6 28.8
North America 54.7 54.3
Emerging Markets 11.6 12.3
213.9 215.5
The Group tests goodwill at least annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the cash generating units were determined from value-in-use calculations and are the net present value sum of
the discounted cash flows. The key assumptions for those calculations include the discount rates, the rate of recovery and growth in revenues
and their relative impact on future profitability and cash flows.
Growth rates are determined by a combination of management’s budget for 2022 and forecasts based on certain revenue and operating
profit assumptions for the subsequent three years, together with a further estimate of cash flows into perpetuity using forecast inflationary
growth rates based on external forward-looking forecasts in the respective geographies. The cash flows are discounted using both pre-tax
and post-tax Weighted Average Cost of Capital (WACC) which reflects current market assessments of the time value of money and the risks
specific to the cash generating units, including country risk premium. The pre-tax rates used to discount the forecast cash flows for each cash
generating unit were between 7.5% (2020: 9.5%) and 11.6% (2020: 11.7%). Post tax these rates were between 6.4% (2020: 7.9%) and 9.2%
(2020: 9.1%). Net present value of cash flows under both a pre-tax and post-tax model are equivalent.
The projected cash flows reflect management’s expectation of how movements in revenues and operating profits are correlated and will
develop, and the extent to which changes in these metrics will convert into cash. The correlation between movements in revenue and
operating profits is referred to as operational gearing and is a key assumption in determining these cash flows. In formulating the view on
future cash flows, consideration has been given to various external data sources on the strength and timing of any expected economic
recovery and industry specific information. In particular, the assessment for North America ADE is sensitive to the recovery of the Aerospace
sector following the impact of the COVID-19 pandemic and North America AGI to the automotive market which has been constrained due to
current global supply chain constraints. Management considers that the impairment assessment reflects a conservative but supportable view
on both NA ADE and NA AGI revenue recovery.
Maintenance capital expenditure projections are based on historical experience and include expenditure necessary to maintain the projected
cash flows from existing assets and the replacement cost of assets in future years. Expansionary capital expenditure, and the associated
revenues and cash flows, are only included to the extent that they have been approved, and expenditure had already been incurred as at the
balance sheet date. Long term growth rates used to determine cash flows for 2026 and into perpetuity are in the range of 2.1% (2020: 2.2%)
to 2.4% (2020: 5.3%) depending on the geographical region of each CGU.
The majority of goodwill is allocated to two of the CGUs, being North America ADE and North America AGI. The long-term growth rates
applied to cash flows after 2026 and the rates used to discount the projected cash flows for these CGUs are shown below:
Goodwill
carrying value
2021
£m
Long term
growth rate
2021
%
Pre-tax
discount rate
2021
%
Cash generating unit
North America ADE 93.2 2.3 8.0
North America AGI 54.7 2.3 8.1
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 production costs, and future maintenance capital expenditure, and therefore the Group has conducted sensitivity analysis on the key
assumptions applied to the value-in-use calculations for the cash generating units. This uncertainty is especially relevant in light of events
currently impacting global economies including, but not confined to, the impact of the COVID-19 pandemic and global-wide chip shortages
impacting customers; and rising energy prices. These uncertainties have been reflected in the sensitivity analyses performed of reasonably
possible changes in the underlying assumptions on future cash flows for the cash generating units. The following sensitivities were applied:
– A 10% reduction in revenue below the base case in each of the four years, together with a 50 bps reduction in the long-term growth rates;
– A reduction in operational gearing of 5 percentage points; and
– A 1.5 percentage point increase in the discount rate to each CGU.
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Strategic report Financial statements
9. Goodwill continued
None of these scenarios resulted in an impairment either individually, or in aggregate. In determining the sensitivities to apply, consideration
was given to the impact that climate change may have on the Group’s businesses which is considered to present both opportunities and risks
to the organisation. Whilst specific scenarios were not modelled, the impact of the above sensitivities was deemed sufficiently significant to
cover a range of potential risk, some of which are difficult to estimate with current known information. The Group’s assessment of the impact
of climate change is set out on pages 41 and 42 of the Annual Report & Accounts.
While the reasonably possible changes summarised above do not indicate an impairment, it is difficult in the current environment to predict how
the world’s economies will recover and the timing of such recovery. In the event that revenues do not ultimately return to historical levels when
anticipated, or the Group is unable to maintain or realise expected operating gearing ratios and cost savings from its recent restructuring, a risk of
impairment may arise in the future, absent further management mitigating action. However based on current available information the Directors
do not consider that there are any reasonable possible sensitivities that could arise that would result in a material impairment charge being
recognised in the next 12 months. The Directors have concluded that no impairment charge is required as at 31 December 2021.
10. Other intangible assets
Software
£m
Customer
relationships
£m
Non-compete
agreements
£m
Total
£m
Cost
At 1 January 2020 41.0 53.9 3.2 9 8.1
Exchange differences 0.2 (8.0) – ( 7. 8 )
Additions 2.1 – – 2.1
Acquired on acquisition of businesses – 87.3 0.6 87.9
Disposals (1.8) – – (1.8)
At 1 January 2021 41.5 133.2 3.8 178.5
Exchange differences (0.3) – – (0.3)
Additions 6.9 – – 6.9
Acquired on acquisition of businesses (see note 23) – 5.0 – 5.0
Disposals (1.5) – – (1.5)
At 31 December 2021 46.6 138.2 3.8 188.6
Amortisation
At 1 January 2020 18.8 33.6 3.1 55.5
Exchange differences 0.2 (1.5) – (1.3)
Charge for the year 2.0 9.9 – 11.9
Impairment loss 6.2 – – 6.2
Disposals (1.8) – – (1.8)
At 1 January 2021 25.4 42.0 3.1 70.5
Exchange differences (0.3) (0.3) – (0.6)
Charge for the year 1.8 10.3 – 12.1
Disposals (1.5) – – (1.5)
At 31 December 2021 25.4 52.0 3.1 80.5
Carrying amount
At 31 December 2021 21.2 86.2 0.7 108.1
At 31 December 2020 16.1 91.2 0.7 108.0
Included in intangible software assets are carrying values related to the Group’s existing ERP software module totalling £5.6m (2020: £7.1m)
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 £6.6m (2020: £2.1m), of which £1.7m (2020: £0.4m) relates to internally generated capitalisation for the development
of this ERP solution. Included in intangible assets are £14.4m (2020: £7.7m) of expenditure that is not yet available for use and is therefore not
being amortised.
The Group has considered the decision paper issued by the IFRS Interpretations Committee relating to IAS 38: Intangible Assets, clarifying
how to account for configuring or customising costs incurred in a Software as a Service (SaaS) arrangement. £0.3m of configuration and
customisation costs have been expensed to the consolidated income statement during the year, with no impact on previous periods from
applying this change.
An impairment charge of £6.2m was recorded in 2020 to reflect the elements of the existing ERP that cannot be retained in the new
ERP solution. The impairment charge in 2020 was included in exceptional items in the consolidated income statement and related to
the impairment of the legacy Production ERP software module (£3.6m), the legacy Finance ERP software module (£1.4m) and an HR
management software module (£1.2m).
Contractual commitments related to the ERP software development were £2.1m at 31 December 2021 (2020: £1.3m). These costs will be
capitalised as incurred.
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
11. Property, plant and equipment
Land and buildings
Fixtures and
fittings
£m
Assets under
construction
£m
Total
£m
Freehold
£m
Long
leasehold
improvements
£m
Short
leasehold
improvements
£m
Plant and
machinery
£m
Cost or valuation
At 1 January 2020 248.4 11. 2 16.2 982.2 27.7 64.0 1,349.7
Additions – – 0.4 3.4 0.3 48.9 53.0
Acquisition of businesses 6.7 – 1.1 6.5 0.2 0.3 14.8
Exchange differences 7.4 0.1 (0.3) 14.4 0.6 0.5 22.7
Transfer to assets held for sale
1
(10.3) – – (0.1) – – (10.4)
Recategorisation 4.1 0.2 1.5 47.2 0.7 (54.2) (0.5)
Disposals (1.9) (1.4) (0.7) (33.6) (0.9) (0.3) (38.8)
At 1 January 2021 254.4 10.1 18.2 1,020.0 28.6 59.2 1,390.5
Additions 0.2 0.4 0.6 3.8 0.3 41.0 46.3
Acquisition of businesses 1.2 – – 1.1 – – 2.3
Exchange differences (9.6) 0.1 (0.4) (31.2) (1.1) (1.2) (43.4)
Transfer to assets held for sale
1
(1.7) – – – – – (1.7)
Recategorisation 9.9 (0.2) 1.6 31.7 0.2 (43.2) –
Disposals (6.0) (0.4) (0.2) (36.0) (1.2) (0.8) (44.6)
At 31 December 2021 248.4 10.0 19.8 989.4 26.8 55.0 1,349.4
Accumulated depreciation and impairment
At 1 January 2020 118.6 5.5 7.5 661.7 21.9 – 815.2
Charge for the year 6.9 1.2 1.4 54.4 1.3 – 65.2
Impairment losses incurred 3.1 0.1 0.8 11.8 0.1 0.1 16.0
Exchange differences 3.9 – (0.2) 11.7 0.5 – 15.9
Transfer to assets held for sale
1
(7.4) – – (0.1) – – (7.5)
Recategorisation (0.2) – 0.1 (0.4) (0.0) – (0.5)
Eliminated on disposals (1.8) (1.4) (0.7) (31.6) (0.9) – (36.4)
At 1 January 2021 123.1 5.4 8.9 707.5 22.9 0.1 867.9
Charge for the year 6.6 1.0 1.3 48.5 1.2 – 58.6
Impairment losses incurred 0.2 – 0.3 3.7 – – 4.2
Exchange differences (5.2) 0.1 (0.3) (22.5) (0.8) – (28.7)
Transfer to assets held for sale
1
(1.2) – – – – – (1.2)
Recategorisation 0.3 (0.1) – (0.1) (0.1) – –
Eliminated on disposals (3.9) (0.4) (0.1) (35.1) (1.2) – (40.7)
At 31 December 2021 119.9 6.0 10.1 702.0 22.0 0.1 860.1
Carrying amount
At 31 December 2021 128.5 4.0 9.7 287.4 4.8 54.9 489.3
At 31 December 2020 131.3 4.7 9.3 312.5 5.7 59.1 522.6
1 See note 16 for further detail on assets held for sale.
At 31 December 2021 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
£5.8m (2020: £4.6m).
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11. Property, plant and equipment continued
Property, plant and equipment impairments incurred of £4.2m (2020: £16.0m) were booked to exceptional costs as they relate to identified
plant and equipment impairments for assets that were deemed in the year to no longer be required, as a consequence of the restructuring
programme announced in 2020 and written to £nil carrying value. Asset impairments broken down by business segment are shown in the
table below.
2021
£m
2020
£m
ADE:
Western Europe 0.7 1.5
North America 2.3 2.4
AGI:
Western Europe 0.8 7.5
North America 0.4 4.6
4.2 16.0
During the year assets with a net book value of £1.3m were moved to assets held for sale, see note 16 for details. The Group also disposed of
certain assets, mainly relating to the 2020 restructuring programme, with proceeds recorded of £11.7m and a gain on sale of £4.8m. The gain
on sale has been included in exceptional items in the consolidated income statement.
12. Right-of-use asset
As a lessee
Information about leases for which the Group is the lessee is presented below:
Land, buildings,
fixtures and
fittings
1
£m
Plant and
machinery
£m
Vehicles
£m
Total
£m
Cost or valuation
At 1 January 2020 126.5 21.5 17. 2 165.2
Additions 4.1 1.3 3.3 8.7
Acquisition of businesses 3.2 1.8 0.1 5.1
Disposals (4.5) (3.7) (2.5) (10.7)
Exchange differences 0.7 0.2 0.3 1.2
At 1 January 2021 130.0 21.1 18.4 169.5
Additions 4.1 1.4 1.8 7.3
Disposals (5.2) (1.3) (1.7) (8.2)
Exchange differences (3.6) (0.6) (0.7) (4.9)
At 31 December 2021 125.3 20.6 17.8 163.7
Accumulated depreciation and impairment
At 1 January 2020 66.9 13.5 11. 5 91.9
Charge for the year 8.4 3.1 3.3 14.8
Impairment losses incurred 0.2 0.1 – 0.3
Eliminated on disposals (3.1) (1.7) (2.2) (7.0)
Exchange differences 0.2 – 0.3 0.5
At 1 January 2021 72.6 15.0 12.9 100.5
Charge for the year 8.3 2.6 2.7 13.6
Impairment losses incurred 2.3 – – 2.3
Eliminated on disposals (5.0) (1.0) (1.5) (7.5)
Exchange differences (2.0) (0.4) (0.4) (2.8)
At 31 December 2021 76.2 16.2 13.7 106.1
Carrying amount
At 31 December 2021 49.1 4.4 4.1 57.6
At 31 December 2020 57.4 6 .1 5.5 69.0
1 The carrying amount of fixtures and fittings as at 31 December was £0.2m (2020: £0.2m).
In the year to 31 December 2021 total lease payments charged directly to the consolidated income statement amounted to £0.5m
(2020: £1.1m) for short-term leases and £0.6m (2020: £0.6m) for leases of low value in line with Group policy.
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
12. Right-of-use assets continued
Lease liabilities
Maturity analysis – contractual undiscounted cash flows
2021
£m
2020
£m
Less than one year 15.8 15.6
One to five years 32.8 37.5
More than five years 54.2 59.5
Total undiscounted cash flows 102.8 112.6
£m £m
At 1 January 75.6 79.4
Additions 6.3 14.1
Disposals (0.6) (3.7)
Principal and interest repayments (14.4) (15.4)
Exchange differences (2.4) 1.2
At 31 December 64.5 75.6
Current 12.9 13.6
Non-current 51.6 62.0
Amounts recognised in the consolidated income statement
2021
£m
2020
£m
Depreciation charge 13.6 14.8
Interest on lease liabilities 1.8 2.2
Variable lease payments not included in the measurement of lease liabilities 0.1 –
Expenses relating to short-term leases 0.5 1.1
Expenses relating to leases of low value assets 0.6 0.6
Right-of-use asset impairment charge 2.3 0.3
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.
The Group does not have any leases that are linked to LIBOR interest rates affected by the interest rate benchmark reform.
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
2021
£m
2020
£m
Raw materials 17.5 15.1
Work-in-progress 2.3 1.6
Finished goods and goods for resale 0.7 0.2
Less: obsolescence provision (1.2) (1.1)
19.3 15.8
Inventory expensed in the years ended 31 December 2021 and 2020 is disclosed in note 2.
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14. Trade and other receivables
2021
£m
2020
£m
Amounts falling due within one year:
Amounts receivable for the supply of services 102.9 97.7
Allowance for expected credit loss (2.8) (4.5)
Net trade receivables 100.1 93.2
Other receivables 8.8 13.0
Prepayments 8.1 10.0
117.0 116.2
Amounts falling due after more than one year:
Trade and other receivables 1.6 2.1
The average credit period given to customers for the supply of services as at 31 December 2021 is 61 days (2020: 63 days). An allowance has
been made for estimated irrecoverable amounts from the supply of services of £2.8m (2020: £4.5m). 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 £21.3m (2020: £20.8m) 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.
Ageing analysis of net trade receivables:
2021
£m
2020
£m
Trade receivables within terms 78.8 72.4
Ageing of past due but not impaired receivables:
31-60 days 12.4 11.1
61-90 days 6.1 6.6
91-120 days 2.0 2.3
Greater than 120 days 0.8 0.8
100.1 93.2
Movement in the allowance for expected credit loss:
2021
£m
2020
£m
At 1 January 4.5 4.8
Impairment losses recognised 0.9 1.1
Allowance acquired with businesses – 0.5
Amounts written off as uncollectable (0.3) (0.6)
Impairment losses reversed (2.1) (1.5)
Exchange differences (0.2) 0.2
At 31 December 2.8 4.5
In determining the recoverability of a trade receivable the Group considers any change in the quality of the trade receivable from the date
credit was initially granted up to the reporting date. The Group uses judgement in making these assumptions and selecting the inputs to the
impairment calculation, based on the Group’s past history and existing market conditions, as well as forward-looking estimates at the end of
each reporting period. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors
believe that there is no further credit provision required in excess of the allowance for expected credit loss.
Included in the allowance for expected credit loss are individually impaired trade receivables with a gross balance of £4.9m (2020: £6.1m).
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.
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
14. Trade and other receivables continued
Ageing of impaired trade receivables:
2021
£m
2020
£m
Less than 3 months 0.2 0.1
3-12 months 1.2 1.7
Over 12 months 3.5 4.3
4.9 6.1
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:
2021
£m
2020
£m
US dollar 10.5 7.1
Euro 8.7 10.0
Sterling 6.2 2.1
Chinese yuan 7.4 4.7
Swedish krona 2.0 2.0
Other 4.5 4.8
Total cash and bank balances
1
39.3 30.7
1 Refer to note 17 for an analysis of overdraft by currency.
16. Assets held for sale
Included in assets held for sale are £0.4m (2020: £2.9m) of assets that are actively being marketed for sale. During the year assets held for
sale with a net book value of £2.9m at 31 December 2020 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:
2021
£m
2020
£m
AGI:
Western Europe 0.3 2.5
North America 0.1 0.4
ADE:
Western Europe – –
North America – –
0.4 2.9
17. Borrowings
2021
£m
2020
£m
Revolving Credit Facility 90.3 51.7
Bank overdrafts 1.4 1.5
Total borrowings 91.7 53.2
Weighted average interest rate paid 1.7% 1.6%
Analysis of Revolving Credit Facility drawdowns by currency:
US dollar 30.3 16.6
Euro – 18.1
Sterling 60.0 17.0
90.3 51.7
Analysis of bank overdrafts by currency:
US dollar 0.6 1.1
Other 0.8 0.4
1.4 1.5
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17. Borrowings continued
Bank overdrafts are repayable on demand. No overdrafts are secured.
During the year the Group extended its £250.9m Revolving Credit Facility by one year. The facility which commenced on 27 May 2020 will
now expire on 27 May 2026.
At 31 December 2021, the Group’s Revolving Credit Facility had total drawings of £90.3m (2020: £51.7m). During the year the Group utilised
£155.5m (2020: £101.9m) under the committed facility, and £116.9m was repaid during the year (2020: £50.2m). Of the amount utilised and
repaid £34.5m relates to closing the Euro-denominated loan and switching to a GBP-denominated loan which was combined with a cross-
currency swap to benefit from Euro negative interest rates.
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.
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.
Less than
1 year
2021
£m
1-2 years
2021
£m
2-5 years
2021
£m
5+ years
2021
£m
Total
2021
£m
Non-interest bearing 55.3 0.3 – 0.2 55.8
Bank loans and overdrafts 91.7 – – – 91.7
Lease liabilities 15.8 11.4 21.4 54.2 102.8
162.8 11.7 21.4 54.4 250.3
Less than
1 year
2020
£m
1-2 years
2020
£m
2-5 years
2020
£m
5+ years
2020
£m
Total
2020
£m
Non-interest bearing 65.5 0.4 0.5 0.3 66.7
Bank loans and overdrafts 53.2 – – – 53.2
Deferred consideration on acquisition of businesses 59.0 – – – 59.0
Lease liabilities 15.6 13.3 24.2 59.5 112.6
Derivative financial instruments 2.3 – – – 2.3
195.6 13.7 24.7 59.8 293.8
Of the £91.7m (2020: £53.2m) bank loans and overdrafts outflows disclosed above, £90.3m (2020: £51.7m) of bank loans are drawn under
the committed facility maturing on 27 May 2026. The overdrafts are repayable on demand and some are part of pooling arrangements, which
include offsetting cash balances. The net impact on the balance sheet of derivative cashflows was £0.5m (2020: £nil).
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
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
Fair value
hierarchy
At amortised
cost
2021
£m
At fair value
through profit
or loss
2021
£m
At fair value
through OCI
2021
£m
Total
2021
£m
Trade and other receivables 107.2 – – 107.2
Cash and bank balances 39.3 – – 39.3
Derivative financial instruments Level 2 – – 0.5 0.5
146.5 – 0.5 147.0
Financial assets
Fair value
hierarchy
At amortised
cost
2020
£m
At fair value
through profit
or loss
2020
£m
At fair value
through OCI
2020
£m
Total
2020
£m
Trade and other receivables 106.7 – – 106.7
Cash and bank balances 30.7 – – 30.7
137.4 – – 137.4
Financial liabilities
Fair value
hierarchy
At amortised
cost
2021
£m
At fair value
through profit
or loss
2021
£m
At fair value
through OCI
2021
£m
Total
2021
£m
Borrowings – loans and overdrafts 91.7 – – 91.7
Lease liabilities Level 3 64.5 – – 64.5
Trade and other payables 55.3 – – 55.3
Other non-current liabilities Level 2/3 0.5 – – 0.5
212.0 – – 212.0
Financial liabilities
Fair value
hierarchy
At amortised
cost
2020
£m
At fair value
through profit
or loss
2020
£m
At fair value
through OCI
2020
£m
Total
2020
£m
Borrowings - loans and overdrafts 53.2 – – 53.2
Lease liabilities Level 3 75.6 – – 75.6
Trade and other payables 65.8 – – 65.8
Deferred consideration 58.7 – – 58.7
Other non-current liabilities Level 2/3 1.2 – – 1.2
254.5 – – 254.5
For information on derivative financial instruments with a fair value of £0.5m (2020: £nil) refer to section (d) of note 18.
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18. Financial instruments continued
(b) Fair value measurement
There have been no transfers of assets or liabilities between levels of the fair value hierarchy during the year.
The carrying values of financial instruments at amortised cost as presented in the consolidated financial statements approximate their
fair values.
(c) Financial risk management
The Group’s multinational operations expose it to a variety of financial risks. In the course of its business, the Group is exposed to foreign
currency risk, interest rate risk, liquidity risk and credit risk. Financial risk management policies are set by the Board. The Group’s treasury
function provides a centralised service to the Group for funding, foreign exchange, interest rate management and counterparty risk.
Treasury activities have the objective of minimising risk and treasury operations are conducted within a framework of policies and guidelines
reviewed and authorised by the Board.
In accordance with its treasury policy, the Group does not use or hold derivative financial instruments for trading or speculative purposes.
The Group may however use derivative instruments, for risk management purposes only, transacted by specialist treasury personnel. The use
of financial instruments, including derivatives, is permitted when approved by the Board, where the effect is to minimise risk for the Group.
There has been no significant change during the financial year, or since the end of the year, to the types or scope of financial risks faced by
the Group.
Liquidity risk
Liquidity risk is defined as the risk that the Group might not be able to settle or meet its obligations on time or at a reasonable price.
Liquidity risk arises as a result of mismatches between cash inflows and outflows from the business. This risk is monitored on a centralised
basis through regular cash flow forecasting, strategic planning, an annual budget agreed by the Board each year and reforecasts undertaken
during the financial year. To mitigate the risk, the resulting forecast net cash/(debt) is measured against the liquidity headroom policy which, at
the current net cash/(debt) levels, requires committed facilities (plus term loans in excess of one year) to exceed net debt by 50% (minimum
facilities of £75m).
As at 31 December 2021, the Group had £160.6m available on the committed Revolving Credit Facility of £250.9m (2020: £199.2m) which
together with net cash and cash equivalents of £37.9m (2020: £29.2m), resulted in available funds of £198.5m (2020: £228.4m). 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 2021 the Group’s principal committed bank facility of £250.9m had a maturity date of 27 May 2026 (4.4 years to maturity)
and had drawings of £90.3m (2020: £51.7m).
Cash management pooling, netting and concentration techniques are used to minimise borrowings. As at 31 December 2020, the Group had
gross cash of £39.3m 2020: £30.7m).
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 money market contracts and credit risk on cash, term
deposits and money market funds. The Group monitors its credit exposure to its counterparties via their credit ratings (where applicable) and
through its policy, thereby limiting its exposure to any one party to ensure there is no significant concentration of credit risk. 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 only with counterparties with a long-term
credit rating of A-/A3 or better. However, acquired businesses occasionally have dealings with banks with lower credit ratings. Business with
such banks is moved as soon as practicable.
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 USA. Measurement of
this interest rate risk and its potential impact due to volatility on the Group’s reported financial performance is undertaken on a monthly basis
and the Board uses this information to determine, from time-to-time, an appropriate mix of fixed and floating rates.
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
18. Financial instruments continued
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 2021 would increase or reduce profit before tax by approximately £0.9m (2020: £0.2m). There is no
significant impact on equity in the current or previous year.
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 accounts.
Ninety-three per cent of the Group’s revenues are in currencies other than sterling (EUR 36%, USD 35% and SEK 7%). Cumulatively over the
year, sterling rates moved such that the sales for the year were £24.7m lower than if sales had been translated at the rates prevailing in 2020.
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. However, where appropriate, the Group will still match
centrally held currency borrowings to the net assets. The Group generally borrows in sterling but also maintains debt in US dollars consistent with
the location of the Group’s assets. The Group recognises foreign exchange movements in equity for the translation of net investment hedging
instruments and balances (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 93% of the Group’s sales are
generated outside the UK, the nature of the business is such that cross border sales and purchases are limited and immaterial for the Group.
Currency sensitivity
Taking the 2021 sales by currency, a 10% weakening/strengthening in the 2021 cumulative average rates for all currencies versus sterling
would have given rise to a +£63.4m/−£51.9m movement in sales respectively. The impact on headline operating profit is affected by the
mix of losses and profits in the various currencies. However, taking the 2021 operating profit mix, a 10% weakening/strengthening in 2021
cumulative average rates for all currencies would have given rise to a +£11.0m/−£8.9m movement in headline operating profit.
(d) Derivative financial instruments
The Group’s derivative financial instruments are considered to be classified as level 2 instruments. Fair value measurements are those derived
from inputs other than quoted prices included within level 1 that are observable for the asset or liabilities, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
The Group uses foreign currency forward contracts in the management of its exchange rate exposures. The contracts are primarily
denominated in the currencies of the Group’s principal markets. The gains recognised in the income statement on the contracts which
matured in 2021 amounted to £nil (2020: £0.4m). The unrecognised gains and losses were not material in either 2021 or 2020.
The following summarises the aggregate notional amount (aggregate face value) of all open contracts and their related fair values as of the
balance sheet date:
Contractual or
notional amount
2021
£m
Fair value
2021
£m
Contractual or
notional amount
2020
£m
Fair value
2020
£m
Currency forward foreign exchange contracts – – 2.3 –
Cross-Currency Interest Rate Swap 25.8 0.5 – –
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.
All forward foreign exchange contracts are on demand or due within one year.
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 entered into an interest rate derivative contract which has been classified as level 2 instrument with a fair value of £0.5m (2020: £nil),
which is due to terminate on 30 June 2023. The interest rate derivative contract is combined with the GBP Revolving Credit Facility and
designated as the hedging instrument for the EUR Net Investment Hedge. The hedged item is identified as the carrying amount of the Group’s
net investment in two foreign operations. Hedge infectiveness may occur due to differences in the critical terms between the loans as set
out in the Net Investment Hedge section below and the interest rate swaps. There was no material ineffectiveness in relation to interest rate
swaps recorded in 2021 and 2020.
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18. Financial instruments continued
(e) Net Investment hedge
The Group continues to be drawn on the Revolving Credit Facility (RCF) as this was used to partly fund the Ellison acquisition in 2020 and the
related deferred payments in 2021. The related loans are denominated in USD and EUR, combined with a EUR cross-currency interest swap.
The amounts designated as net investment hedges to the Group’s subsidiaries with a matching functional currency on a 1:1 ratio. The effects
and performance of the net investment hedges at 31 December 2021 are set out as follows:
£m €m $m
Carrying amount (bank loan) and denominations (55.5) 30.0 41.0
Hedge Ratio 1:1 – –
Change in bank loan carrying amount as a result of foreign currency movements
since 1 January 2021 0.7 – –
Change in value of hedged item used to determine hedge effectiveness (0.7) – –
The foreign exchange gain of £0.7m (2020: £1.1m) on translation of borrowings to GBP at the end of the reporting period is recognised in other
comprehensive income and accumulated in the foreign currency translation reserve in shareholder’s equity. There was no ineffectiveness to
be recorded from the net investment hedges.
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
Tax losses
£m
Retirement
benefit
obligations
£m
Other
£m
Total
£m
At 1 January 2020 52.8 (2.0) (4.9) (3.4) 42.5
Charge/(credit) to the consolidated
income statement 1.5 (0.6) 1.5 (4.7) (2.3)
Debit to equity – – 0.1 – 0.1
Acquisition of businesses 1.1 – – – 1.1
Transfers – – – (1.8) (1.8)
Exchange differences 0.6 – (0.3) 0.1 0.4
Effect of change in tax rate:
Income statement 0.1 – – 0.2 0.3
At 1 January 2021 56.1 (2.6) (3.6) (9.6) 40.3
Charge/(credit) to the consolidated
income statement (2.7) (1.0) 0.2 7.8 4.3
Credit to equity – – (0.1) (0.2) (0.3)
Acquisition of businesses – – – 1.3 1.3
Transfers (1.6) 1.6 – – –
Exchange differences (1.8) 0.1 0.2 0.5 (1.0)
Effect of change in tax rate:
Income statement – 0.1 0.1 – 0.2
At 31 December 2021 50.0 (1.8) (3.2) (0.2) 44.8
2021
£m
2020
£m
Deferred tax liabilities 47.0 42.7
Deferred tax assets (2.2) (2.4)
44.8 40.3
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.
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
19. Deferred tax continued
At the balance sheet date, the Group has unused tax losses of £40.4m (2020: £50.9m) available for offset against future profits. A deferred
tax asset has been recognised in respect of £6.6m (2020: £9.0m) of such losses, based on management forecasts of future taxable profits
against which the assets can be recovered in the relevant jurisdictions. No deferred tax asset has been recognised in respect of the remaining
£33.8m (2020: £41.9m) of the losses where the likelihood that sufficient taxable profits of the appropriate type arising is not probable.
The majority of losses may be carried forward indefinitely.
The Group has capital losses of £55.8m (2020: £55.8m) 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 £1.9m (2020: £1.1m) 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.
20. Trade and other payables
2021
£m
2020
£m
Amounts falling due within one year:
Trade payables 27.7 28.3
Other taxes and social security 20.2 22.6
Deferred consideration on acquisition of businesses – 58.7
Other payables 9.0 11. 8
Accruals
1
53.1 49.5
110.0 170.9
Amounts falling due after more than one year:
Other payables 1.5 2.3
1 Accruals include £31.1.m (2020: £21.0m) of payroll related accruals.
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 2020 is 33 days (2020: 35 days). The Directors’ consider the carrying value of trade payables to
approximate to their fair value.
Included in accruals in 2020 are £3.7m of legal provisions. Legal provisions have been transferred to provisions in 2021. Refer to note 21 for
more information.
21. Provisions
Restructuring
£m
Restructuring
environmental
£m
Environmental
£m
Legal and
operational
£m Total
£m
At 1 January 2021 24.5 4.8 7.7 – 37.0
Increase in provision 0.6 0.7 0.3 – 1.6
Release of provision (3.2) (0.7) (0.9) – (4.8)
Utilisation of provision (12.1) (1.1) (1.1) – (14.3)
Recategorisation from accruals – – – 3.2 3.2
Exchange difference (0.8) (0.1) – – (0.9)
At 31 December 2021 9.0 3.6 6.0 3.2 21.8
Included in current liabilities 14.4
Included in non-current liabilities 7.4
21.8
1 Included in the closing provisions at 31 December 2021 are £3.2m of legal provisions that have been moved to provisions from accruals in 2021. The 2020 equivalent is £3.7m which has not
been represented and is stated within accruals.
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21. Provisions continued
Included within the above balances are £8.4m of provisions which do not relate to the Group's 2020 exceptional restructuring programme,
comprised of £1.2m of restructuring provisions, £1.2m of environmental restructuring provisions and £6.0m of environmental provisions.
Exceptional restructuring
At 31 December 2021, restructuring provisions of £7.8m (2020: £22.8m) and restructuring environmental provisions of £2.4m (2020: £2.9m)
relate to restructuring initiatives across North America and Europe announced in 2020. The restructuring initiatives included the closure of
several plants resulting in exceptional restructuring costs of £35.7m. £32.8m of these costs related to exceptional restructuring matters while
£2.9m related to exceptional environmental matters.
In the year ended 31 December 2021, £12.6m of the brought forward exceptional restructuring provision was utilised in order to carry out
planned activities which were mainly focused on employee severance and redundancy (£6.6m), costs associated with closing plants (£5.5m)
and the remediation of environmental issues (£0.5m).
As at 31 December 2021, management has performed a detailed review of restructuring activities in order to determine the best estimate
of future expenditure required to settle the present obligations and the related timing. As a result of this assessment, the exceptional
restructuring provisions were adjusted as follows:
Restructuring
£m
Restructuring
environmental
£m
Total
£m
Increase in provision 0.6 0.7 1.3
Release of provision (2.7) (0.6) (3.3)
Net (release)/charge (2.1) 0.1 (2.0)
These increases and releases to provisions have been charged/credited to exceptional items in the consolidated income statement.
Cash outflows in relation to exceptional restructuring initiatives were £13.0m (2020: £11.6m). The majority of the remaining cash outflows on
these activities are expected to occur within 2022.
Of the remaining exceptional restructuring provision of £10.2m at 31 December 2021, £3.8m related to employee severance and redundancy,
£4.0m to costs associated with closing plants and £2.4m related to environmental issues.
The Group provides for the costs of environmental remediation that have been identified at the time of plant closure if there is a probable
outflow of economic resources identified, as part of acquisition due diligence, or in other circumstances where remediation by the Group
is required and a probable outflow of economic resources is identified. This provision is reviewed annually to determine the best estimate
of expenditure required to settle the identified obligations and is separated into restructuring environmental and environmental to identify
separately environmental provisions relating to the restructuring programme from those arising in the ordinary course of business.
The majority of cash outflows in respect of these liabilities are expected to occur within five years.
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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Notes to the consolidated financial statements continued
Year ended 31 December 2021
22. Share capital
2021
£m
2020
£m
Issued and fully paid:
191,456,172 (2020: 191,456,172) ordinary shares of 17
3
/
11
p each 33.1 3 3.1
23. Acquisition of businesses
On 1 December 2021 the Group acquired 100% of the share capital of a new business in Western Europe, for total consideration of £8.2m.
The acquisition was made to strengthen the Group’s network and service offering within the Group’s Western European business also
complementing the Group’s Specialist Technologies strategy. The accounting is provisional as the Group has twelve months to finalise the
valuation of the acquired assets and liabilities under IFRS 3. The acquisition is not expected to have a material impact on net profit.
The transaction has been accounted for as a business combination under IFRS 3 as summarised below:
Fair value of net assets acquired:
2021
£m
Other intangible assets 5.0
Property, plant and equipment 2.3
Inventories 1.7
Trade and other receivables 1.2
Trade and other payables (1.1)
Cash and cash equivalents 0.4
Deferred tax liabilities (1.3)
Fair value of net assets acquired 8.2
Total consideration 8.2
Satisfied by:
Cash consideration transferred in 2021 8.0
Post close adjustment payable in 2022 0.2
Total cash to be transferred 8.2
Net cash outflow arising on acquisition:
Cash consideration 8.2
Less: cash and cash equivalents acquired (0.4)
7.8
Acquisition-related costs amounted to £0.7m (2020: £2.1m, relating primarily to the Ellison acquisition) of which £0.4m related to this
acquisition and have been included in the consolidated income statement.
The gross contractual value of the trade and other receivables was £1.2m. The best estimate at the acquisition date of the contractual cash flows
not expected to be collected was £nil. The business contributed £0.6m revenue and £nil of headline operating profit for the period between the
date of the acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year, the acquisition
would have contributed £7.7m to Group revenue and £0.1m to Group headline operating profit.
Acquisitions prior to 2021
On 3 April 2020 the Group completed the acquisition of 100% of the ordinary share capital of Ellison Surface Technologies (‘Ellison’) for total
consideration of £129.5m. Ellison is a Surface Technology business located in North America with a number of sites primarily serving the
aerospace sector. The transaction was accounted for as a business combination under IFRS 3. Deferred consideration was settled in US
dollars which translated to £64.3m at the acquisition date. £0.6m of the deferred consideration was paid in October 2020 and the remaining
deferred consideration of £57.8m was settled in April 2021 as per agreement with the seller. As the deferred consideration was settled in US
dollars, the final settlement was subject to foreign exchange movements of £5.9m which is recorded within foreign exchange reserves in the
financial statements. Further details of this acquisition can be found in the 2020 annual report and 2021 interim results.
During the year £0.5m deferred consideration was settled in respect of an acquisition in 2019.
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24. Investment in associate
On 26 November 2021 the Group disposed of its investment in Techmeta Engineering SAS for proceeds of £1.5m. A loss on the disposal of
the investment in associate of £0.4m has been recognised in the consolidated income statement being the difference between the carrying
amount of the investment on sale date of £1.8m and the proceeds received. The carrying value of the investment includes £0.1m profit prior
to disposal.
Techmeta Engineering SAS is registered in France and has share capital consisting solely of ordinary shares of which the Group owned 49%
prior to disposal. The Group provided an interest-bearing loan to Techmeta Engineering SAS which was repayable over 10 years. The loan
payable was reimbursed in full prior to completion of the sale.
2021
£m
2020
£m
Investment in associate – 1.8
Loan receivable from associate – 2.3
– 4.1
Profit after tax from continuing operations 0.1 0.4
The Group holds no investments in associate at 31 December 2021.
25. Notes to the cash flow statement
2021
£m
2020
£m
Profit for the year 60.0 0.8
Adjustments for:
Finance income (0.3) (0.2)
Finance costs 6.6 6.7
Taxation charge/(credit) 17.5 (2.3)
Operating profit 83.8 5.0
Adjustments for:
Depreciation of property, plant and equipment 58.0 65.2
Depreciation on closed mothballed sites due to restructuring recognised in exceptional items 0.6 –
Depreciation of right-of-use assets 13.6 14.8
Amortisation of other intangible assets 12.1 11.9
(Profit)/loss on disposal of property, plant and equipment (4.8) 0.6
Share-based payments 4.7 0.4
Income from associate prior to disposal (0.1) (0.2)
Loss on disposal of associate 0.4 –
Impairment of property, plant and equipment and other assets recognised in exceptional items 5.5 16.5
Impairment of property, plant and equipment and other assets recognised in operating profit – 0.3
Impairment of other intangible assets recognised in exceptional items – 6.2
EBITDA (See APM definition on page 150) 173.8 120.7
(Increase)/decrease in inventories (2.7) 2.1
(Increase)/decrease in receivables (1.6) 35.6
Increase/(decrease) in payables 1.9 (35.1)
(Decrease)/increase in provisions (17.6) 23.6
Cash generated by operations 153.8 146.9
Income taxes paid (9.5) (7.8)
Net cash from operating activities 144.3 139.1
2021 2020
Cash and cash equivalents comprise:
Cash and bank balances 39.3 30.7
Bank overdrafts (included in borrowings) (1.4) (1.5)
37.9 29.2
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
26. Share-based payments
Bodycote Incentive Plan (BIP)
The Company operates the BIP under which Executive Directors and Senior Executives receive a conditional award of Bodycote shares up to a
maximum of 175% of base salary. Vestings of awards are based upon two performance measures, over a three-year period.
BIP
2021
BIP
1
2020
Other Plans
1
2021
Other Plans
1
2020
At 1 January 4,053,180 3,321,805 257,132 149,674
Granted during the year 1,562,488 1,990,004 133,527 107,4 58
Exercised during the year (10,279) (639,850) (79,324) –
Expired during the year (1,105,659) (618,778) – –
At 31 December 4,499,730 4,053,180 311,335 257,132
Average fair value of share awards granted during the year
at date of grant (pence) 794.2 571.9 802.1 4 87.2
Fair value of awards granted during the year (£) 12,409,346 11,381,606 1,070,969 523,484
Fifty percent of the award is subject to a Return On Capital Employed (ROCE) performance condition and fifty percent of the award is subject
to headline earnings per share (EPS) performance condition for Executive Directors and in the event that threshold performance for both EPS
and ROCE is not achieved, none of the conditional awards will vest. Senior Executives target measures are subject to headline operating profit
and headline operating cash flow.
Other plans includes a deferred bonus plan for Senior Executives whereby 35% of any bonus earned is deferred into shares and a
Restricted Share Programme (RSP). Under both plans, shares issued vest after three years from the grant date and are conditional only on
continued employment.
More information on the BIP can be found in the Board Report on Remuneration.
The exercise price of shares exercised was £nil. As at year ended 31 December 2021 no shares were exercisable. The inputs to the Black-
Scholes simulation model, used to determine the charge to the income statement for BIP, are as follows:
The number of outstanding share awards is as follows:
BIP
2021
BIP
1
2020
Other Plans
1
2021
Other Plans
1
2020
Weighted average share price (pence) 794.2 571.9 802.1 4 8 7. 2
Weighted average exercise price (pence) nil nil nil nil
Expected life (years) 3.0 3.0 3.0 3.0
Expected dividend yields (%) 3.4 3.5 – 0.0-3.5
Weighted average remaining contractual life of shares
outstanding (years) 1.1 1.3 1.7 1.3
Average fair value of share awards granted during
the year at date of grant (pence) 794.2 571.9 802.1 4 87.2
Fair value of awards granted during the year (£) 12,409,346 11,381,606 1,070,969 523,484
1 The 2020 comparatives have been restated from amounts disclosed in prior year. Opening BIP awards, BIP awards granted and BIP awards expired have increased by 1,423,631, 852,859
and 539,412 respectively. As a result, total BIP share awards outstanding as at 31 December 2020 have increased by 1,737,077 shares. Consequently, the fair value of awards granted during
the year has also increased by £4,878,274. The Other Plans column has been added as this was previously omitted from the disclosure. The opening balance of outstanding share awards at
1 January 2020 and related comparative information have been restated to present these share awards.
The Group recognised a total charge to the consolidated income statement of £4.7m (2020: £0.4m) related to equity-settled share-based
payment transactions.
27. 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. Transactions with investments in associates are disclosed in note 24.
The remuneration of the Board of Directors, who are considered key management personnel of the Group, was as follows:
2021 2020
Short-term employee benefits 2.8 1.6
Share based payments 1.2 –
Pensions 0.2 0.3
4.2 1.9
Further information about the remuneration of the individual Directors is provided in the Board Report on Remuneration on pages 64 to 84.
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28. Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for employees in the United Kingdom, France, Belgium, Canada and
the United States of America. The assets of the schemes are held separately from those of the Group in funds under the control of trustees.
Where there are employees who leave the schemes prior to vesting fully in the contributions, the contributions payable by the Group are
reduced by the amount of forfeited contributions.
The Group’s employees in Denmark, Finland, Sweden, Italy, Slovakia, Switzerland and the Netherlands are members of state-managed
retirement benefit schemes operated by the governments of each country. The relevant subsidiaries are required to contribute a specified
percentage of payroll costs to the retirement benefit schemes to fund the benefits. The only obligation of the Group with respect to these
retirement benefit schemes is to make the specified contributions.
The total cost charged to the consolidated income statement of £6.4m (2020: £7.3m) represents contributions payable to these schemes by
the Group at rates specified in the rules of the plans. As at 31 December 2021 contributions of £0.3m (2020: £0.2m) due in respect of the
current reporting period had not been paid over to the schemes.
Defined benefit schemes
The Group operated a number of pension schemes and provided leaving service benefits to certain employees during the year. The defined
benefit obligation less fair value of assets at the end of the year and total expense recognised in the income statement are summarised below
as follows:
Defined benefit obligation less fair value of assets
2021
£m
2020
£m
UK Scheme – –
Non-UK Schemes 13.9 16.2
13.9 16.2
Total (credit)/expense recognised in the income statement
2021
£m
2020
£m
UK Scheme
1
0.5 0.4
Non-UK Schemes
1
1.2 (1.6)
1.7 (1.2)
1 The UK scheme is closed to new members and the accrual of benefits and the costs represent administrative costs only. 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 exposes the Group to actuarial risks such as longevity risk, interest rate risk and market (investment) risk.
The Scheme operates under UK trust law and the trust is a separate legal entity from the Group. The Scheme is governed by a board of
trustees, composed of two member representatives, two employer representatives and one independent trustee. The trustees are required
by law to act in the best interests of scheme members and are responsible for setting certain policies (e.g. investment, funding) together with
the Group.
Funding of the Scheme is based on a separate actuarial valuation for funding purposes for which the assumptions may differ from the
assumptions above. Funding requirements are formally set out in the Statement of Funding Principles, Schedule of Contributions and
Recovery Plan agreed between the Trustees and the Group in respect of the 6 April 2017 actuarial valuation. The actuarial valuation of the
Scheme as at 6 April 2020 was completed by a qualified independent actuary and the results of this have been updated on an approximate
basis to 31 December 2021.
The contributions made by the employer over the financial year have been £0.5m in respect of ongoing expenses. It is the policy of the
Group to recognise all actuarial gains and losses in the year in which they occur outside of the consolidated income statement and in the
consolidated statement of comprehensive income. The UK scheme was closed to new entrants and future accrual in 2019.
The Group acknowledges that the recognition of pension scheme surplus is an area of accounting judgement, which depends on the
interpretation of the wording of the Scheme Rules and the relevant accounting standard, 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 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 2021
a restriction has been applied to the balance sheet, and the net surplus recognised on the balance sheet has been restricted to £nil.
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
28. Retirement benefit schemes continued
Reconciliation of opening and closing balances of the present value of the defined benefit obligation
2021
£m
2020
£m
Defined benefit obligation at start of year 124.9 111.2
Interest expense 1.6 2.0
Actuarial gains arising from changes in demographic assumptions (5.7) (0.5)
Actuarial (gains)/losses arising from changes in financial assumptions (5.8) 15.5
Experience gains (3.9) –
Benefits paid and transferred, death in service insurance premiums and expenses (9.2) (3.5)
Past service cost – 0.2
Defined benefit obligation at end of year 101.9 124.9
Reconciliation of opening and closing balances of the fair value of the assets
2021
£m
2020
£m
Fair value of assets at start of year 127.2 115.4
Interest income 1.6 2.1
Return on scheme assets excluding interest income (3.6) 13.0
Scheme administration expenses (0.5) (0.2)
Contributions by employer 0.4 0.4
Benefits paid and transferred, death in service insurance premiums and expenses (9.2) (3.5)
Fair value of assets at end of year 115.9 127.2
Total expense recognised in the income statement
2021
£m
2020
£m
Past service cost – 0.2
Scheme administration expenses 0.5 0.2
0.5 0.4
Assets
2021
Quoted
£m
2021
Unquoted
£m
2020
Quoted
£m
2020
Unquoted
£m
Bonds 32.9 5.7 35.8 9.0
Liability Driven Investment 27.6 – 32.1 –
Diversified credit funds 36.1 12.9 35.6 13.0
Cash and Cash equivalents 0.7 – 1.7 –
97.3 18.6 105.2 22.0
None of the fair value of the assets shown above include any of the Group’s own financial instruments or any property occupied by, or other
assets used by the Group.
The Scheme’s current strategic target is to allocate 70% of the investment portfolio to ‘non-matching’ asset classes, predominantly longer-
term credit-based investments and 30% to a ‘liability-matching’ portfolio, comprising Liability Driven Investment (‘LDI’), money market and
shorter-term credit based investments. The LDI portion of the strategy has been put in place to reduce interest and inflation risk. LDI's are
held in pooled investment vehicles and includes over the counter derivatives and quoted equities.
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28. Retirement benefit schemes continued
Assumptions for 2021
2021
% per annum
2020
% per annum
RPI inflation 3.40 3.00
CPI inflation 3.10 2.55
Salary increases n/a n/a
Rate of discount 1.80 1.30
Allowance for pension in payment increases of RPI or 3% p.a. if more 2.61 2.42
Allowance for revaluation of deferred pensions 3.10 2.55
Mortality – current pensioners:
Actuarial tables used
2021
S2PxA YoB CMI
2020 1.5% long
term trend
2020
S2PxA YoB CMI
2019 1.5% long
term trend
Life expectancy for members currently aged 65 21.3 22.3
Mortality – future pensioners:
Actuarial tables used
2021
S2PxA YoB CMI
2020 1.5% long
term trend
2020
S2PxA YoB CMI
2019 1.5% long
term trend
Life expectancy at age 65 for members currently aged 45 23.0 23.9
Cash commutation
2021
All members
commute 75%
of maximum
permitted
2020
All members
commute 75%
of maximum
permitted
The weighted average duration of the defined benefit obligation at 31 December 2021 is approximately 18 years (31 December
2020: 18 years).
The defined benefit obligation at 31 December 2021 can be approximately attributed to the scheme members as follows:
– Active members: 0% (31 December 2020: 0%)
– Deferred members: 49% (31 December 2020: 50%)
– Pensioner members: 51% (31 December 2020: 50%)
All benefits are vested at 31 December 2021 (unchanged from 31 December 2020).
Present value of defined benefit obligations, fair value of assets and deficit
2021
£m
2020
£m
Present value of defined benefit obligation 101.9 124.9
Fair value of plan assets (115.9) (127. 2)
Scheme surplus (14.0) (2.3)
Adjustment relating to asset ceilings and minimum funding requirements 14.0 2.3
Net defined benefit asset before deferred tax – –
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
28. Retirement benefit schemes continued
Reconciliation of asset ceiling
2021
£m
2020
£m
Restriction due to asset ceiling at beginning of period 2.3 4.2
Interest on asset restriction – 0.1
Other changes in asset restriction 11.7 (2.0)
Restriction due to asset ceiling at end of period 14.0 2.3
The best estimate of contributions to be paid into the plan for the year ending 31 December 2022 is £0.4m.
Amounts recognised in other comprehensive income
2021
£m
2020
£m
Return on scheme assets excluding interest income (3.6) 13.0
Actuarial gains/(losses) arising from changes in financial assumptions 5.8 (15.5)
Actuarial gains arising from changes in demographic assumptions 5.7 0.5
Experience gains on liabilities 3.9 –
(Loss)/gain due to change in asset restriction (11.7) 2.0
Total loss recognised in other comprehensive income 0.1 –
Impact of changes to assumptions
2021 2020
Increase
£m
Decrease
£m
Increase
£m
Decrease
£m
0.5% change in discount rate (8.1) 8.1 (5.7) 5.7
0.5% change in price inflation (and associated assumptions) 3.7 (3.7) 2.7 (2.7)
1 year change in life expectancy at age 65 (4.4) 4.4 5.7 (5.7)
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.
Combined non-UK disclosures
The Group operates defined benefit schemes in the USA and continental Europe.
In Europe the Group operates defined benefit pension, post retirement and long-service arrangements for certain employees in France,
Germany, Italy, Turkey, Switzerland and Liechtenstein.
Reconciliation of opening and closing balances of the present value of the defined benefit obligation
2021
£m
2020
£m
Defined benefit obligation at start of year 26.4 27.5
Current service cost 0.8 0.8
Interest expense 0.2 0.3
Actuarial gains arising from changes in demographic assumptions (0.3) –
Actuarial (gains)/losses arising from changes in financial assumptions (1.3) 1.0
Experience gains on liabilities (0.4) (0.6)
Benefits paid and transferred, death in service insurance premiums and expenses (0.9) (1.2)
Employee contributions 0.1 0.1
Curtailments 0.3 (0.9)
Past service credit – (1.7)
Exchange rate (gain)/loss (0.9) 1.1
Defined benefit obligation at end of year 24.0 26.4
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28. Retirement benefit schemes continued
Reconciliation of opening and closing balances of the fair value of plan assets
2021
£m
2020
£m
Fair value of assets at start of year 11.2 10.1
Interest income 0.1 0.1
Return on scheme assets excluding interest income 1.2 1.1
Contributions by employer 0.1 0.2
Contributions by employees 0.1 0.1
Benefits paid and transferred, death in service insurance premiums and expenses (0.5) (0.6)
Exchange rate gain – 0.2
Fair value of assets at end of year 12.2 11.2
Total expense/(credit) recognised in the income statement
2021
£m
2020
£m
Current service cost 0.8 0.8
Net interest on the defined benefit liability 0.1 0.2
Curtailments 0.3 (0.9)
Past service credit – (1.7)
Total expense/(credit) 1.2 (1.6)
Assets
2021 2020
Quoted
£m
Unquoted
£m
Quoted
£m
Decrease
£m
Equities 6.0 – 5.1 –
Insurance contracts – 6.2 – 6.1
Total 6.0 6.2 5.1 6.1
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 2021
Salary
increases %
per annum
Rate of
discount %
per annum
Inflation %
per annum
Pension
increases
% per annum
USA n/a 2.5 n/a n/a
France 2.5 0.8 1.5 1.0
Germany 2.5 1.3 n/a 1.8
Italy 2.5 0.8 1.5 n/a
Turkey 8.5 13.0 8.5 n/a
Liechtenstein 2.5 0.3 n/a n/a
Switzerland n/a 0.3 n/a n/a
There were no significant changes to these assumptions compared to the prior year.
Duration
The weighted average durations of the defined benefit obligations of the overseas schemes at 31 December 2021 range from 11 years to 20
years. The durations ranged from 12 years to 21 years as at 31 December 2020.
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Notes to the consolidated financial statements continued
Year ended 31 December 2021
28. Retirement benefit schemes continued
Present value of defined benefit obligations, fair value of assets and deficit
2021
£m
2020
£m
Present value of defined benefit obligation 24.0 26.4
Fair value of plan assets (12.2) (11.2)
Deficit in the schemes 11.8 15.2
Adjustment relating to asset ceilings and minimum funding requirements 2.1 1.0
Net defined benefit liability, before deferred tax 13.9 16.2
As all actuarial gains and losses are recognised, the deficit shown above at 31 December 2021 is that recognised in the balance sheet.
Amounts recognised in other comprehensive income
2021
£m
2020
£m
Return on scheme assets excluding interest income 1.2 1.1
Actuarial gains/(losses) arising from changes in financial assumptions 1.3 (1.0)
Actuarial gains arising from changes in demographic assumptions 0.3 –
Experience gains on liabilities 0.4 0.6
Loss due to change in asset restriction (1.2) (0.4)
Total gain recognised in other comprehensive Income 2.0 0.3
The only funded plans are those operated in USA, France, Switzerland and Liechtenstein. The best estimate of contributions to be paid into
the plans for the year ending 31 December 2022 is £0.1m.
Sensitivities (changes to total defined benefit obligations)
2021 2020
Increase
£m
Decrease
£m
Increase
£m
Decrease
£m
0.25% change in discount rate (0.8) 0.8 (1.0) 1.0
0.25% change in price inflation (and associated assumptions) 0.4 (0.4) 0.5 (0.5)
The sensitivity table is based on an illustrative 0.25% change, although the assumptions may vary by greater amounts. Therefore, the Group
considers the retirement benefit obligations a key source of estimation uncertainty.
29. Contingent liabilities
The international tax environment has received increased attention and seen rapid change over recent years, both at a US and European level,
and by international bodies such as the Organisation for Economic Cooperation and Development (OECD). Against this backdrop, Bodycote
has been monitoring developments and continues to engage transparently with the tax authorities in the countries where we operate.
In April 2019 the European Commission published their decision that certain aspects of the UK finance company exemption constitute illegal
State Aid. Bodycote took advantage of this exemption in its overseas financing arrangements. As at 31 December 2020 the Group disclosed a
contingent liability in respect of this issue of £22.0m. In December 2021 the UK tax authorities confirmed that Bodycote was not a beneficiary
of illegal State Aid and therefore there should be no further assessment into the matter. Consequently the Group believes there is no longer a
contingent liability in respect of this issue.
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
judgement 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.
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Strategic report Financial statements
Company balance sheet
At 31 December 2021
Note
2021
£m
2020
£m
Non-current assets
Intangible assets 3 18.8 15.4
Property, plant and equipment 4 0.2 0.7
Right-of-use assets 5 0.2 0.3
Investments in subsidiaries 6 389.0 391.0
Deferred tax assets 9 – 1.7
Trade and other receivables 7 101.3 148.3
509.5 5 57.4
Current assets
Trade and other receivables 7 4.0 4.0
Cash and bank balances 0.1 –
4.1 4.0
Total assets 513.6 561.4
Current liabilities
Trade and other payables 8 13.2 9.8
Borrowings – 17.0
Lease liabilities 5 0.2 0.2
13.4 27.0
Net current liabilities (9.3) (23.0)
Non-current liabilities
Trade and other payables 8 14.0 1.0
Lease liabilities 5 0.1 0.3
14.1 1.3
Total liabilities 27.5 28.3
Net assets 486.1 533.1
Equity
Share capital 10 33.1 33.1
Share premium account 177.1 177.1
Own shares (6.3) (7.0)
Other reserves 136.3 132.4
(Loss)/profit for year (3.0) 44.6
Retained earnings 148.9 152.9
Total equity 486.1 5 3 3.1
During the year the company has chosen to adopt an IAS 1 presentation for the balance sheet and use of IFRS terminology in the financial
statements in order to be consistent with the presentation of the consolidated balance sheet for the Group.
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue on
14 March 2022.
They were signed on its behalf by:
S.C. Harris D. Yates
Director Director
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Company statement of changes in equity
Year ended 31 December 2021
Share
capital
£m
Share
premium
account
£m Own shares
Other
reserves
£m
Retained
earnings
£m
Total
£m
1 January 2020 33.1 177.1 (11.7) 136.5 172.7 5 07.7
Profit for the year – – – – 44.6 44.6
Actuarial gain on defined benefit pension
schemes net of deferred tax – – – – 0.3 0.3
Total comprehensive income for the year – – – – 44.9 44.9
Dividends paid – – – – (25.1) (25.1)
Shares acquired – – (0.5) – – (0.5)
Share-based payments – – – 0.4 – 0.4
Settlement of share options – – 5.2 (4.5) 5.0 5.7
31 December 2020 33.1 177.1 (7.0 ) 132.4 197. 5 533.1
Loss for the year – – – – (3.0) (3.0)
Actuarial gain on defined benefit pension
schemes net of deferred tax – – – – 0.2 0.2
Total comprehensive expense for the year – – – – (2.8) (2.8)
Dividends paid – – – – (49.0) (49.0)
Share-based payments – – – 4.7 – 4.7
Settlement of share options – – 0.7 (0.8) 0.2 0.1
31 December 2021 33.1 177.1 (6.3) 136.3 145.9 486.1
Details of dividends paid are set out in note 7 of the consolidated financial statements.
Details of share-based payment transactions are set out in note 26 of the consolidated financial statements.
Shares held in the Bodycote International Employee Benefit Trust have been presented separately from Other reserves, shown as Own
shares, consistent with the presentation in the consolidated statement of changes in equity. The Bodycote International Employee Benefit
Trust holds Bodycote plc shares and satisfies awards made under various employee incentive schemes when issuance of new shares is
not appropriate.
At 31 December 2021 775,962 (2020: 865,565) ordinary shares of 17
3
/
11
p 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 £6.7m (2020: £6.5m).
Included in other reserves is £5.9m (2020: £2.0m) relating to a share option reserve and a capital redemption reserve of £129.8m
(2020: £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 report Financial statements
Company accounting policies
Basis of accounting
The financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101)
and in accordance with 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 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 accounting policy on pages 98 to 99.
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 on pages 101 to 102.
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.
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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 excluding goodwill
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, 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.
Per IFRS 9, a simplified lifetime 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 30 June 2024. On each 30 June anniversary the loan facility is to be extended for a further 12 months. The interest rate for such
facility was at LIBOR plus 1.20% margin in 2021. At the end of 2021, the LIBOR reference rate was phased out and transitioned to the Sterling
Overnight Index Average (SONIA) which, as of 31 December 2021, has become the new interest reference rate). The impact of this change is
not significant.
Payables
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Non-interest-bearing financial liabilities are stated at their nominal value. Trade payables are recognised at fair value.
The Company derecognises financial liabilities when, and only when, the Company obligations are discharged, cancelled or they expire.
Amounts owed to subsidiary undertakings falling due after more than one year are classified as such according to the loan agreement in
place until 30 June 2024. On each 30 June anniversary the loan facility is to be extended for a further 12 months. The interest rate for such
facility was at LIBOR plus 1.95% margin in 2021. At the end of 2021, the LIBOR reference rate was phased out and transitioned to the Sterling
Overnight Index Average (SONIA) which, as of 31 December 2021, has become the new interest reference rate. The impact of this change is
not significant.
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.
Company accounting policies continued
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Strategic report Financial statements
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,
isrecognised 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 options.
Critical judgements in applying the Company’s accounting policies and key sources of estimation
uncertainty
In the course of preparing the Company’s financial statements, no key source of estimation uncertainty have been identified. Refer to note 12
for judgements identified in relation to the non-recognition of the pension surplus.
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Notes to the company financial statements
Year ended 31 December 2021
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 loss for the financial year ended 31 December 2021 of £3.0m (2020 profit: £44.6m).
The auditor’s remuneration for audit and other services is disclosed in note 2 of the Group’s consolidated financial statements.
2. Employees
2021 2020
Average monthly number of employees 51 56
£m £m
Their aggregate remuneration comprised:
Wages and salaries 8.3 3.0
Social security costs 1.2 (0.5)
Pension costs 0.4 0.6
9.9 3.1
Included in wages and salaries are share-based payments (excluding social charges) resulting in a charge of £1.1m (2020: £0.1m).
All Directors of the Group with the exception of Dominique Yates are remunerated through the Company and these costs are reflected in the
financial statements of the Company. Dominique Yates is remunerated through Bodycote (Suisse) SA, a direct subsidiary of the Company and
these costs are reflected in the financial statements of the Group and Bodycote (Suisse) SA. Disclosure of individual Directors’ remuneration,
share interests, share options, long-term incentive schemes, pension contributions and pension entitlements required by the Companies Act
2006 are shown in the tables in the Board Report on remuneration on pages 64 to 84 and form part of these financial statements.
3. Intangible assets
Software
£m
Cost
At 1 January 2021 32.6
Additions 5.1
At 31 December 2021 37.7
Amortisation
At 1 January 2020 17. 2
Charge for the year 1.7
At 31 December 2021 18.9
Net book value
At 31 December 2021 18.8
At 31 December 2020 15.4
Included in software assets are ongoing development costs related to the Group’s ERP solutions. £12.6m (2020: £7.6m) 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.
4. Property, plant and equipment
Fixtures
and fittings
£m
Cost
At 1 January 2021 1.5
Disposals
1
(0.5)
At 31 December 2021 1.0
Depreciation
At 1 January 2021 0.8
At 31 December 2021 0.8
Net book value
At 31 December 2021 0.2
At 31 December 2020 0.7
1 £0.5m disposals in the period relate £0.1m for land which is not depreciated and £0.4m of IT equipment subsequently sold to other group companies prior to use and depreciation
being applied.
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5. Right-of-use assets
Buildings
and vehicles
£m
Cost
At 1 January 2021 and 31 December 2021 2.3
Depreciation
At 1 January 2021 2.0
Charge for the year 0.1
At 31 December 2021 2.1
Net book value
At 31 December 2021 0.2
At 31 December 2020 0.3
2021
£m
2020
£m
Lease liabilities
Maturity analysis – contractual undiscounted cash flows
Less than one year 0.2 0.2
One to five years 0.1 0.3
Total undiscounted cash flows 0.3 0.5
Current 0.2 0.2
Non-current 0.1 0.3
Total lease liabilities 0.3 0.5
6. Investments in subsidiaries
£m
Cost
At 1 January 2021 397.6
At 31 December 2021 397.6
Provision for impairment
At 1 January 2021 6.6
Provision in the year 2.0
At 31 December 2021 8.6
Net book value
At 31 December 2021 389.0
At 31 December 2020 391.0
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 consolidated financial statements of Bodycote plc as at 31 December 2021.
Bodycote Heat Treatments Limited
Bodycote Surface Technology Limited
Bodycote H.I.P. Limited
Bodycote America Finance Limited
Bodycote America Treasury Limited
Bodycote Finance Limited
Bodycote Finance UK Limited
Bodycote International Limited
Bodycote Investments
Bodycote Nominees No. 1 Limited
Bodycote Pension Trustees Limited
Bodycote HIP Germany Limited
Bodycote Thermal Processing Mexico Limited
Bodycote America Capital Limited
A full list of directly and indirectly owned subsidiary undertakings can be found on page 152.
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Notes to the company financial statements continued
For the year ended 31 December 2021
7. Trade and other receivables
2021
£m
2020
£m
Amounts falling due within one year:
Amounts owed by subsidiary undertakings 0.9 0.3
Corporation tax 2.7 2.7
Other receivables and prepayments 0.4 1.0
4.0 4.0
Amounts falling due after more than one year:
Amounts owed by subsidiary undertakings
1
100.3 147. 3
Other receivables 1.0 1.0
101.3 148.3
105.3 152.3
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. Loans are repayable on 30 June 2024 and on each 30 June anniversary the loan facility is to be extended for a further 12 months.
8. Trade and other payables
2021
£m
2020
£m
Amounts falling due within one year:
Trade payables 0.1 –
Amounts owed to subsidiary undertakings 4.3 4.6
Other taxes and social security 0.6 0.3
Other payables 3.9 0.9
Accruals 4.3 4.0
13.2 9.8
Amounts falling due after more than one year:
Amounts owed to subsidiary undertakings
1
14.0 1.0
14.0 1.0
1 Intercompany loan from Bodycote Finance Limited, repayable on 30 June 2024. On each 30 June anniversary the loan facility is to be extended for a further 12 months.
9. Deferred tax
The following are the deferred tax assets and liabilities recognised by the Company and movements thereon during the current and prior year.
Accelerated tax
depreciation
Retirement
benefit
obligations
£m
Other timing
differences
£m
Total
£m
At 1 January 2020 (0.5) – 0.5 –
Credit/(charge) to profit or loss 1.8 (0.1) (0.1) 1.6
Credit to other comprehensive income – 0.1 – 0.1
At 1 January 2021 1.3 – 0.4 1.7
Credit/(charge) to profit or loss (1.8) (0.1) 0.1 (1.8)
Credit to other comprehensive income – 0.1 – 0.1
At 31 December 2021 (0.5) – 0.5 –
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:
2021
£m
2020
£m
Net deferred tax asset – 1.7
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10. Share capital
Share capital:
Ordinary shares (allotted, called-up and fully paid)
Number of
shares £m
At 1 January 2021 191,456,172 3 3.1
At 31 December 2021 191,456,172 33.1
Details of share options in issue on the Company’s share capital and share-based payments are set out in note 26 of the consolidated
financial statements.
11. Contingent liabilities
The Company has guaranteed bank overdrafts, loans and letters of credit of certain subsidiary undertakings amounting to £3.8m
(2020: £3.6m).
12. Pension commitments
The Company participates in a final salary defined benefit scheme in the UK, the details of which are disclosed in note 28 of the consolidated
financial statements. This is a defined benefit plan which shares the risks between entities under common control. There is no contractual
agreement or policy for charging the net benefit cost between entities who participate in this scheme. The Company is considered to be the
entity that is legally the sponsoring employer of this scheme. The net defined benefit costs are recognised as per the requirements of
IAS 19 (revised) Employee Benefits.
The Company acknowledges that the recognition of pension scheme surpluses is an area of accounting judgement, which depends on the
wording of the scheme rules and IFRIC 14. The pension asset surplus not recognised at 31 December 2021 was £14.0m (2020: £2.3m).
Full disclosures concerning the scheme as required by IAS 19 (revised) are set out in note 28 of the consolidated financial statements
and full disclosure concerning IFRIC 14 is set out in note 28 of the consolidated financial statements.
The contributions made by the Company over the financial year to the defined contribution scheme amounted to £0.4m (2020: £0.4m).
As at 31 December 2021, contributions of £nil (2020: £nil) due in respect of the current year had not been paid over to the scheme.
13. Related party transactions
Other than payments made to Directors, which are set out in the Board Report on Remuneration on pages 64 to 84 and note 27 of the
consolidated financial statements, there are no other related party transactions to disclose. The Company has taken the exemption available
under FRS 101 not to disclose transactions with wholly owned subsidiary companies.
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2021
£m
2020
£m
2019
£m
2018
1
£m
2017
2
£m
Revenue 615.8 598.0 719.7 728.6 690.2
Profit:
Headline operating profit 94.8 75.3 134.9 140.7 123.9
Amortisation of acquired intangible fixed assets (10.3) (9.8) (4.6) (3.7) (4.5)
Acquisition costs (0.7) (2.1) (1.7) (0.5) –
Operating profit prior to exceptional items 83.8 63.4 128.6 136.5 119.4
Exceptional items – (58.4) – – –
Operating profit 83.8 5.0 128.6 136.5 119.4
Net finance costs (6.3) (6.5) (4.7) (4.3) (2.4)
Profit/(loss) before taxation 77.5 (1.5) 123.9 132.2 117.0
Taxation (17.5) 2.3 (29.9) (28.6) (19.7)
Profit after taxation 60.0 0.8 94.0 103.6 97.3
Non-controlling interests (0.5) (0.4) (0.2) (0.4) (0.2)
Profit attributable to the equity holders of the parent 59.5 0.4 93.8 103.2 97.1
Headline earnings per share (pence) 35.8 27.8 52.1 55.9 49.2
Dividend per share (pence) 20.0 19.4 19.3 19.0 17.4
Special dividend per share (pence) – – – 20.0 25.0
Assets employed
Intangible assets 322.0 323.5 212.4 206.9 201.0
Property, plant and equipment 489.3 522.6 534.5 546.6 520.5
Other assets and liabilities (9.5) (66.6) 17.4 9.9 (63.6)
801.8 779.5 764.3 763.4 657.9
Financed by
Share capital 33.1 33.1 3 3.1 3 3.1 33.1
Reserves 651.6 6 47.4 671.9 685.5 663.9
Shareholders' funds 684.7 680.5 705.0 718.6 6 97.0
Non-controlling interests 0.7 0.9 0.8 0.7 0.5
Lease liabilities 64.5 75.6 79.4 80.3 –
Net debt/(cash) 51.9 22.5 (20.9) (36.2) (39.6)
Capital employed 801.8 779.5 764.3 763.4 657.9
Net assets per share (pence) 357.6 355.4 368.2 375.3 3 6 4.1
Return on capital employed %:
Headline operating profit divided by the average
ofopeningand closing capital employed 12.0 9.8 17.7 19.8 19.3
1 Restated following adoption of IFRS 16, Leases on 1 January 2018.
2 Periods prior to the adoption of IFRS 16, Leases on 1 January 2018 have not been restated.
Five year summary (unaudited)
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Bodycote uses Alternative Performance Measures (APMs), in addition to those reported under 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 International Financial Reporting Standards (IFRS) and are
defined below and, where relevant, are reconciled to IFRS measures. APMs are prepared on a consistent basis for all periods presented in
this report.
The APMs used include headline operating profit, headline operating margin, headline profit before taxation, EBITDA, headline EBITDA,
organic sales, headline tax charge, headline tax rate, headline earnings per share (EPS), headline operating cash flow, free cash flow, headline
operating cash conversion, free cash flow conversion, 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.
Headline operating profit
2021
£m
2020
£m
Operating profit 83.8 5.0
Add back:
Amortisation of acquired intangibles 10.3 9.8
Acquisition costs 0.7 2.1
Exceptional items – 58.4
Headline operating profit 94.8 75.3
Headline operating margin
2021
£m
2020
£m
Headline operating profit 94.8 75.3
Revenue 615.8 598.0
Headline operating margin 15.4% 12.6%
Headline profit before taxation
2021
£m
2020
£m
Profit/(loss) before taxation 77.5 (1.5)
Add back:
Amortisation of acquired intangibles 10.3 9.8
Acquisition costs 0.7 2.1
Exceptional items – 58.4
Headline profit before taxation 88.5 68.8
Alternative performance measures (unaudited)
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EBITDA and Headline EBITDA (Earnings Before Interest, Taxation, Depreciation, and Amortisation)
2021
£m
2020
£m
Operating profit 83.8 5.0
Depreciation and amortisation 83.7 91.9
Depreciation on closed mothballed sites due to restructuring recognised in exceptional items 0.6 –
Impairment of property, plant and equipment and other assets - recognised in exceptional items 5.5 16.5
Impairment of property, plant and equipment and other assets - recognised in operating profit – 0.3
Impairment of other intangible assets - recognised in exceptional items – 6.2
(Profit)/loss on disposal of property, plant and equipment (4.8) 0.6
Share-based payments 4.7 0.4
Income from associate prior to disposal (0.1) (0.2)
Loss on disposal of associate 0.4 –
EBITDA 173.8 120.7
Acquisition costs 0.7 2.1
Exceptional items, excluding impairments (1.3) 35.7
Share-based payments (4.7) (0.4)
Headline EBITDA 168.5 158.1
Headline EBITDA margin 27.4% 26.4%
Organic sales
Excludes revenues from acquisitions in the current and comparative period to provide a like-for-like comparison, reconciled in the table below:
2021
£m
2020
£m
Total revenue 615.8 598.0
Adjustment for revenue from acquisitions 32.8 22.6
Total organic revenue 583.0 575.4
Headline operating cash flow
2021
£m
2020
£m
Headline EBITDA 168.5 15 8 .1
Less:
Net maintenance capital expenditure (43.1) (45.1)
Net working capital movement (3.4) 17. 2
Headline operating cash flow 122.0 130.2
Free cash flow
2021
£m
2020
£m
Headline operating cash flow 122.0 130.2
Less:
Restructuring cash flows (2.3) (11.6)
Income taxes paid (9.5) ( 7. 8 )
Interest paid (5.2) (4.7)
Free cash flow 105.0 106.1
Headline operating cash conversion
2021
£m
2020
£m
Headline operating cash flow 122.0 130.2
Headline operating profit 94.8 75.3
Headline operating cash conversion 128.7% 172.9%
Alternative performance measures (unaudited) continued
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Free cash flow conversion
2021
£m
2020
£m
Free cash flow 105.0 106.1
Headline operating profit 94.8 75.3
Free cash flow conversion 110.8% 141.0%
Headline tax charge
2021
£m
2020
£m
Tax charge/(credit) 17.5 (2.3)
Tax on amortisation of acquired intangibles 2.5 2.4
Tax on exceptional items and acquisition costs (0.3) 15.4
Headline tax charge 19.7 15.5
Headline tax rate
2021
£m
2020
£m
Headline tax charge 19.7 15.5
Headline profit before taxation 88.5 68.8
Headline tax rate 22.3% 22.5%
Headline earnings per share
A detailed reconciliation is provided in note 8 of the consolidated financial statements.
Net debt and net debt plus lease liabilities
2021
£m
2020
£m
Cash and bank balances 39.3 30.7
Bank overdrafts (included in borrowings) (1.4) (1.5)
Derivative financial instruments 0.5 –
Bank loans (included in borrowings) (90.3) (51.7)
Net debt (51.9) (22.5)
Lease liabilities (64.5) (75.6)
Net debt plus lease liabilities (116.4) (98.1)
Return on capital employed
2021
£m
2020
£m
Headline operating profit 94.8 75.3
Average capital employed
1
789.9 770.5
Return on capital employed 12.0% 9.8%
1 Average capital employed is defined as the average opening and closing net assets adjusted for net debt plus lease liabilities.
Revenue and headline operating profit at constant exchange rates
Reconciled to revenue and headline operating profit in the table below:
Year to 31 December 2021
ADE
£m
AGI
£m
Central
cost and
eliminations
£m
Consolidated
£m
Revenue 245.6 370.2 – 615.8
Constant exchange rates adjustment 10.8 13.8 – 24.6
Revenue at constant exchange rates 256.4 384.0 – 640.4
Headline operating profit 44.2 69.5 (18.9) 94.8
Constant exchange rates adjustment 1.4 2.7 0.3 4.4
Headline operating profit at constant exchange rates 45.6 72.2 (18.6) 99.2
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Subsidiary undertakings
Incorporated in the UK
Springwood Court, Springwood Close, Tytherington Business Park, Macclesfield SK10 2XF
Bodycote America Capital Limited
6
Bodycote America Finance Limited
6
Bodycote America Treasury Limited
6
Bodycote Developments Limited
2,4
Bodycote Finance Limited
6
Bodycote Finance UK Limited
6
Bodycote Heat Treatments Limited
1
Bodycote H.I.P. Limited
1
Bodycote HIP Germany Limited
3
Bodycote International Limited
3
Bodycote Investments
6
Bodycote K-Tech Limited
2
Bodycote Nominees No. 1 Limited
2
Bodycote Nominees No. 2 Limited
2
Bodycote Pension Trustees Limited
5
Bodycote Processing (Skelmersdale) Limited
2,4
Bodycote Surface Technology Limited
1
Bodycote Thermal Processing Limited
2
Bodycote Thermal Processing Mexico Limited
1
Expert Heat Treatments Limited
2,4
Taylor & Hartley Fabrics Limited
2
Incorporated in Belgium
Font Saint Landry 11, 1120 Brussels, Belgium
Bodycote Belgium SA
1
Industrie Park Noord 7, 9100 Sint-Niklaas, Belgium
Bodycote Hot Isostatic Pressing NV
1
Incorporated in Canada
630 Newpark Boulevard, Newmarket ON L3X 2S2, Canada
Bodycote Canada Property Inc.
4
Bodycote Thermal Processing Canada, Inc
1
50 Queen Street North, Suite 1020, Kitchener ON N2H 6M2, Canada
Bodycote Heat Treatment Canada, Inc.
1
30 de l’Aeroport Boulevard, Bromont Québec JSL 1S6, Canada
Bodycote Surface Technology Canada Property, Inc.
4
Bodycote Surface Technology Canada Ltd.
1
Incorporated in China
No. 68 Ningbo East Road, Taicang Economic Development Area, Taicang City, Jiangsu, China
Bodycote Heat Treatments Technology (Taicang) Co., Limited
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 (Jinan) 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
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Incorporated in France
Ilena Park – Bât. B2, Parc Technologique de Lyon, 117, allée des Parcs, 69800 Saint Priest, France
Bodycote Bourgogne SAS
1
Bodycote France Holdings SA
3
Bodycote Haute-Savoie SAS
2
Bodycote Lyon SNC
6
Bodycote Metz-Tessy SAS
1
Bodycote SAS
1
Bodycote Sud-Ouest SAS
1
HITEC SAS
2
Nitruvid SAS
1
Incorporated in Germany
Schiessstrasse 68, 40549 Düsseldorf, Germany
Bodycote Deutschland GmbH
6
Bodycote European Holdings GmbH
3
Bodycote Hirzenhain GmbH
1
Bodycote Specialist Technologies GmbH
1
Bodycote Specialist Technologies Deutschland GmbH
1
Bodycote VHK Vakuum-Härterei Köllner GmbH
1
Bodycote Wärmebehandlung GmbH
1
Incorporated in Ireland
12 Merrion Square North, Dublin 2, Ireland
Bodycote Ireland Finance DAC
6
Bodycote Ireland Treasury Limited
6
– A and B ordinary shares
Incorporated in Jersey
50 La Colomberie, St Helier, JE2 4QB, Jersey
Bodycote Jersey Finance Limited
6
Bodycote Jersey Holdings Limited
3
Incorporated in Mexico
Oficinas en el Parque Torre Baker & McKenzie, Piso 10, Blvd. Antonio L. Rodríguez 1884 Pte, Monterrey, NL, 64650, Mexico
Bodycote de Mexico, S. de R.L. de C.V.
1
– merged into Bodycote Thermal Processing de Mexico, S. de R.L. de C.V. 1st November 2021
Bodycote de SLP, S. de R.L. de C.V.
1
Bodycote Testing de Mexico, S. de R.L. de C.V.
2
Bodycote Thermal Processing de Mexico, S. de R.L. de C.V.
1
Bodycote Thermal Processing de Mexico Servicios, S. de R.L. de C.V.
6
Incorporated in Sweden
Box 209, 735 23, Surahammar, Sweden
Bodycote Hot Isostatic Pressing AB
1
Box 124, 424 23, Angered, Sweden
Bodycote Sweden AB
3
Bodycote Thermotreat AB
2
Bodycote Värmebehandling AB
1
Bodycote Ytbehandling AB
1
Bodycote Yxan 5 AB
4
Incorporated in Switzerland
Avenue Perdtemps 23, 1260 Nyon, Switzerland
Bodycote (Suisse) SA
6
BDC Enterprises SA
3,6
Jurastrasse 59, 2503, Biel, Canton de Berne
HTM Biel GmbH
1
Incorporated in USA
12750 Merit Drive, Suite 1400, Dallas, TX 75251, USA
Bodycote Americas, Inc.
3
Bodycote IMT, Inc.
1
Bodycote K-Tech, Inc.
1
Bodycote Syracuse Heat Treating Corporation
1
Bodycote Thermal Processing, Inc.
1
Bodycote USA, Inc.
3
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Subsidiary undertakings continued
8118 Corporate Way Suite 201, Mason OH 45040, USA
Bodycote Surface Technology Property LLC
4
Bodycote Surface Technology Mexico LLC
1
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 GmbH
1
Groethofstraat 27, 5916PA Venlo, Netherlands
Bodycote Hardingscentrum BV
1
Bodycote Hardingscentrum No.2 BV
3
ÁTI-Sziget Ipari Park, 23. Épület, 2310 Szigetszentmiklós, Hungary
Bodycote Hungary Hökezelö KFT
1
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 Oy
1
Wilgowa 65D, Czestochowa, 42-271, Poland
Bodycote Polska sp z.o.o.
1
Im alten Riet 123, 9494 Schaan, Liechtenstein
Bodycote Rheintal Wärmebehandlung AG
1
Matuškova 48, Vlkanová, Banksá Bystrica, 976 31, Slovakia
Bodycote Slovakia s.r.o.
1
Via Moie 28, 25050, Rodengo Saiano, Italy
Bodycote Trattamenti Termici SpA
1
Brasov, str. Zizinului nr. 119, cod 500407, Romania
Bodycote Tratamente Termice SRL
1
Industribuen 16-18, 5592, Ejby, Denmark
Bodycote Varmebehandling A/S
1
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 Specialist Technologies Deutschland GmbH,
Bodycote Specialist Technologies GmbH, Bodycote VHK Vakuum-Härterei Köllner GmbH, and Bodycote Wärmebehandlung GmbH make
use of the exemption option under Sec. 264 para. 3 German Commercial Code for the fiscal year 2021, 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 2021 will be included in the consolidated annual accounts of Bodycote European
Holdings GmbH.
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Shareholder enquiries
Enquiries on the following administrative matters can be addressed to the Company’s registrars at Equiniti Limited, Aspect House,
Spencer Road, Lancing, West Sussex BN99 6DA. Telephone 0333 207 5951 (+44 121 415 0804 if calling from outside the UK).
Lines open 8.30am to 5.30pm (UK time), Monday to Friday excluding public holidays in England and Wales. Email: Log on to
help.shareview.co.uk (from here you will be able to email your query securely).
– Change of address
– Lost share certificates or dividend cheques
– Dividend mandates
– Amalgamation of holdings
Forms for some of these matters can be downloaded from the registrars’ website www.shareview.co.uk. Shareholders can easily access
and maintain their shareholding online by registering at www.shareview.co.uk. To register, shareholders will require their shareholder
reference number which was recently provided. This is the 11 digit number found on recent dividend correspondence.
Share dealing service
For information on the share dealing service offered by Equiniti Limited, telephone 0345 603 7037 (+44 121 415 7560 if calling from
outside the UK). Lines open 8.00am to 4.30pm (UK time), Monday to Friday excluding public holidays in England and Wales). Please either
telephone Equiniti or look online at www.shareview.co.uk for up-to-date commission rates.
Dividend reinvestment plan (DRIP)
Equiniti’s Dividend Re-investment Plan offers a convenient way for shareholders to build up their shareholding by using dividend payments
to purchase additional shares. The plan is provided by Equiniti Financial Services Limited, part of Equiniti Group, which is authorised and
regulated by the Financial Conduct Authority.
For more information and an application pack please call 0333 207 5951 (+44 121 415 0804 if calling from outside the UK).
Lines open 8.30am to 5.30pm (UK time), Monday to Friday excluding public holidays in England and Wales. Alternatively go to
shareview.co.uk/info/drip
It is important to remember that the value of shares and dividend payments can fall as well as rise and you may not recover the amount
ofmoney that you invest. Past performance should not be seen as indicative of future performance.
Overseas shareholders
Equiniti provides a service to overseas shareholders that will convert sterling dividends into local currency at a competitive rate.
Dividend payments will then be made directly into your local bank account. For more information log on to www.shareview.co.uk/info/ops
where you will find the answer to any queries you have, as well as the full terms and conditions of the service. Alternatively, please call
0333 207 5951 (+44 121 415 0804 if calling from outside the UK). Lines open 08.30am to 5.30pm (UK time), Monday to Friday excluding
public holidays in England and Wales.
Duplicate share register accounts
If you are receiving more than one copy of our report, it may be that your shares are registered in two or more accounts on our register
of members. If that was not your intention you might consider merging them into one single entry. Please contact Equiniti, who will be
pleased to carry out your instructions.
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Shareholder analysis
Analysis of share register as at 23 February 2022:
Holding range
Number of
shareholders %
Number of
shares %
1 to 1,000 777 43.9 310,140 0.2
1,001 to 10,000 665 37.5 2,124,216 1.1
10,001 to 100,000 185 10.4 6,832,218 3.6
100,001 to 500,000 81 4.6 18,686,410 9.8
500,001 and over 63 3.5 163,503,188 85.4
1771 100.0 191,456,172 100.0
Type of shareholders
% of
shareholders
% of total
shares
Directors’ interests 0.3 0.4
Major institutional and corporate holdings 32.5 98.5
Other shareholdings 67.2 1.1
100.0 100.0
As at 15 February 2022 the following voting rights in the Company had been notified in accordance with the Disclosure and Transparency Rules.
Name of shareholders
Number of
shares %
Aberdeen Standard Investments (EB) 14,161,855 7.4
NNIP Advisors B.V. 11,650,000 6.1
Franklin Templeton Fund Management Limited 9,598,720 5.0
The Vanguard Group, Inc. 8,252,199 4.3
Baillie Gifford & Co. 8,143,266 4.3
Mondrian Inv. Partners 7,812,125 4.1
Alantra Asset Management SGIIC, S.A. 7,122,24 5 3.7
Fidelity Mgmt. & Research Co. 6,777,139 3.5
Artemis Inv. Mgmt. 6,598,330 3.4
Shareholder enquiries continued
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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.
Solicitors
Herbert Smith Freehills LLP and DLA Piper UK LLP.
Financial calendar
Annual General Meeting 25 May 2022
Final dividend for 2021 3 June 2022
Interim results for 2022 July 2022
Interim dividend for 2022 November 2022
Results for 2022 March 2023
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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
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