Annual
Report
2022
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 – Catching
the waves
20 Section 172 statement
22 Business review
24 A component journey – Tight seal
25 Chief Financial Officer’s report
28 Principal risks and uncertainties
33 Viability statement
34 A component journey – Steel bite
35 Sustainability report
41 A component journey – Strong winds
Governance
46 Board of Directors
48 Corporate governance statement
57 Directors’ report
59 Report of the Nomination Committee
63 Report of the Audit Committee
68 Board report on remuneration
83 Directors’ responsibilities statement
Financial statements
84 Independent auditors’ report
92 Consolidated income statement
93 Consolidated balance sheet
94 Consolidated cash flow statement
95 Consolidated statement of
changes in equity
96 Group accounting policies
104 Notes to the consolidated
financial statements
136 Company balance sheet
137 Company statement of changes in equity
138 Company accounting policies
141 Notes to the company
financial statements
Additional information
145 Five-year summary (unaudited)
146 Alternative performance measures
(APMs) – unaudited
149 Subsidiary undertakings
152 Shareholder enquiries
154 Company information
Strategic report Governance Financial statements Additional information
Bodycote plc annual report 2022
Understanding Bodycote
Driving performance
with our 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 create value for our employees, customers and shareholders,
and this is the very essence of Bodycote.
Creating Value
Honesty and Transparency
Page 35 for more information
We behave individually and collectively with respect for each
other, our stakeholders and the environment, conducting business
responsibly, taking ownership of our actions.
Respect and Responsibility
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Bodycote plc annual report 2022
Understanding Bodycote
Our markets
Bodycote offers materials solutions for virtually every market sector, providing
expertise across 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 three 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 vast range of customers across
multiple industry segments in our General
Industrial business. These customers range
from industrial machinery to agricultural
equipment, industrial gas turbines, power
generation, wind turbines, oil & gas
components, construction, electronics
andmedical equipment.
Our success in these markets 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
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
(including Energy)
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Bodycote plc annual report 2022
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, reduce
downtime and increase the
lifespan of the products our
customers manufacture,
improving the sustainability of
their products. Surface hardness
can be controlled by diffusing
elements such as carbon and
nitrogen into the metal during
the heating stages of the
process. The heat treatment of
products impacts 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 positively
impacts the environment by
reducing their carbon footprint.
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.
OurSpecialist 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
steel. 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 a sustainable
substitute for hard chrome.
Our technologies
Bodycote’s purpose is to support our customers in producing superior
components. Our thermal processing services encompass a variety of heat
treatment techniques and specialist technologies that improve the properties
of metals and alloys and extend the life of components. Bodycote addresses
the markets we serve with our exceptional service levels and unmatched ability
to satisfy customers’ needs.
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Bodycote plc annual report 2022
Bodycote offers significant advantages to our customers
as the only global thermal processing service provider.
Through an international network of facilities, Bodycote
can effectively utilise a wealth of knowledge, experience
and specialist expertise to deliver quality service when
and where it is needed.
The network operates from more than 165 facilities, with customers benefitting from
Bodycote’s comprehensive range of services across multiple locations. Customers know
that if their business expands, Bodycote will have the capability to meet their needs.
They recognise that if they broaden their manufacturing footprint, Bodycote will assist
them. They know that they can obtain the same process to the same quality standards
from multiple locations. Customers understand that Bodycote can operate its facilities
more efficiently and reduce their overall impact on the environment, assisting them in
achieving climate change targets.
Such an extensive network brings economies of scale, with technology developed at
one location being available globally if the market requires it. Similarly, network utilisation
is enhanced by using logistics to put customers’ work into the most effective facility
to meet their requirements. Moreover, the network allows Bodycote to specialise in
fewer technologies per location, reducing complexity and increasing the efficiency of
our operations.
The Bodycote network has a wealth of technical accreditations, some industry- or
customer-specific, others more general. Individual operations concentrate on the
accreditations suited to their market.
Understanding Bodycote
Our global network
Delivering quality through our international
network of facilities.
Revenue by geography
Revenue by market sector
1 At year end 2022.
£743.6m
25%
25%
General Industrial (including energy) 50%
Aerospace andDefence
Automotive
£743.6m
North America 37%
Western Europe 51%
Emerging Markets 12%
>
40,000
customers
>
165
facilities
4,933
¹
employees
22
countries
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Bodycote plc annual report 2022
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 with facilities near major
industrial hubs.
Bodycote has facilities across our Emerging
Markets, covering Eastern Europe, China and
Mexico. Bodycote is the number one thermal
processing provider in Eastern Europe and is
the leading Western provider in China.
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 55 facilities convenient to customers in
all areas where manufacturing and technical
industries are concentrated.
North America Western Europe Emerging Markets
2,297
employees
>
80
facilities
1,034
employees
>
25
facilities
>
55
facilities
1,602
employees
Revenue by market sector
Aerospace and Defence 42%
Automotive 20%
General Industrial (including energy) 38%
£271.6m
Revenue by market sector
16%
21%
63%
Aerospace and Defence
Automotive
General Industrial (including energy)
£378.7m
Revenue by market sector
9%
55%
36%
Aerospace and Defence
Automotive
General Industrial (including energy)
£93.3m
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Bodycote plc annual report 2022
Understanding Bodycote
Highlights
Highlights
Financial summary
2022 2021
Revenue £743.6m £615.8m
Headline operating profit
1
£112.2m £94.8m
Headline operating margin
1
15.1% 15.4%
Free cash flow
1
£84.0m £105.0m
Basic headline earnings per share
1,2
42.7p 35.8p
Ordinary dividend per share 21.3p 20.0p
Return on capital employed
1
13.3% 12.0%
Additional statutory measures
Operating profit £102.0m £83.8m
Profit after tax £74.3m £60.0m
Net cash generated from operating activities £142.9m £144.3m
Basic earnings per share 38.6p 31.2p
Key Achievements
– Permanent price increases fully recovered labour and general cost inflation
– Nil margin surcharges completely recovered energy cost inflation in H2 (shortfall of £5m in H1)
– Headline operating margin of 15.1%; 16.1% excluding the dilution effect of energy surcharges
– Good momentum in higher growth markets. Growth
3
excluding surcharges well above
background demand:
– Specialist Technologies up 14%
– Emerging Markets up 16%
– Civil aerospace up 19%
– Final ordinary dividend 14.9p, total year 21.3p (2021: 20.0p)
1 The headline performance measures represent the statutory results excluding certain items. These are deemed alternative performance measures under the European Securities and
Markets Authority guidelines. Please refer to page 146 for a reconciliation to the nearest IFRS equivalent.
2 A detailed EPS reconciliation is provided in note 8 of the consolidated financial statements.
3 At constant currency.
Financial performance
£743.6m
Revenues up 20.8%
£112.2m
Headline operating
profit up 18%
42.7p
Headline EPS
up 19%
£142.9 m
Net cash generated
from operating activities
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Bodycote plc annual report 2022
Financial highlights
£m
£743.6m
‘18 ‘19 ‘20 ‘21 ‘22
728.6
719.7
598.0
743.6
615.8
Revenue
pence
19.0
19.3
19.4
20.0
21.3
Dividend per share
‘18 ‘19 ‘20 ‘21 ‘22
21.3p
£m
‘18 ‘19 ‘20 ‘21 ‘22
140.7
134.9
75.3
112.2
94.8
Headline operating profit
£112.2m
pence
55.9
52.1
27.8
42.7
35.8
Headline earnings per share
42.7p
‘18 ‘19 ‘20 ‘21 ‘22
18.9
17.7
9.8
13.3
12.0
Return on capital employed
%
‘18 ‘19 ‘20 ‘21 ‘22
13.3%
Free cash flow
£m
£84.0m
133.8
123.1
106.1
84.0
105.0
‘18 ‘19 ‘20 ‘21 ‘22
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Bodycote plc annual report 2022
Understanding Bodycote
The investment case
We provide expertise in heat treatment and
specialist thermal processes across a wide
variety of markets.
Specialist Technologies
with high margins and high
growth rates will become
a larger portion of the Group
Superior growth
opportunities in
Emerging Markets and
secular growth markets
of civil aerospace and
electric vehicles
Plentiful
investment
opportunities to drive
margins and returns
An integral part
of the solution
to reduce
global emissions
Strong balance sheet
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
in Specialist Technologies,
Emerging Markets and
civil aerospace
Consistently strong margins
and excellent free cash
flow generation
Business is resilient in a
downturn due to a mixture of
improvement in business quality,
flexibility of the workforce,
diversity of endmarkets
and geographic spread
Bodycote is the world’s
number 1 service provider of
heat treatment and specialist
thermal processing
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8
Bodycote plc annual report 2022
c.£335m
invested in capacity growth
in last five years
>£265m
returned to shareholders
inlastfive years
Higher growth markets of
Specialist Technologies, Emerging
Markets and civil aerospace
already constitute more than half
of the Group revenues and more
than 60% of the Group’s headline
operating profit – these higher
margin and growth opportunities are
expected to continue to outperform
the organic developed Classical Heat
Treatment business
Classical Heat Treatment should
perform ahead of markets, driven by:
– Increasing demand for improved
materials and quality
– Additional outsourcing as customers
understand that Bodycote is part of
the solution to reducing their impact
on climate change
Continued selected acquisitions
– 5 key acquisitions in the last
five years
All on top of underlying Industrial
Production growth
Key investment strengths
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 and
lower emissions
– Investment in development and localisation
opportunities in Emerging Markets
– Investment in secular growth end-markets
of civil aerospace and electric vehicles
– Improving the mix of the Classical Heat
Treatment business
– Proactive approach on ESG and sustainability
– Investment in acquisitions and
greenfield sites
– Strategy that can accommodate widely
differing market outcomes
What you can expect?
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9
Bodycote plc annual report 2022
Introduction
The Group’s good progress in 2022 was achieved amid another year
of uncertainty, notably due to COVID-19 and the impact on energy
prices of Russia’s invasion of Ukraine. Prompt management actions
taken on a local level across the business secured profitability amidst
these challenges.
Dividend
The Board is proposing a final dividend of 14.9p, an increase of 8%,
which will be paid on 2 June 2023, subject to shareholder approval
at the 2023 Annual General Meeting (AGM). This would bring the
total ordinary dividend for 2022 to 21.3p (2021: 20.0p), a year-on-year
increase of 7%, returning £40.6m to shareholders.
Board and governance
As Chair of the Board, I continue to seek to maintain high governance
standards. Appropriate corporate governance allows us to enhance
the business performance that underpins the execution of our
strategy. I am confident that the Bodycote Board remains well
positioned to meet our governance duties.
This year we undertook significant work with both Senior
Management and the Board to challenge the Group’s strategy
toensure that it remains sustainable under various future scenarios.
The robust strategy that management have put in place enables the
Group to thrive in the face of challenges and volatility.
We took the opportunity throughout 2022 to continue educating the
Board about ESG topics and were able to physically visit facilities
again after the enforced pandemic break. This helps the Board to
understand the markets and customers we address as well as to
assess Bodycote’s competitive position. Further to the Board visits,
I took the opportunity to visit several of our facilities and see our
strategy in action.
I was pleased to welcome Cynthia Gordon to the Board in June 2022
as another well-qualified member. Respecting and benefitting from
the Directors’ diverse backgrounds helps to make us stronger and
more effective as a Board. We will continue to refresh the Board
as Directors reach the end of their terms and we are committed
to increasing the representation of women and ethnically diverse
candidates over time.
Succession planning for our Executive Team is also one of the key
responsibilities of the Board. I would like to take this opportunity to
thank Dominique Yates, who has served as a Group Director and CFO
since 2016 and will retire from the Board and the business in April
2023; his contributions have been much appreciated.
I look forward to working with Ben Fidler, who has already joined the
Group, and will assume Dominique’s responsibilities.
People
Our colleagues across the organisation continue to impress me; they
deliver outstanding results and unmatched customer service in this
industry. Our people live by our core values every day, respecting
each other and our stakeholders to ensure we meet the needs of our
customers. In this service business, Bodycote relies on its people at
all levels, and we have outstanding colleagues who understand the
business and are committed to exceptional performance. The Group
places great importance on ensuring the safety and wellbeing for all
Bodycote employees and performed strongly in this area during the
year. The Board is highly engaged with business leaders and regularly
receives business updates. The Board engaged with employees around
the world on subjects pertinent to the business, including meetings
with Employee Engagement Groups, reviewing the Group’s strategy
andsupporting the enhanced programme to combat climate change.
Sustainability
In 2022 Bodycote continued to strengthen its efforts to combat
climate change. The Board is pleased that the Science Based Target
initiative (SBTi) accepted our significant carbon emission reduction
targets. Our commitment to sustainability underpins our strategy
and is a key objective of the Executive Committee and the Board.
Our progress is measured by metrics and an annual scorecard,
which you can see in our Sustainability report page 35. We have
setambitious but realistic goals based on clear and specific projects
identified by the leadership team and approved by the Board. We are
on track to meet our commitments, supported by significant climate-
related investments in 2023 and beyond.
Shareholders
In 2022, I had the opportunity to meet and talk with many of our main
shareholders. The Board appreciates their support and takes their
views into account along with those of other stakeholders during
ourdeliberations. I look forward to further opportunities to meet
withshareholders in 2023.
Summary
I am confident that Bodycote will continue to perform well and
deliver value to our customers, shareholders and employees.
D. Dayan
Chair
17 March 2023
Chair’s statement
Bodycote is primarily a service
business, reliant on its people at all levels.
Bodycote has exceptional people who
understand the needs of our customers
and are committed to delivering
outstanding performance.
D. Dayan
Chair
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Bodycote plc annual report 2022
Full year commentary
Overview
Group revenue increased 20.8% to £743.6m in 2022 (17.3%
at constant currency). Given the high volatility of energy prices
during the year, Bodycote took the step to pass through energy
price increases at cost to our customers in the form of nil margin
surcharges. After some delay at the start of 2022 this approach
offset all of the energy price increases in the second half and
boosted the Group’s full year revenue by 7%. Underlying revenue
growth was more than 10%, driven by our expansionary capital
investment in recent years, reinvigorated sales and marketing efforts
and favourable momentum in our target markets. This resulted in
constant currency revenue growth (excluding surcharges) of 14%
in Specialist Technologies, 16% in Emerging Markets and 19% in
civil aerospace.
Headline operating profit increased 18% to £112.2m from £94.8m
in 2021. Headline operating margin was 15.1% (2021: 15.4%).
This small decline in reported margin was due to the dilutive impact
of the energy surcharges. Adjusting for these, the underlying margin
increased to 16.1% for the year.
Statutory operating profit increased from £83.8m to £102.0m.
The Group delivered free cash flow of £84.0m (2021: £105.0m),
after a net working capital outflow of £25m, which was entirely
due to higher trade receivables, driven by the high level of energy
surcharges. The balance sheet remains healthy, with closing net debt
excluding lease liabilities of £33.4m (2021: £51.9m).
Basic headline earnings per share for the Group increased by
19% to 42.7p (2021: 35.8p). Basic earnings per share were 38.6p
(2021: 31.2p), reflecting the increase in statutory operating profit.
The following commentary reflects constant currency growth rates
versus the comparable period last year, unless stated otherwise.
Business focus
The Group’s strategy is to focus on investing in and growing key
areas of our business while improving the operating efficiency and
quality of the remainder of the business. Targeted higher growth
areas are the Specialist Technologies’ business, the Emerging
Markets’ business and the secular growth markets of civil aerospace
and electric vehicles. These higher growth markets now represent
more than half of the Group’s revenues and 62% of the Group’s
headline operating profit.
Specialist Technologies are differentiated, early-stage processes
with high margins, large market opportunities and good growth
prospects. In each of these technologies, Bodycote is either the
clear market leader or one of the top players among few competitors
and they address multiple market sectors. We continue to invest in
these technologies organically, in terms of both capital and people,
as well as through acquisitions. Specialist Technologies’ revenues
grew 18% in the year to £228m, with good growth momentum.
The small HIP business acquired in late 2021 accounted for 4% of
this growth. The impact of energy surcharges on these revenues was
only 4%, as these are lower energy use technologies and also have
the preponderance of the long-term agreements which defer price
increases, typically by a year. Highlighting the strategic appeal of
Specialist Technologies, organic volume growth again outperformed
the Classical Heat Treatment business.
Emerging Markets revenues (comprising Eastern Europe, China
and Mexico) grew 24% to £93m (13% of Group revenues).
This strong result was achieved despite virtually no growth in
our Chinese business as a result of pandemic-related lockdowns.
General Industrial revenues’ growth in these markets was strong
once again, at 30%, and now represents more than a third of the
Emerging Markets’ overall turnover.
Investment in our Specialist Technologies and Emerging Markets
businesses in the year included investments in North America in our
HIP business, and additional capacity in our S
3
P and CiD businesses.
We are also investing in new capacity in Eastern Europe to support
electric vehicle production, as well as a new greenfield facility in
China. We will break ground on another S
3
P facility to support further
market expansion across Western Europe.
Chief Executive’s review
We have seen strong growth
in 2022 and looking into the future,
the business has good prospects.
S.C. Harris
Group Chief Executive
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Bodycote plc annual report 2022
Chief Executive’s review continued
Market sectors
Aerospace & Defence revenues were 18% higher than the prior
year, driven by strong growth in civil aerospace revenues of 25%.
Underlying civil aerospace growth excluding surcharges was 19%.
Aircraft production, narrow body in particular, increased with 516 of
the A320 family and 387 Boeing 737 Max aircraft produced in 2022
versus 483 and 260 respectively in 2021. Airbus has announced
that they will ramp up production of A320s to 900 per annum by
2026, while Boeing plans to increase production of the 737 to 600
per annum in the same time frame. We have secured multiple new
contracts to support the A320 neo programme. Moreover, according
to IATA, Revenue Passenger kilometres are forecast to grow by more
than 20% in 2023 as air travel in China recovers. This will result in
increased aftermarket business.
Automotive revenues increased 7% in the year, to £184m.
This increase in revenues was entirely accounted for by the
impact of energy surcharges to recover energy cost inflation.
Underlying revenue growth was slightly negative at –1%.
Automotive sector production continued to be hampered by
supply chain issues, and while these problems are now easing,
the automotive OEMs appear to be reticent to ramp up production
too much to meet the pent-up demand as a result of the current
macroeconomic uncertainty. On the electric vehicle side, we are
seeing considerable quotation activity with some significant long-
term contracts signed. While electric vehicle related revenues are
small today, this business is set to grow well as production ramps
up over the coming years.
General Industrial (including energy) revenues increased 23%
to £373m, with robust growth through the year in most market
segments and across key geographies. Excluding surcharges,
underlying growth was 14%, which was well above background
market growth.
Sustainability
Managing energy and reducing our impact on the planet has long
been part of our corporate culture. Thermal processing, including
heat treatment, enables products to be lighter, more efficient and
longer lasting. Our inherently higher furnace utilisation and energy
efficiency compared to manufacturers’ in-house heat treatment
facilities, helps drive our customers to outsource to Bodycote,
in turn lowering the overall carbon footprint for industry (please
refer to the case study on page 13). Moreover, our Specialist
Technologies are lower emissions technologies. Consequently,
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 accelerate our
efforts to combat climate change, while at the same time helping
to drive growth.
I am pleased to report that Bodycote has set carbon reduction targets
in conjunction with the SBTi, committing to an absolute reduction of
28% in carbon emissions by 2030. In 2022 our total CO
2
e emissions
reduced by a further 6%. We have a structured programme of
investment initiatives in carbon reduction programmes across the
business and the pace of investment in 2023 will further accelerate.
All of these carbon reduction initiatives also yield a financial payback.
In total the carbon reduction programmes improve our returns on
investment and lower our cost of energy, driving higher margins.
Our reinvigorated sales and marketing campaigns aimed at reducing
customers’ carbon emissions (known as Scope 4 avoided carbon)
help drive customers’ outsourcing to us which in turn drives growth,
higher returns on investment and higher margins. All of these factors
are major positives for Bodycote and become more of a feature with
higher energy prices and as more companies become cognisant of
the need to reduce carbon emissions.
Cost inflation management
Following on from last year, the Group saw inflationary pressure build
through the year in key geographies, most notably in energy costs,
which peaked during the second half. These have contributed to
general inflation rates not seen for more than a generation.
Cost inflation principally impacts us through increases in energy
prices (historically c.10% of revenues) and labour costs (c.40% of
revenues). In this volatile inflationary environment, energy cost
increases have been passed on through nil margin energy surcharges
or contractual indexation in long-term agreements (LTAs). In contrast,
labour inflation is addressed by price increases, including through
contractual indexation. While we are now adjusting the energy
surcharges monthly in most markets, price increases are typically
annual and permanent, reflecting the frequency of pay awards in
most of our markets. Contractual indexation normally lags cost
impact by 6 to 12 months, but multiple customers have already
accepted exceptional price increases outside of the contract terms.
The implementation of energy surcharges inevitably involved an
initial shortfall which cost the Group £5m in the first half of the year.
Despite energy costs peaking over the summer, energy cost inflation
during the second half was fully recovered. Price increases have fully
recovered the remainder of general inflation including wage increases
and we expect this to continue.
Summary and outlook
Bodycote’s growth in 2022 was well above the background growth
in our served markets, augmented by investment over the last several
years in the higher growth markets of Specialist Technologies,
Emerging Markets, Civil Aerospace and electric vehicles, which now
represent more than half of the Group’s revenue and 62% of headline
operating profit.
A key achievement has been the recovery of energy cost increases
through surcharges and the full recovery of other inflation through
permanent price increases.
Headline EPS increased by 19%, reflecting the strong growth and the
focus on operational efficiency.
While there are near-term macroeconomic uncertainties, we
expect underlying volume to continue to grow ahead of the
background markets, and margins are expected to expand as
surcharges moderate.
Beyond 2023, we expect robust growth, leading to further margin
expansion. Civil Aerospace will benefit from higher OEM build rates
and increasing airline flying hours, and our investments in Emerging
Markets and Specialist Technologies will drive higher growth in
these areas.
The Board remains confident in the Group’s prospects for continued
profitable growth.
S.C. Harris
Group Chief Executive
17 March 2023
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12
Bodycote plc annual report 2022
Helping our customers reduce
emissions – Scope 4
(Avoided Emissions)
Case study: a real world example
By collaborating with one of our Scandinavian customers, Bodycote
identified the opportunity to reduce their overall carbon footprint,
outsourcing their work to us. Our process engineers worked with the
customer to pinpoint the major contributors to their carbon footprint
for the specified components. Through many years of monitoring
and analysing consumption in relation to processes and customer
specifications, Bodycote engineers have gained considerable expertise
in reducing CO
2
emissions. Working with this customer to understand
how they managed their in-house thermal processing, Bodycote
engineers were able to propose a complete process optimisation.
For most components, the largest contributor to the carbon footprint
is the energy used to power the production line, including the energy
input to the components themselves; this can range from 15% to
80% of the overall carbon footprint. Through optimisations and load
management, specifically as an aggregator of different customers’
work, our processes typically run with higher throughput and,
therefore, less wasted energy and less hot idle time. In this specific
case, energy input to the production line contributed approximately
25% to the emissions of the overall component carbon footprint.
Optimising the energy input was addressed in the load management
and utilisation of the production line for this customer.
Bodycote engineers are familiar with many customers who run
inefficiently by oversupplying process gases. Bodycote recognises that
a great deal of leverage can be applied to optimise the CO
2
emissions
caused by process gases. Due to these inefficiencies, process gas
can represent up to 70% of the carbon footprint. For this specific
case, it represented 48%. By studying the needs of this customer’s
components, Bodycote reduced CO
2
emissions from excess process
gas by a third.
Based on the Bodycote optimisation model, we are able to reduce
this customer’s CO
2
footprint for consumables and equipment as well.
Our experience and depth of knowledge about our customers allowed
us to maximise the offering to this customer to avoid unnecessary
energy input, process gas volumes, and wasted energy during hot
idle. The cumulative process optimisations, whilst maintaining all
specifications, enabled Bodycote to reduce the carbon footprint
of this customer’s components by over 45%.
Avoiding emissions is imperative to reduce the
impact on climate change. Thermal processing is
used by virtually every company that uses metal
in its products, and often this is a company’s most
significant contribution to carbon emissions.
Bodycote has the inherent capability through
aggregation of different customers’ work, as well as
applying our expertise and know-how to dramatically
reduce carbon emissions from thermal processing
work of companies manufacturing items that use
metal. As a result, Bodycote has a major role in
avoiding emissions and reducing industry’s negative
impact on the climate.
Through
improved
management
reduced CO
2
e
footprint by
45%
Components
that need
processing
Energy
represents 25%
of the CO
2
e
Process Gas
represents 48%
of the CO
2
e
Consumables
represent 19%
of the CO
2
e
Equipment
represents 8%
of the CO
2
e
Optimisation
and load
management
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13
Bodycote plc annual report 2022
Bodycote’s objective is to create superior shareholder returns through
the provision of selected thermal processing services that are highly
valued by our customers, giving full regard to a safe working environment
for our employees and with minimal environmental impact.
Strategy and objectives
Objectives
2
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
and taking 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
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
5
General Industrial
(including Energy)
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
We invest in structural growth markets of civil aerospace
and electric vehicles.
Investing in structural
growth opportunities
Continuous improvement of business processes and
systems makes us more efficient and responsive.
Driving operational
improvement
Strategic priorities
Strategic report Governance Financial statements Additional information
14
Bodycote plc annual report 2022
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 35-38
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 11-12
Customer focus
– Building strong customer relationships through local
service expertise; the scope of Bodycote’s network
enables us to specialise at individual locations and
provide comprehensive backup for our customers more
effectively than competitors.
– We secure service-specific agreements with our
customers, giving protection from supply disruption
and leveraging Bodycote’s unique facility network.
See business review on pages 22-23
– 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 and 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 reduce 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 expertise
mean 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 a lower cost.
Quality
– Bodycote’s quality management systems,
validated by major engineering OEMs, have been
developed to meet the requirements of both
international and national accrediting bodies.
– Our facilities hold industry and customer
approvals appropriate to the services they offer
and the markets they serve.
and focusing on
service andquality…
…utilising
our strategic
competitive
advantages…
For our customers
– Value-adding services
– Global supplier meeting
multiple processing needs
– Carbon reduction versus in-
house operations, reducing the
overall emissions from their
value chain
– Cost reduction benefits
versus in-house operations
Access to the entire Bodycote
knowledge base and expertise
For Bodycote
– Mutually beneficial
customer relationships
– Vast customer base means
Bodycote is not reliant on any
one customer
– Ideally positioned to promote
growth in Emerging Markets
and selected technologies
For our investors
– Financially stable and
sustainable business
– Good growth drivers
– Superior return on investment
– Strong margins and cash flows
– Proactive approach to climate
change and ESG matters
…creating value for customers, Bodycote and our investors.
Strategic report Governance Financial statements Additional information
15
Bodycote plc annual report 2022
Measuring progress
Our key performance indicators
(%)
18.9
17.7
9.8
12.0
13.3
Return on capital employed
‘18 ‘19 ‘20 ‘21 ‘22
Performance
Return on capital employed increased by 1.3 percentage points during the year,
up from 12.0% to 13.3%.
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)
‘18 ‘19 ‘20 ‘21 ‘22
55.9
52.1
27.8
35.8
42.7
Headline earnings per share
Performance
Headline earnings per share increased by 6.9p (19%) from 35.8p to 42.7p.
Definition
Headline earnings per share is defined on page 146.
(%)
19.3
18.7
12.6
15.4
15.1
Headline operating margin
‘18 ‘19 ‘20 ‘21 ‘22
Performance
Headline operating margin decreased by 0.3 percentage points during the year,
from 15.4% to 15.1%. Headline operating profit increased by 18% from £94.8m
to £112.2m, while revenue increased by 21% from £615.8m to £743.6m.
Definition
Headline operating profit as a percentage of revenue.
1 Defined on page 146.
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16
Bodycote plc annual report 2022
(£m)
133.8
123.1
106.1
105.0
84.0
Free cash flow
‘18 ‘19 ‘20 ‘21 ‘22
Performance
Free cash flow for the Group was £84.0m (2021: £105.0m). This was 75% of headline
operating profit (2021: 111%).
Definition
Free cash flow is defined on page 146.
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 decreased to 2.5 this year (2021: 2.9). Further details are included in the
Sustainability section on page 35.
Definition
TRC is defined as the number of lost time incidents, restricted work cases and medical
treatment cases x 200,000 hours (approximately 100 man years), divided by the total
number of employee hours worked.
350.2
317.4
301.8
271.9
255.4
Carbon footprint
(ktCO
2
e)
‘18 ‘19 ‘20 ‘21 ‘22
Performance
The carbon footprint, total global CO
2
e emissions, decreased by 6% from 271.9 to 255.4
ktCO
2
e. Further details are included in the Sustainability section.
Definition
Carbon footprint is defined as the kilotonnes of CO
2
equivalent emissions. CO
2
equivalent
emissions are calculated by taking electricity and fuel consumption data in kilowatt hours
and multiplying by relevant conversion factors.
1 Normalised statistics restate sales figures using closing exchange rates from December 2022.
2.62
2.77
2.30
2.90
2.52
Total Reportable Case Rate
(TRC)
‘18 ‘19 ‘20 ‘21 ‘22
Strategic report Governance Financial statements Additional information
17
Bodycote plc annual report 2022
Our stakeholders
How and why we engage
Investors
Engagement undertaken
– Annual Report and Accounts/Annual
General Meeting
– Corporate website, including investor
relations section
– Results presentations 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
regulatory announcements)
– Addressing regular analysts’ enquiries
Reason for engagement
Continued access to capital is important to
the long-term performance of our business.
We work to ensure that our investors and
analysts have a good understanding of our
strategy and performance.
Stakeholders’ key interests
– Financial performance and economic/
political impact
– Capital allocations and dividends
– Sustainability and climate change
– Mergers and acquisitions
– Health and safety performance
– Alignment of shareholder and
management interests
– Governance and transparency
– Sustainability of performance
Employees
Engagement undertaken
– 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
– Environment, health and safety briefings
and trainings
– Social media communications
Reason for engagement
Employee engagement is vital for our
success. We work to create a diverse and
inclusive workplace where every employee
can reach their full potential. We engage
with our people to ensure we are delivering
to their expectations and making the right
business decisions. This helps us to retain
and develop the best talent.
Stakeholders’ key interests
– Wages, benefits and social packages
– Employee development/engagement
– Reputation
– Talent retention/career opportunities
– Training opportunities
– Safety performance
– Diversity and inclusion
– Sustainability
Society/Communities
Engagement undertaken
– Individual employee volunteering
– Corporate website
– Local site community activities
– Employee engagement programmes
involving families
Reason for engagement
Bodycote operates in a very large number
of local communities across the world, and
we aim to ensure that the business is seen
as something that contributes positively to
these communities and their inhabitants.
Stakeholders’ key interests
– Local employment
– Future talent pipeline
– Local operational impact
– Environmental impact
– Safety, health and
environmental performance
Customers
Engagement undertaken
– 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
Reason for engagement
We collaborate with our customers
to improve our customers’ product
characteristics and to develop a
project pipeline.
Stakeholders’ key interests
– Customer satisfaction
– Commitment to ESG
– Helping customers meet carbon
reduction commitments
– Service performance, efficiency
and quality
– Sustainable performance
– Supply chain transparency
Strategic report Governance Financial statements Additional information
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Bodycote plc annual report 2022
Photos for non-Bodycote steps courtesy of CorPower Ocean.
The Bodycote ‘B’ next to a component journey stage shows where Bodycote’s vital services have been applied.
The cylinders
start life as solid
high strength
steel rods.
Inspired by the pumping principles of the human heart, next-generation wave energy
converters are a valuable renewable energy technology, offering five times more energy per
tonne than previously known technologies. Bodycote’s proprietary Corr-I-Dur
®
treatment
is used to protect multiple important converter components against the harshest marine
conditions ensuring corrosion resistance and durability. In this journey, we will look at the
cylinder – a core component of the converter system.
End application:
Offshore wave energy
converter array.
When the cylinders
are assembled
they are integrated
into the Wave
Energy Converter.
The cylinders are
treated with Bodycote’s
thermochemical
Corr-I-Dur
®
treatment
to improve corrosion
resistance, durability
and wear properties by
generating a protective
iron nitride-oxide
compound layer.
The cylinders are
machined to their
final shape.
The cylinders are
stress relieved to
eliminate any residual
stresses in the steel
acquired during
machining, preventing
material failures
during subsequent
manufacturing stages.
The solid steel rods are
machined into hollow cylinders.
The treated
cylinders (note
the black finish
from the Corr-I-
Dur
®
treatment)
begin their
final assembly.
A component journey
Catching the waves
Strategic report Governance Financial statements Additional information
19
Bodycote plc annual report 2022
Compliance with Directors’ duties
Section 172 statement
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. The Company’s
strong underlying financial
position enables us to pursue
new opportunities for the
Group within our disciplined
financial framework.
Carbon emission reduction
targets, to reduce our Scope
1 and 2 carbon emissions by
28% by 2030, were agreed and
accepted as well as published by
the Science Based Target initiative
(SBTi).
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 2022 a recordable injury
frequency rate of 2.52 was
achieved versus 2.90 in 2021.
The number of recordable injuries
fell 18% versus 2018 and 8%
versus 2021. The safety, health
and wellbeing of our employees
will always be our highest priority.
This is important to our workforce
and local communities, while
strong operational availability and
reliability is crucial to our partners
and customers.
The Board 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.
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 twice a year
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 2022 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.
In 2022 an internal evaluation
took place. 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
The Board
(including delegation of authority)
Engagement
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.
£39m
in dividends
£277m
in staff costs
>40,000
customers worldwide
>16 5
facilities in 22 countries
Strategic report Governance Financial statements Additional information
20
Bodycote plc annual report 2022
Section 172 cross-reference
Section 172 duties Key examples Page
Consequences of decisions
in the long term
Strategic progress 13, 16-17
Board activities in the year 20,49
Financial report 25-27
Going concern and viability statements 27, 3 3
Principal risks 28-32
Interests of employees Chair and Chief Executive statements 10 -12
Our stakeholders 18
Sustainability report 35-45
Board activities in the year 18, 20
Fostering business relationships with suppliers,
customers and others
Our stakeholders 10-13, 18
Sustainability report 35-45
Board activities in the year 50-53
Impact of operations on the community
and the environment
Sustainability report 35-45
Maintaining high standards of business conduct Sustainability report 35-45
Corporate governance statement 48
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.
The Board, in line with its
duties under section 172 of the
Companies Act 2006, must
act in the way it considers, in
good faith, would most likely
promote the success of the
Company for the benefit of 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.
Strategic report Governance Financial statements Additional information
21
Bodycote plc annual report 2022
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.
The following review reflects constant currency growth rates unless
stated otherwise.
Revenue in 2022 was £312.7m, an increase of 20% (27% at actual
rates). On an organic basis, revenues increased 17% (24% at actual
rates) with strong growth in Civil Aerospace and General Industrial
(including energy) revenues.
Headline operating profit increased to £50.8m (2021: £44.2m),
and headline operating margin declined to 16.2% (2021: 18.0%),
reflecting the dilution from energy surcharges, as well as temporary
dilution from the acquisition of a small HIP business in December
2021. Statutory operating profit increased to £44.0m (2021: £32.8m).
Expansionary capital expenditure was £8.0m, with significant
investment in capacity growth for the North American Specialist
Technology business.
Return on capital employed increased to 11.9% (2021: 10.8%)
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 172.3
Automotive 12.3
General Industrial (including energy)
128.1
Total
312.7
Market sector
Western Europe
168.6
North America
137.1
Emerging Markets 7.0
Total
312.7
Geography
ADE revenue by market
sector and geography
£m
Aerospace and Defence 172.3
Automotive 12.3
General Industrial
128.1
Total
312.7
Market sector
Western Europe
168.6
North America
137.1
Emerging Markets 7.0
Total
312.7
Geography
The ADE business
Strategic report Governance Financial statements Additional information
22
Bodycote plc annual report 2022
Bodycote has a long and successful
history of servicing its wide-ranging
customer base.
Our extensive network of more than 100 AGI facilities enables
the business to offer customers the broadest range of capability
and security of supply. 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 £430.9m, an increase of 15% on the prior year (16%
at actual rates), entirely reflecting the impact of price increases and
energy surcharges to offset general and energy cost inflation.
Headline operating profit was £80.8m (2021: £69.5m), and headline
operating margin was stable at 18.7% (2021: 18.8%), despite the
dilution from energy surcharges. Statutory operating profit increased
to £78.2m (2021: £65.3m).
We spent £12.8m on expansionary capital expenditure, with ongoing
expansion in Emerging Markets, particularly in Eastern Europe.
Work has also begun on a new facility in China.
Return on capital employed increased to 18.2% (2021: 15.9%),
mainly reflecting the increased profitability.
The AGI business
AGI revenue by market
sector and geography
£m
Aerospace and Defence 14.2
Automotive 171.4
General Industrial (including energy)
245.3
Total
430.9
Market sector
103.0
241.6
Emerging Markets 86.3
Total
430.9
Geography
Western Europe
North America
AGI revenue by market
sector and geography
£m
Aerospace and Defence 14.2
Automotive 171.4
General Industrial
245.3
Total
430.9
Market sector
103.0
241.6
Emerging Markets 86.3
Total
430.9
Geography
Western Europe
North America
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23
Bodycote plc annual report 2022
The honeycomb seal begins life
as two separate components -
pre-annealed steel forgings to
create the steel outer ring, and
strips of nickel-based superalloy
for the honeycomb.
The honeycomb is formed into
the honeycomb shape by spot
welding to create the desired
length, width and height.
Honeycomb is one of the strongest structures occurring in nature. Within an aircraft engine,
optimum gas flow and prevention of leakage is of vital importance for combustion. An effective seal
is achieved by brazing lightweight, yet strong, metallic honeycomb structures to create a gas-tight
seal between the rotating ceramic-tipped turbine blades and the engine housing. The first time
the engine is started, the blades cut into the sacrificial honeycomb, which wears in-situ to form
a gas-tight seal, thereby improving engine efficiency, fuel economy and extending the service life
of critical engine components.
A component journey
Tight seal
The honeycomb ring seals are
visually inspected under the
microscope to check conformity.
Finally, the seals are precipitation
hardened to increase strength
and mechanical properties ready
for use in the engine.
The honeycomb is assembled
to the ring and then vacuum
brazed onto the outer
steel ring in a vacuum
furnace and simultaneously
solution annealed.
The outer ring is stress-
relieved prior to being
joined with the honeycomb,
to prevent unexpected
distortion of the ring.
The Bodycote ‘B’ next to a component journey stage shows whereBodycote’s vital services have been applied.
End application:
Aircraft engine
Strategic report Governance Financial statements Additional information
24
Bodycote plc annual report 2022
Financial overview
2022
£m
2021
£m
Revenue 743.6 615.8
Headline operating profit 112.2 94.8
Amortisation of acquired intangible assets (9.3) (10.3)
Acquisition costs (0.9) (0.7)
Exceptional items – –
Operating profit 102.0 83.8
Net finance charge (6.7) (6.3)
Profit before taxation 95.3 77.5
Taxation charge (21.0) (17. 5 )
Profit for the year 74.3 60.0
Group revenue was £743.6m, representing an increase of 20.8% at actual exchange rates, and 17.3% at constant currency.
Headline operating profit for the year increased by 18.4% to £112.2m (2021: £94.8m). The Group successfully passed on inflationary impacts
to its customers during the year through price increases and energy surcharges. Consequently, with these feeding through into higher
revenues, headline operating margin of 15.1% experienced a small decline compared with the prior year (2021: 15.4%). Statutory operating
profit increased to £102.0m (2021: £83.8m), as a result of the increased headline operating profit.
Chief Financial Officer’s report
Free cash flow was £84m –
the Group continues its great track record
of converting profits into cash despite
the unusual working capital outflow
associated with higher revenue from the
introduction of energy surcharges.
D. Yates
Chief Financial Officer
Strategic report Governance Financial statements Additional information
25
Bodycote plc annual report 2022
Finance charge
The net finance charge was £6.7m (2021: £6.3m), analysed in the
table below.
2022
£m
2021
£m
Interest on loans and bank overdrafts (2.3) (1.3)
Interest charges (1.8) (2.0)
Financing and bank charges (3.0) (3.3)
Total finance charge (7.1) (6.6)
Interest received 0.4 0.3
Net finance charge (6.7) (6.3)
As at 31 December 2022, the Group’s £250.9m Revolving Credit Facility
was drawn by £69.6m (2021: £90.3m), leaving headroom of £181.3m
(2021: £160.6m). The facility has a remaining life of 4.4 years.
Profit before taxation
2022
£m
2021
£m
Headline profit before taxation 105.5 88.5
Amortisation of acquired intangibles (9.3) (10.3)
Acquisition costs (0.9) (0.7)
Exceptional items – –
Profit before taxation 95.3 7 7.5
The statutory profit before taxation in the year increased to £95.3m
(2021: £77.5m) while headline profit before tax increased to £105.5m
(2021: £88.5m).
Taxation
The tax charge for the year was £21.0m (2021: £17.5m). The headline
tax rate for the Group was 22.3% (2021: 22.3%), 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 the jurisdictions around the world
in which the Group trades and generates profit.
The effective statutory tax rate was 22.1% (2021: 22.6%).
Provisions of £28.1m (2021: £24.0m) are carried in respect of
potential future additional tax assessments related to ‘open’ historical
tax years. Refer to note 6 to the consolidated financial statements for
more information.
The OECD Pillar II proposals for a global minimum tax rate are
expected to be applicable from 1 January 2024. The impact of the
proposed changes on the Group is currently under review.
Earnings per share
Basic headline earnings per share rose 19% to 42.7p (2021: 35.8p)
as a result of the higher headline operating profit. Basic earnings per
share for the year increased to 38.6p (2021: 31.2p).
2022
£m
2021
£m
Profit before taxation 95.3 77. 5
Taxation charge (21.0) (17. 5)
Profit for the year 74.3 60.0
Basic headline EPS 42.7p 35.8p
Basic EPS 38.6p 31.2p
Return on capital employed
Return on capital employed rose in the year to 13.3% from 12.0%
in 2021. 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
2022
£m
2021
£m
Headline operating profit 112.2 94.8
Depreciation and amortisation 74.9 73.4
Other, including impairment and profit
on disposal of PPE 3.0 0.3
Headline EBITDA
1
190.1 168.5
Net maintenance capital expenditure (52.2) (4 3.1)
Net working capital movement (25.3) (3.4)
Headline operating cash flow 112.6 122.0
Restructuring (7.4) (2.3)
Financing costs, net (5.8) (5.2)
Tax (15.4) (9.5)
Free cash flow 84.0 105.0
Expansionary capital expenditure (22 .1) (15.6)
Ordinary dividend (38.5) (49.0)
Acquisition spend (0.9) (65.4)
Own shares purchased less
SBP and others 1.7 4.7
Increase/(reduction) in net cash 24.2 (20.3)
Opening net debt (116.4) (9 8 .1)
Foreign exchange movements (7.2) 2.0
Closing net debt (99.4) (116.4)
IFRS 16 lease liabilities 66.0 64.5
Net debt excluding lease liabilities (33.4) (51.9)
1 Refer to page 147 of the Annual Report for a reconciliation of operating profit
to Headline EBITDA.
Net debt (excluding lease liabilities) reduced by £18.5m to £33.4m
after the payment of £38.5m of ordinary dividends during the
year. The Group’s headline operating cash flow fell to £112.6m
(2021: £122.0m), primarily as a result of higher working capital
from increased trade receivables from the energy surcharges
and price increases. Nonetheless, this still represents a healthy
headline operating cash flow conversion of 100% (2021: 129%).
The statutory measure of net cash from operating activities fell
to £142.9m (2021: £144.3m). Free cash flow was also impacted
by the higher level of working capital, but remained strong at
£84.0m (2021: £105.0m), with free cash flow conversion of 75%
(2021: 111%). Net debt (including lease liabilities) was £99.4m
(2021: £116.4m), with well over 80% of the Group’s outstanding
lease liabilities relating to operational property leases.
Chief Financial Officer’s report continued
Strategic report Governance Financial statements Additional information
26
Bodycote plc annual report 2022
Expansionary capital expenditure and acquisitions
The Group invested £22.1m (2021: £15.6m) in expansionary projects,
mainly related to the completion of a new AGI facility in North
America and ongoing expansion activities in our North American
HIP business as well as further investment in China. The new North
American AGI plant has facilitated some of the recent restructuring
activities undertaken, which, in turn, have improved the overall
quality and offering of our operations.
The Group remains committed to invest in maintaining its assets
to the highest standards of quality and safety.
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 14.9p (2021: 13.8p), bringing the total ordinary
dividend to 21.3p (2021: 20.0p). The interim dividend of 6.4p,
approved by the Board on 27 July 2022, was paid on 4 November
2022 to shareholders on the register at the close of business on
7 October 2022. The final ordinary dividend will be paid on 2 June
2023 to shareholders on the register at the close of business on
21 April 2023.
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. At 31 December 2022, the facility was drawn as follows:
Facility
Expiry
date
Facility
£m
Facility
utilisation
£m
Facility
headroom
£m
£250.9m
Revolving Credit
27 May
2027 250.9 69.6 181.3
During the year, the Group extended its £250.9m Revolving
Credit Facility by one year and this will now expire in May 2027.
The transition from IBOR has been successfully completed with
no material impact on the Group.
Alternative performance measures
Bodycote uses alternative performance measures such as headline
operating profit, headline earnings per share, headline profit before
taxation, headline operating cash flow, headline operating cash
conversion, free cash flow, free cash flow conversion, net debt and
return on capital employed together with current measures restated
at constant currency. The Directors believe that these assist users of
the financial statements to gain a clearer understanding of the trading
performance of the business, allowing the impact of restructuring
and reorganisation activities and amortisation of acquired intangible
assets to be identified separately. These alternative performance
measures can be found on page 146.
Going concern
As described on page 96 of the consolidated financial statements,
the Directors have formed a judgement, at the time of approving the
financial statements, that there are no material uncertainties that cast
doubt on the Group’s going concern status and that it is a reasonable
expectation that the Group has adequate resources to continue in
operational existence for at least the next 12 months. In making this
judgement, they have considered the impacts of 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
17 March 2023
Strategic report Governance Financial statements Additional information
27
Bodycote plc annual report 2022
Strategic report Governance Financial statements Additional information
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 and principal
risks, as well as consideration of the effect of current lines of defence
in mitigation. Internal audit provides independent assurance that the
Group’s risk management, governance and internal control processes
are operating effectively. The Executive Committee also assists in
the identification and evaluation of principal risks and controls as part
of the Group’s risk assessment and risk management processes.
An update is provided at every Executive and Audit Committee
meeting on the Group’s risk activities. A comprehensive review of
the Group’s current and emerging risks is also presented to, and
discussed with, the Board in June and in December. The Board
is satisfied that an ongoing process of identifying, evaluating and
managing the Group’s significant risks has been in place throughout
2022 and a robust assessment of both the Group’s principal and
emerging risks has been undertaken.
Details of the Group’s financial risks (liquidity, credit, interest rate
and currency), which are managed by the Group’s treasury function,
are provided in note 18 to the consolidated financial statements.
The mitigating activities described in this report will reduce the
impact or likelihood of the major risk occurring, although the Board
recognises that it will not be possible to eliminate these risks entirely.
The impact of COVID-19 has reduced significantly in 2022 compared
to 2021, following the successful roll- out of vaccination programmes
worldwide. Many countries have eliminated travel restrictions or
isolation measures.
The rise in inflation and energy costs have been major issues globally
throughout 2022, and we expect these to continue to impact in 2023.
There have also been concerns about the continuity of supply of
natural gas during the year, particularly once Russia cut off supply
via the Nord Stream 1 pipeline. These concerns have diminished
over recent months, as European countries have successfully
built up reserves and have taken steps to reduce consumption,
aided significantly by mild weather to date. Some countries have
introduced energy price caps or other state aid programmes. In the
meantime, work progresses on several large projects in Europe to
increase the import capacity for liquefied natural gas. The risk of
potential supply disruption has consequently diminished significantly
in recent months.
Climate risk
Bodycote recognises the importance of considering climate risks
and opportunities in our business decisions. Our climate change
risk is managed closely by Group management reporting to the
Chief Executive who provides regular reports to the Board. We also
acknowledge the role of the Task Force on Climate-related Financial
Disclosures (TCFD) in supporting the transition to a low-carbon
economy. Our disclosures contained within the Sustainability
report on page 42 demonstrate how we are managing our climate
impact and how the Group is evolving in response to the risks and
opportunities arising. Given the importance of the continued effects
of climate change on the Group’s emerging risk profile and the wider
impacts of both physical and transitional risk in 2021 the Group
refocused its previous environmental, social and governance risk
to climate change risk.
Emerging risk
Bodycote’s emerging risk identification process is based on horizon
scanning. Each emerging risk is assessed based on its potential
impact on the Group on a high, medium or low rating across three
time horizons: 0-2 years; 2-5 years; and more than five years.
This process takes place alongside the annual risk review, with
emerging risks being considered in facilitated risk workshops,
including those conducted with the Executive Committee.
This review helps to ensure that any new and emerging risks are
appropriately identified and ensures close monitoring of any emerging
risks to ensure appropriate mitigating actions are undertaken.
As in previous years, in 2022 each division was requested to identify
emerging risks for consideration and these were subsequently
reviewed by the Group’s Executive Committee and the Board.
No additional emerging risks were identified through this process.
These emerging risks are:
– The acceleration in the transition to electric vehicles (EV) away
from internal combustion engines. Whilst the mix of components
in EVs are different than for internal combustion engines, the type
and number of components that Bodycote treats remain largely
unchanged. Furthermore, Bodycote is very well positioned to service
these EV components and has started to position itself as the
supplier of choice to EV manufacturers and OEMs. We have a very
strong market position in the technologies that are more favoured
in the production of EVs.
– 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 captive ‘in house’ processes. This leads
to lower energy consumption and emissions per component
treated, providing overall carbon emissions reduction opportunities.
Customers, therefore, have greater incentive to outsource their heat
treatment activities to Bodycote.
– Greater geopolitical risk, with the war in Ukraine, increased
international tensions, more general tariffs and other barriers to
international trade. If countries pursue aggressive trade barriers
that reduce the movement of goods this could result in customers
shortening their supply chains and moving these closer to their main
production locations. Bodycote sites tend to be located in close
proximity to our customers’ production locations.
– The COVID-19 pandemic, as well as the potential future pandemics,
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.
The following tables set out a description of the Group’s principal
risks and related mitigation measures, as agreed by the Board and
describe how these principal risks may affect Bodycote’s ability to
deliver its strategy. The trend rating sets out the direction of change
from 2021. Also refer to our Strategy and objectives on page 14.
Principal risks and uncertainties
28
Bodycote plc annual report 2022
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 and increases in energy
prices, if not passed on to customers,
also present a risk to the Group’s
profitability.
The impact of COVID-19 has reduced
significantly in 2022 compared to 2021,
following the successful roll-out of
vaccination programmes worldwide.
In 2022, the civil aerospace market
has rebounded from the COVID-19
pandemic; however, supply chain
issues caused by the pandemic are
still being felt, most obviously
impacting automotive production.
Many countries have reduced
or eliminated travel restrictions
or isolation measures.
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
2022, most notably the significant
increase in energy prices, would
reduce the Group’s profitability if it
could not 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.
– Restructuring activities in prior years have
been aimed at adapting the Group’s facilities
footprint to respond to trends in end markets
and have been successful. Bodycote has a
long track record of passing on cost inflation
to its customers via price increases and
surcharges and has acted quickly during 2022
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.
2
Capitalising on, and investing
in,our Specialist Technologies
2
Driving operational
improvement
5
Investing in structural
growth opportunities
4
Investing in
Emerging Markets
3
Acquisitions
6
Safety and
Climate Change
1
Strategic report Governance Financial statements Additional information
29
Bodycote plc annual report 2022
Risk description Risk rating Mitigation and control
Relevance
tostrategy
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,
although the impact of COVID-19
has reduced significantly in 2022
compared to 2021, there still remains
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 Safety,
Health and Environment (SHE), and approved
by the Chief Executive.
– OHSAS 18001 and ISO 14001 compliant SHE
management systems being used by the
Group Head of SHE 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.
– The impact of COVID-19 pandemic-related
restrictions on the Group’s operations has
greatly diminished during the year.
1
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 requirements
for lower emissions and that we do
not properly 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. Materiality is
assessed on a case-by-case basis
and is considered to be the
threshold when an issue becomes
sufficiently important that it could
significantly impact our strategy.
– We manage, measure and report our climate-
related impacts and risks and opportunities
through our principal risk reviews and the
TCFD model as described on pages 42 to 44.
– 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
Principal risks and uncertainties continued
Capitalising on, and investing
in,our Specialist Technologies
2
Driving operational
improvement
5
Investing in structural
growth opportunities
4
Investing in
Emerging Markets
3
Acquisitions
6
Safety and
Climate Change
1
Strategic report Governance Financial statements Additional information
30
Bodycote plc annual report 2022
Risk description Risk rating Mitigation and control
Relevance
tostrategy
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.
5
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.
5
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.
5
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
of facilities to assess hazard and business
interruption risks have been conducted during
the year.
– Insurance cover, including business
interruption cover.
– Scheduled equipment maintenance
and inspections.
4
5
Strategic report Governance Financial statements Additional information
31
Bodycote plc annual report 2022
Risk description Risk rating Mitigation and control
Relevance
tostrategy
Operational risks continued
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.
4
5
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 have 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.
5
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. We are also conscious
of the Department for Business,
Energy and Industrial Strategy’s
(BEIS proposals) response to the
consultation of ‘Restoring trust in
audit and corporate governance’.
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’ whistle-blower facility
operated by a third party.
– Engagement of specialists (lawyers,
accountants, tax specialists, trade compliance
consultants and freight forwarders) to support
Bodycote at local, divisional and Group levels.
– Regular audits of the effectiveness of
implemented procedures.
– Regular monitoring of the BEIS proposals,
related requirements and potential impacts
on the Group.
5
Capitalising on, and investing
in,our Specialist Technologies
2
Driving operational
improvement
5
Investing in structural
growth opportunities
4
Investing in
Emerging Markets
3
Acquisitions
6
Safety and
Climate Change
1
Principal risks and uncertainties continued
Strategic report Governance Financial statements Additional information
32
Bodycote plc annual report 2022
Strategic report Governance Financial statements Additional information
In preparing this statement of viability, the Directors have considered
the prospects of the Group over the five-year period immediately
following the 2022 financial year. This longer-term assessment
process supports the Board’s statements on both viability, as set
out below, and going concern (on page 27). The Directors have
determined that a five-year period is an appropriate period over which
the business could be restructured in the event that any material
changes to demand for the Group’s services transpired. This period
is also consistent with that used for the Group’s planning process.
As a result, the Board determined that a period of longer than five
years would not be meaningful for the purpose of concluding on
longer-term viability.
The base case forecasts which underpin this assessment are
based on the Board approved 2023 budget and the Board approved
five-year strategic plan. These projections reflect an ongoing recovery
post-COVID-19 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 96, and the
Group’s liquidity.
In conducting the review of the Group’s prospects, the Directors
assessed the five-year plan alongside the Group’s current position,
the Group’s strategy and the principal risks facing the Group (all
of which are detailed in the Strategic report on pages 1 to 45).
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 five-
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 assumes a further slow-down
in the global economy, resulting in a CAGR of 1% over the five-
year period.
– A break-case scenario designed to establish the decline in revenues
required to result in the Group’s liquidity being exhausted or loan
covenants breached. This scenario shows that 2023 revenues
would need to fall 25% below 2022 levels, and have zero growth
thereafter before banking covenants are breached by the end of
2027. Whilst this scenario is not considered remotely plausible, it
was designed to stress-test the financial resilience of the Group.
In the break-case scenario 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 addition, dividends were
reduced significantly. No mitigating actions such as restructuring
were included.
In the base case and the plausible downside scenario, there were
no breaches to the Group’s covenants, and substantial headroom
was maintained.
In making this viability statement the Directors considered the
other mitigating actions (including, but not limited to, cost reduction
initiatives, further discretionary capital expenditure reduction and the
reduction of dividends) that may be taken by the Group in the event
that the principal risks of the Company become realised but note that
none of these actions were modelled in performing the assessment
since the Group maintained substantial headroom in the plausible
downside scenario. The Directors also took into consideration the
Group’s financial position at 31 December 2022, with available
liquidity of £222.0m and a history of strong and resilient cash flow
generation. Uncommitted facilities were not taken into account in
performing the assessment. It is noted that the Group’s RCF matures
in May 2027, before the end of the assessment period; however, the
Directors have a reasonable belief that, should any debt facility be
required, this will be able to be refinanced or extended.
The Directors have assessed the viability of the Group and, based on
the procedures outlined above in addition to activities undertaken by
the Board in its normal course of business, confirm that they have
a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period to
31 December 2027.
Viability statement
33
Bodycote plc annual report 2022
The Bodycote ‘B’ next to a component journey stage shows whereBodycote’s vital services have been applied.
Dental implants begin life as
martensitic stainless steel bars,
selected for their corrosion
resistant properties as well as
mechanical strength.
Implants are hardened under vacuum to
avoid contamination, and to optimise fatigue
resistance, with precise process parameters
to limit distortion ensuring allowance for
final grinding tolerances.
Dental implants must be exceptionally strong, resistant to corrosion and able to withstand repeated
pressure. They require heat treatment processing to ensure they have the properties needed, such
as mechanical strength, and surface hardness and corrosion resistance. Specific medical approvals
ensure treatments meet strict criteria for processing and cleanliness.
A component journey
Steel bite
Implants are quality
inspected to check for any
contamination or evidence
of pitting corrosion.
The implants are
finish ground to
final dimensional
specifications.
The implants are
machined to shape.
Strategic report Governance Financial statements Additional information
34
Bodycote plc annual report 2022
End application:
Dental implant
Our approach to sustainability
Bodycote’s approach to sustainability begins
with ensuring we operate our business
responsibly and prioritise the safety of our
people, customers, communities and the
environment.
Sustainability has long been part of our DNA through the contribution
that our solutions have in reducing the impact on the environment.
Advancing our sustainability approach, in 2022, Bodycote committed
to the Science Based Targets initiative (SBTi), reinforcing our
steadfast commitment to reducing our carbon footprint and
minimising our impact on climate change while improving business
opportunities and reducing our customer’s carbon footprint, too.
Through our Sustainability strategy, we aim to reinforce our services
that make the world more resilient and sustainable, 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
Sustainability starts with our people; the Group’s strength comes
from our diverse and talented network of employees who are experts
in their fields and share common Core Values. Our Core Values
provide a framework for our sustainable progress. Throughout 2022,
as the world emerged from the pandemic, Bodycote continued
to progress through challenging circumstances and managed to
minimise the impact on our service levels, whilst ensuring the health
and wellbeing of our employees was at the forefront of all decisions.
Our people enable the Group to be well positioned for today and
the future.
Our sustainability approach focuses on our broader impact 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 at local and Group levels.
Regular internal satisfaction surveys are undertaken that provide
feedback on the level of satisfaction with 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 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 where 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.
Sustainability report
We are very pleased to achieve
approval of our near-term science-based
emissions targets. Managing energy
andreducing our environmental impact
has long been part of our corporate
culture. Bodycote is focused on ethical
andsustainable growth, and we are
proudof our commitment to setting
atarget for significant reductions in
carbonemissions.
S.C. Harris
Group Chief Executive
Strategic report Governance Financial statements Additional information
35
Bodycote plc annual report 2022
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 enrich our service levels and add value for
our stakeholders. Our Equality, Diversity and Inclusion Policy and
Recruitment Policy dictate that we maintain equal opportunities
and give full and fair consideration to all employment applicants.
Our recruitment reflects the pool of qualified applicants in our
industry, and we actively pursue diverse candidates. However,
our gender diversity remains in line with similar industrial services
companies. 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 policies that fortify our culture
and Core Values. The policies help the organisation make better
decisions. 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 multicultural team and
encourage inclusivity throughout the Group. Harassment of any kind
is not tolerated.
Female representation on our Board during 2022 was 33%
(2021: 38%), and at the Senior Manager level it is 33% (2021: 30%).
Females represent 21% (2021: 18%) of our total workforce.
Male Female Total Male Female Total
Directors 6 3 9 67% 33% 100%
Senior managers 33 16 49 67% 33% 100%
Other staff 3851 1024 4875 79% 21% 100%
3890 1043 4933 79% 21% 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 safety
Bodycote has a long history of supporting the health and wellbeing
of our employees. Throughout 2022, as we dealt with different
variants of the COVID-19 virus and continued lockdowns, Bodycote
remained vigilant to ensure we offered a safe working environment.
Further adaptations were implemented on an ‘as needed’ basis.
We recognise that individuals work best, and can achieve sustainable
high performance over time, when they are healthy and feel
valued. Bodycote promotes an environment that encourages line
management to support the health and wellbeing of all employees.
Bodycote continued sponsoring Company-wide fitness initiatives
encouraging employees to be more active and regularly supporting
local fitness activities. The Group promotes total wellbeing through
regular communications on managing stress and mental wellbeing.
Bodycote is committed to continuous improvement in our
environmental, health and safety (EHS) performance. 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 EHS management.
A vigorous safety and health culture is promoted throughout the
organisation which values the identification and reporting of near
misses, unsafe acts or conditions, and suggestions for improvement.
Bodycote manages hazards and minimises risks to employees
through the deployment of robust safety management systems
and procedures. Bodycote uses a global incident reporting and EHS
management tool at every site. After upgrading our EHS reporting
system in 2021 to improve the overall quality of reporting and track
EHS incidents, we are more able to identify improvement areas to
support the organisation’s occupational health and safety goals.
At Bodycote, the most frequent cause of reportable cases remains
related to the manual handling of parts and lifting operations and has
a number of underlying causes. In 2022, there were continued Group
EHS investments in manual and material handling improvements.
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.
In 2022, the Total Reportable Case (TRC) rate decreased to 2.5
(2021: 2.9), and the Lost Time Injury (LTI) rate decreased to 1.2
(2021: 1.7).
TRC rate
Total reportable cases 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)
2.62
2.77
2.30
2.90
2.52
TRC rate
‘18 ‘19 ‘20 ‘21 ‘22
The decrease in TRC rate for 2022 is visible in the chart above.
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 10 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.
1 TRC 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.
Sustainability report continued
Strategic report Governance Financial statements Additional information
36
Bodycote plc annual report 2022
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 whistle blower’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.
Our Code of Conduct sets out our policy on compliance with
legislation, child labour, anti-slavery and human trafficking, and
conditions of employment, health, safety and the environment.
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.
Bodycote complies with the Modern Slavery Act. The Anti-Slavery
and Human Trafficking Statement is published on our website and
reviewed by the Board of Directors annually.
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 required 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.
Within Bodycote we support 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 whistle-blower 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 applicable employees have completed the
interactive courses.
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
fulfil 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.
28%
reduction target of Scope 1 and
Scope 2 emissions by 2030 from
2019 base year
6%
reduction in CO
2
e compared to
2021 notwithstanding our 21%
growth in sales.
Strategic report Governance Financial statements Additional information
37
Bodycote plc annual report 2022
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.
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 enables 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 an
enabler of reducing global industrial carbon emissions.
More information on Bodycote’s Task Force on Climate-related
Financial Disclosures (TCFD) can be found on page 42 of the
Annual Report.
Bodycote’s target for near-term carbon reduction is approved by the
Science Based Target initiative (SBTi). Bodycote commits to reduce
absolute Scope 1 and Scope 2 GHG emissions 28% by 2030 from a
2019 base 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
Group and the environment. Across the organisation, the Executive
Committee oversees a significant capital investment programme
targeting carbon reduction initiatives.
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 the most
recent emission factors from the International Energy Agency (IEA)
and DEFRA. Scope 1 emissions are direct emissions resulting from
fuel usage and the operation of facilities. Scope 2 emissions are
indirect energy emissions from purchased electricity, heat, steam,
or cooling for own use. Bodycote calculated both location- and
market-based Scope 2 emissions in line with the GHG protocol.
Bodycote measures Scope 3 emissions in line with the GHG Protocol
but does not report them as they are deemed to be immaterial.
For Scope 1, the Group collects natural gas, LPG, fuel oils, methanol
and CO
2
consumption information from each facility every month;
in addition, refrigerant gases and transportation fuel are collated
on an annual basis. For location-based Scope 2, the Group collects
electricity consumption data from each facility every month, the
most recent IEA and DEFRA conversion factors are then applied to
calculate the total CO
2
tonnage produced. The market-based Scope
2 emissions are calculated using the same electricity consumption
data. Where supplier-specific emissions factors are not available,
the residual mix is applied; where the residual mix is not available,
the IEA country mix is applied. This methodology is in line with the
GHG protocol market-based approach. Once the Group has applied
the most recently published emission factors to calculate the total
tonnage of CO
2
e produced, it is then combined with the geographical
sales for the year to calculate the normalised
1
tCO
2
e per £m of sales.
In 2022, Bodycote’s total carbon emissions (ktCO
2
e) reduced by 6%
(location-based) compared with the previous year, notwithstanding
our 21% growth in sales. The total CO
2
e emissions per £m sales
normalised
1
in 2022 were 356.2 Te (2021: normalised
1
414.8 Te),
a 14% reduction.
All entities and facilities are included within the disclosure.
1 Normalised statistics restate sales figures using closing exchange rates at
31 December 2022.
Strategic report Governance Financial statements Additional information
38
Bodycote plc annual report 2022
Total global CO
2
emissions
CO
2
e emissions (ktCO
2
e)
2022 2021
Scope 1 125.6 130.0
Scope 2 129.8 141.9
Statutory total
1
(location based) 255.4 271.9
Statutory total (market based) 257.7
CO
2
emissions intensity ratios
Intensity ratio
2
CO
2
e emissions (tCO
2
e/£m)
2022 2021
2022
(normalised
3
)
2021
(normalised)
Scope 1 179.7 211.1 175.2 198.3
Scope 2 185.7 230.4 181.0 216.5
Statutory total 365.4 441.5 356.2 414.8
‘18 ‘19 ‘20 ‘21 ‘22
465.0
430.2
490.7
414.8
334.8
Carbon footprint
(tonne CO
2
e/£m sales
including surcharges normalised)
‘18 ‘19 ‘20 ‘21 ‘22
465.0
430.2
490.7
414.8
356.2
Carbon footprint
(tonne CO
2
e/£m sales
normalised – excluding surcharges)
350.2
317.4
301.8
271.9
255.4
Total global CO
2
emissions
(ktCO
2
e)
‘18 ‘19 ‘20 ‘21 ‘22
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 £m sales
(10
3
m
3
/£m), decreased by 4% in 2022.
1.13
1.26
1.43
1.31
1.26
Water consumption
(thousand m
3
/£m sales normalised
4
)
‘18 ‘19 ‘20 ‘21 ‘22
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 minimal waste streams. Any waste that does exist
is segregated into waste streams and disposed of in accordance
with local legislation. Waste transfer arrangements are validated
via internal and external 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 2022, 99% of our operating facilities had
achieved or maintained ISO 14001:2015 accreditation (2021: 97%).
1 Statutory carbon reporting disclosures required by Companies Act 2006.
2 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/£mm.
3 Normalised statistics restate sales figures using closing exchange rates
at 31 December 2022.
4 Normalised water consumption is a thousand m
3
per £m sales using closing exchange
rates at 31 December 2022.
Strategic report Governance Financial statements Additional information
39
Bodycote plc annual report 2022
Sustainability report continued
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 ESOS.
Total global energy consumption
Global energy consumption (kWh)
2022 2021
Scope 1 661,486,223 681,759,643
Scope 2 498,502,707 503,401,834
Total energy consumption kWh 1,159,988,930 1,185,161,477
Bodycote’s total energy consumption decreased by 2% in 2022.
Streamlined Energy and Carbon Reporting (SECR) for UK listed companies and their UK subsidiaries
Electricity and fuel consumption information is collected from each facility on a monthly basis. Scope 3 includes business road travel in
vehicles not owned by the Company. Scope 3 is calculated from mileage and vehicle type. The DEFRA conversion factors are then applied to
calculate the total tonnage of CO
2
e produced.
Bodycote PLC and UK subsidiaries’ total CO
2
e emissions (ktCO
2
e) for 2022 were 11.1. 100% of Bodycote PLC and its UK subsidiaries’ energy
consumption was consumed in the U.K.
PLC and UK subsidiaries
2022 2021
CO
2
e
emissions
(ktCO
2
e)
Energy
consumption
(kWh)
CO
2
e
emissions
(ktCO
2
e)
Energy
consumption
(kWh)
Scope 1 3.8 19,693,737 3.9 20,506,019
Scope 2 7.2 37, 477,197 7.5 35,400,618
Scope 3 0.01 39,253 0.003 12,045
Total 11.1 57,210,187 11.4 55,918,682
S.C. Harris
Group Chief Executive
17 March 2023
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40
Bodycote plc annual report 2022
The Bodycote ‘B’ next to a component journey stage shows whereBodycote’s vital services have been applied.
Gears begin life as
carburised steel bar
or forging, selected
to minimise
part distortion.
Gears are nitrocarburised to minimise
distortion and provide optimum fatigue
resistance, with precise process
parameters to ensure allowance for
final grinding tolerances.
Modern wind turbines are complex power generation systems, with thousands of components,
and are expected to provide reliable operational service for 20-30 years. The drivetrain of a wind
turbine – consisting of the gearbox and generator – is exposed to extreme environmental stresses
and high torque loading. To withstand such high dynamic loads, gearbox systems use heat
treatments to exacting specifications to impart vital material properties such as fatigue strength
andsurfacehardness.
A component journey
Strong winds
The gears are assembled
into the drivetrain of
the turbine.
Gears are inspected
using magnetic
particle inspection to
check for any cracks.
Parts are machined
to shape.
The gears are machined
to final specifications.
End application:
Wind turbine
Strategic report Governance Financial statements Additional information
41
Bodycote plc annual report 2022
Sustainability report continued
Task Force on Climate-related Financial Disclosures
We are building on our progress from previous years through the
establishment of our commitment to near-term carbon reduction
targets with the SBTi in 2022. In response to our ambition to achieve
our SBTi target, we will continue to build on our assessment of the
Group’s climate change-related risks and opportunities, enhance our
scenario modelling and focus on the management and mitigation of
risks throughout the Group. We manage and measure our impacts,
risks and opportunities with regard to environmental and social
impacts through the TCFD model.
Metrics
and Targets
Governance
Risk
Management
Strategy
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 with
management responsibilities integrated into the relevant divisions
throughout the Group. The Risk and Sustainability Committee
oversees and directs both the climate-related risks and opportunities
and meets regularly to develop plans for delivering and embedding
the sustainability strategy across the Group and to monitor and
track progress against plan. Capital investment decisions include
sustainability reviews to ensure alignment with the achievement of
the Group’s SBTi commitment.
The Chief Executive regularly reports progress against climate
strategy and related commitments to the Board. The 2022 Board
agenda included review and consideration of the Group’s climate
change risks and opportunities, challenge and approval of the Group’s
SBTi near-term carbon reduction targets and related achievement
roadmap, and deep dives into environmental strategies to define
directional focus for the Group’s strategy, to not only achieve our
SBTi carbon emissions reduction target, but also to work with our
customers to continue to develop strategies, formulate additional
initiatives and collectively reduce our carbon emissions together.
Strategy
Sustainability and climate change has been identified at the top of
Bodycote’s strategic priorities (refer to page 14) and we take a highly
proactive approach to focusing on sustainability and energy efficiency
throughout all of our operations. 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. Climate change-related risks have
been identified as one of our principal risks. Consequently, we have
integrated the identification and management of climate-related risks
into our existing approach to risk management. Climate change-
related risks and opportunities are routinely considered in our annual
budget process, operational management, strategic planning process
and capital allocation decisions. In 2022, we developed several tools
for reporting and tracking the impacts of climate change throughout
the organisation.
With customers in almost all industries worldwide and across
22countries, we engage with our customers to determine how
we can assist them in achieving their sustainability targets as well.
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 processes with lower carbon footprints.
We have focused on climate-related risks and opportunities in
the short- and medium-term horizons in the development of our
medium-term SBTi target. The roadmap to achieve this has identified
various carbon reduction projects which are being rolled out across
the Group.
During the year, the Group has been focused on setting its SBTi
target. The preparation of scenario analysis is now in progress and
the Group has started to build on the high level scenarios from 2021
to carry out analysis to understand the potential impacts of climate
change on the Group’s operations including a 2°C or lower scenario.
We are currently developing the following three scenarios developed
by CBES (Climate Biennial Exploratory Scenario) in order to evaluate
our strategic resilience: Early Action (<2°C), Late Action (<2°C)
and No Policy Action (<3°C) enabling the Group to prepare a more
detailed climate change resilience review and related disclosures
in 2023. The CBES explore both transition and physical risks, to
different degrees, and build on the climate scenarios developed by
the Network for Greening the Financial System (NGFS).
Risk and opportunity assessment
Climate change risk is included in the Group’s principal risks and is
assessed alongside our other principal risks as part of the overall
risk management framework, described in our principal risks
and uncertainties section on page 28. This ensures that material
climate-related risks are incorporated into the Group’s strategic and
financial planning. The plans include addressing the identified risks
by developing mitigation activities as well as the related financial
impacts in both future capital expenditure and operating cash flow.
Key focus areas in 2022 were on raising awareness of climate-related
matters across the Group with particular focus on carbon reduction
activities in order to achieve our SBTi commitment and mitigation
plans for potential climate-related changes.
The Group’s process for determining which risks and opportunities
could have a material impact on the business entails a top-down
risk review by the Risk and Sustainability Committee where climate-
related risks and opportunities are identified across the business
and evaluated based on their likelihood of occurrence and severity
Strategic report Governance Financial statements Additional information
42
Bodycote plc annual report 2022
of impact on the Group’s strategy. Materiality is assessed on a case by case basis and is considered to be the threshold when an issue
becomes sufficiently important that it could significantly impact our strategy.
The Risk and Sustainability Committee has reviewed and discussed the climate-related risks across the business and has prioritised them
based on potential business impact. The impact of transitional and physical risks are assessed over the short-to-medium and long-term.
The table below highlights these priority risks and opportunities. 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 focusing on both financial and
strategic impacts.
Category Subcategory Risk/Opportunity description
Indicative
time
frame
1
Link to
Principal Risks
Opportunities Sales Increased regulation and pricing of GHG emissions
Revenue uplift from providing carbon emissions reductions opportunities
to customers and increased outsourcing by customers to Bodycote (refer
to Scope 4 – avoided emissions on page 13).
S/M
Sales Government incentives
Revenue uplift from increased customer outsourcing resulting from the
Group’s access to energy tax exemptions from emissions avoidance
in certain markets.
S/M
Sales Accelerated transition from ICE
2
to EVs
3*
We are very well positioned to service EV components and are becoming
a supplier of choice to EV manufacturers and OEMs.
S/M
Transition risks Technology Deployment of lower emissions technologies
The impact of future capital investment for the deployment of lower
GHG emissions technologies, including capital investment to accelerate
conversion to our lower emissions Specialist Technologies.
L Climate change
Policy Increased pricing of GHG emissions
Increased input costs due to energy prices and incremental cost
of renewable energy.
S/M
Markets and
customer risks
Policy Increased regulation of GHG emissions
Failure to meet changing regulatory requirements to secure cleaner energy
sources including potential tariffs on GHG emissions such as taxes, carbon
surcharges or energy usage restrictions.
S/M
Regulatory
& legislative
compliance
Policy Exposure to litigation
Failure to manage and comply with changing climate-related issues may
result in fines or reputational damage in some of our markets.
L
Regulatory
& legislative
compliance
Reputation Pressure groups
The impact of potential environmental activism threatening reputation, such
as activism and protest against the aviation, automotive or energy industries.
S/M Emerging
Market Influence of ESG on debt-rating agencies and assessment of credit risk
Changes in investor expectations can influence market valuations negatively.
L Markets
Physical risks Acute Increased severity of extreme weather events
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.
L
Climate change/
major disruption
Chronic Changes/extreme variability in weather patterns
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.
L
Climate change/
major disruption
1 Short term to medium term (S/M): 1 to 10 years Long term (L): 11 to 30 years 2 ICE: Internal Combustion Engine 3 EV: Electric Vehicle
* considered an emerging risk on page 38 but after risk mitigation the Group also sees this as an opportunity.
The Group has also identified several transition opportunities as part of its GHG reduction initiatives.
The identified impacts of climate-related risks and opportunities on the Group’s business, strategy and financial planning are as follows:
■ The Group has considered the potential financial impacts of the prioritised risks and opportunities and does not consider them to have a
material impact on the Group’s consolidated financial statements.
■ Good progress against carbon reduction targets set in 2022. Refer to pages 12 and 38.
■ A number of energy efficiency projects were implemented in 2022 as described on page 42 to improve climate resilience of our operations.
■ Energy efficient monitoring software is used in the Group helping to streamline energy usage in operations. This is being rolled out on a wider
basis to cover more activities.
■ Continued focus on developing our approach to assessing the potential financial impact of climate change on the Group including potential
impacts on revenues, expenditures, assets and liabilities on the Group’s strategic and financial planning process.
Metrics and targets
We measure the material impacts and outputs from our business based on standards and regulations relevant to our operations.
We continually monitor these metrics and targets to ensure that they remain meaningful, aligned to our strategy and provide the information
our business and stakeholders require to effectively monitor our performance. These emissions-related metrics are reported throughout the
Sustainability section of the report. At the time of our SBTi submission, our Scope 3 emissions were not considered material. We will disclose
Scope 3 emissions once they represent more than 40% of our overall GHG emissions which would be considered material.
Strategic report Governance Financial statements Additional information
43
Bodycote plc annual report 2022
Sustainability report continued
Task Force on Climate-related Financial Disclosures reference table
TCFD recommendations are embedded in our business practices and discussed throughout this report. The table below is a summary of
our TCFD reporting and where the relevant information can be found within this Annual Report. Bodycote has prepared its climate-related
financial disclosures consistent with the TCFD recommendations and recommended disclosures and has complied with Listing Rule 9.8.6R,
except where set out below. We have also considered the October 2021 TCFD additional all sector and non-financial groups’ guidance
on implementing the “Recommendations of the Task Force on Climate-related Financial Disclosures’ (2021 TCFD Annex) and our TCFD
disclosure reflect these guidelines where appropriate.
Governance
Describe the Board’s oversight of climate-related risks and opportunities.
Sustainability report – page 42
Describe the management’s role in assessing and managing climate-
related risks.
Sustainability report – page 42
Strategy
Describe the climate-related risks and opportunities the organisation has
identified over the short, medium and long term.
Sustainability report – page 43
Describe the impact of climate-related risks on the organisations’ business,
strategy and financial planning.
Sustainability report – pages 42 & 43
Describe the potential impact of different scenarios, including a 2°C scenario
on the organisations’ business, strategy and financial planning.
N/A – refer to above and Sustainability
report page 42
Risk and Opportunities
Describe the organisation’s processes for identifying and assessing climate-
based risks.
Sustainability report – pages 42 & 43
Principal risks & uncertainties report
– page 28
Describe the organisation’s processes for managing climate-based risks.
Sustainability report – page 42
Principal risks & uncertainties report
– page 28
Describe how processes for identifying, assessing and managing climate-
based risks are integrated into the organisation’s overall risk management.
TCFD – page 42 & 43/Principal Risks
& Uncertainties report – page 28
Metrics and Targets
Disclose the metrics used by the organisation to assess climate-based risks
and opportunities in line with its strategy and risk management processes.
Sustainability report – pages 39 & 40
Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas
emissions and the related risks.
Sustainability report – pages 38 & 43
Describe the targets used by the organisation to manage climate-related
risks and opportunities and performance against targets.
Sustainability report – pages 38-40, 43
complete
in progress
Strategic report Governance Financial statements Additional information
44
Bodycote plc annual report 2022
Non-financial reporting statement
The table below sets out where information relevant to the Non-Financial Reporting Directive can be found in our 2022 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 ensure
we comply with all applicable international and local rules and regulations. They provide guidance, including through real-life scenarios, to help
colleagues address challenging and ethical issues they may encounter at work. The Core Values and Code of Conduct are available on our
website, and our Group policies support and enhance our behaviour in line with the principles set out in the Code of Conduct. A description
of our business model can be found on page 15.
Environmental
Standards, policies and actions
which govern our approach
– Occupational Health
& Safety Policy
– Environmental Policy
– Carbon Footprintand Water
consumption statements
– Reduction of greenhouse
gas emissions
For further information
visit pages 39 to 40
Visit bodycote.com
Key metrics
– Progress on reductions
in carbon footprint and
water consumption
Internal processes to
monitor performance
Energy and greenhouse gas
management is tracked per
facility monthly.
Social
Standards, policies and actions
which govern our approach
– 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
visit pages 35 to 38
Visit bodycote.com
Key metrics
– % 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
Internal processes to
monitor performance
– The ExecutiveCommittee
monitors SHE performance
on a monthly basis.
– The 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
Standards, policies and actions
which govern our approach
– 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
visit pages 35 to 36
and 42
Visit bodycote.com
Key metrics
% of relevant employees
trained on our policies
# of breaches
Internal processes to
monitor performance
The implementation
and effectiveness of
the training is overseen
by the Group General Counsel
and Group Company Secretary.
Strategic report Governance Financial statements Additional information
45
Bodycote plc annual report 2022
Board of Directors
1
Stephen Harris
GROUP CHIEF EXECUTIVE
APPOINTED: November 2008
and Executivefrom January 2009
External roles
None.
Past roles
Spent his early career in engineering with
Courtaulds plc and then moved to the USA to
join APV Inc. from 1984 until 1995, where he
held several senior management positions.
He was appointed to the Board of Powell
Duffryn plc as an Executive Director in 1995
and then went on to join Spectris plc as
an Executive Director from 2003 to 2008.
He was also a Non-Executive Director of
Brixton plc from 2006 to 2009 and of Mondi
from 2011 to 2021. At Mondi he had been
the Chair of the Sustainability Committee,
the Chair of the Social and Ethics Committee
and the Senior Independent Director.
Qualifications
Chartered Engineer, graduated from the
University of Cambridge, Master’s degree
in business administration from the
University of Chicago, Booth School
of Business.
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).
Non-executive Chair of the Trend Networks
Group from 2023 (not listed).
Past roles
Chair of Portals International from 2020 to
2022. Chair of Low & Bonar plc from 2018 to
2020, Non-Executive Director and Chair of
the Remuneration Committee of Chemring
Group plc from 2016 to 2018 and Chair of
Nonwovens Innovation & Research Institute
from 2014 to 2015. CEO of Linpac Group
and Klöckner Pentaplast Group from 2015 to
2019 and CEO of Fiberweb plc from 2006 to
2013. Daniel spent his early career at Novar
plc until 2005 and prior to that worked at ICI
and management consultant, Arthur D Little.
Qualifications
Bachelor’s degree in Engineering from the
University of Cambridge.
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 2021.
Qualifications
Chartered Accountant, qualified with
Deloitte & Touche after graduating from
theUniversity of Oxford.
5
Eva Lindqvist
NON-EXECUTIVE DIRECTOR
APPOINTED: June 2012
External roles
Non-Executive Director of Keller Group plc
since 2017 and of Tele 2 AB from 2018,
Excillum AB (not listed) and Nominet plc
(not listed) since 2021 as well as Greencoat
Renewables plc since 2022.
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
theUniversity of Melbourne.
Executive Directors Non-Executive Directors
6
Kevin Boyd
NON-EXECUTIVE DIRECTOR
APPOINTED: September 2020
External roles
Non-Executive Director of EMIS Group plc
since 2014, Chair of the Audit Committee
since 2019 and Senior Independent Director
from 2022. Non-Executive Director and Chair
of the Audit Committee of Genuit Group plc
since 2020, appointed Chair in 2022.
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.
1 3 52 4 6
Strategic report Governance Financial statements Additional information
46
Bodycote plc annual report 2022
KEY TO COMMITTEES:
Executive
Nomination
Remuneration
Audit
Committee Chair
7
Patrick Larmon
NON-EXECUTIVE DIRECTOR
APPOINTED: September 2016
External roles
Non-Executive Director of Libbey Glass Inc.,
Handgards Inc., Box Partners LLC and DFS
Inc., none of which are listed companies.
Past roles
Was Executive Vice President and owner
of Packaging Products Corporation until
1990 when the company was acquired by
Bunzl plc. Held various senior management
positions for over 13 years before becoming
President of Bunzl’s North America business
in 2003, then Chief Executive Officer, North
America, of Bunzl plc in 2004, joining the
Bunzl plc board in 2005. Retired from Bunzl
plc in December 2018 and retired from
Huttig Building Products Inc. in 2022.
Qualifications
Graduated from Illinois Benedictine
University (major Economics & Business
Economics) 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.
8
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.
Lili considers herself a person of colour due
to her part Iranian/Middle East background.
9
Cynthia Gordon
NON-EXECUTIVE DIRECTOR
APPOINTED: June 2022
External roles
Chair and Non-Executive Director of Global
Fashion Group since 2017 and Non-Executive
Director of Eutelsat Communications SA
since 2019.
Past roles
Began her career at Unilever before moving
to Lloyds Bank. Held the positions of VP
Business Marketing and VP Partnerships
& Emerging Markets at Orange – France
Telecom, was Group Chief Commercial
Officer at Ooredoo Group and former CEO
of Millicom Cellular, Africa. Non-executive
director of Kinnevik AB, BIMA Mobile, Tele 2
AB and Bayport Financial Services.
Qualifications
Graduated with a BA from the University
of Brighton in Business Studies.
Cynthia considers herself a person of ethnic
minority due to her part Asian background.
10
Ute Ball
GROUP COMPANY SECRETARY
Registered office:
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
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
C
Gordon
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
987 10
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47
Bodycote plc annual report 2022
Chair’s message
Dear Shareholders
On behalf of the Board, I am pleased to present Bodycote’s
Corporate Governance Statement for 2022.
During the year, significant issues that the Board has dealt with
included the COVID-19 pandemic and its continuing effects on the
Group’s employees and markets, as well as the consequences
of Russia’s invasion of Ukraine and the consequent sanctions,
disruption and energy crisis. The Board, alongside management,
sought to assess the risks of these events and contain their impact.
My role and that of the Board has been to guide the Group through
these intense challenges and to ensure that our strategy remains
appropriate and on-course. We were delighted to return to physical
meetings during the second half of 2022 and to be able to resume
plant visits as a group of Directors.
Regular, open and constructive dialogue with shareholders
continued in line with the Group’s broader commitment to
meaningful engagement with key stakeholder groups. I met five
significant shareholders personally during the year, predominantly
online, to discuss shareholder views of the Group’s strategy and
performance. 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.
There is a clear emphasis on setting the tone from the top and
leading by example.
In line with the Director’s Duties, the Board’s engagement with
employees, shareholders, customers and communities in 2022
is explained in our stakeholder section on page 18.
The Directors receive regular reports on safety and health
performance to support their oversight and decisions.
Environmental issues are becoming of greater importance to the
Group’s business and have been specifically discussed by the
Board as a whole on several occasions during the year. The Board
conducted a review of the existing sustainability processes and has
established an ESG policy. The Board agreed to join the Science
Based Target initiative (SBTi) and management has established
targets, which have been accepted by SBTi and made available
on its website. A further focus is on improving the effectiveness
of communicating the Group’s actions in this area and the role of
Bodycote as an energy aggregator, and therefore carbon optimiser,
in its customers’ supply chains. Further information on Board
activities can be found on pages 48 to 56.
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 were
expressed by employees during the year. In response to employee
suggestions, the make-up of the employee and management
attendees to these meetings has been amended to allow for
improved responsiveness to employee questions.
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 recognised by the Board and management as a valuable strength.
All Directors will attend this year’s Annual General Meeting which
will provide an opportunity for all shareholders to ask questions of the
Board. I look forward to meeting any shareholder who can join us at
our Annual General Meeting and extend my thanks to you all for your
continued support.
Daniel Dayan
Chair
Governance framework
In respect of the financial year 2022, 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’).
Compliance with the 2018 UK Corporate Governance Code
In respect of the year ended 31 December 2022, Bodycote has
complied with the provisions of the Code with the exception of
Provision 23, progress on setting and achieving targets on diversity
and inclusion. Concerning Provision 23, the Board believes it has a
strong position on diversity and inclusion with female representation
at 33% as of 31 December 2022 and four different nationalities,
including two members who meet the ONS classification of Asian/
British Asian and mixed/multiple ethnic groups, respectively.
The Board and executive management are committed to the
principles and practice of diversity and inclusion. At the Senior
Management level, there is broad international representation
and growing female representation.
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, K. Boyd and C. Gordon 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 68 to 82, this statement
explains how Bodycote has applied the principles of good corporate
governance as set out in the Code.
Corporate governance statement
Strategic report Governance Financial statements Additional information
48
Bodycote plc annual report 2022
Code principles – Board areas of focus
Area of focus
Strategic
priorities
Board leadership and Company purpose Read more on pages 10-12, 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 35-45, 48-56
– Review of Group policies – Modern Slavery review
1 5
– 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
– 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 59-62
– Considering proposals on succession planning, when
required, for the Board
– Reviewing proposals on senior executive
succession planning
5
– 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, L. Chahbazi, K. Boyd and P. Larmon
– Tailored induction, when required
– Reviewing Board and Committee effectiveness
andDirectors’ conflicts
Audit, risk and internal control Read more on pages 28-33, 63-67
– 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 5
– 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 68-82
– Remuneration policy review and approval
(including Executive Directors’ and Senior
Management remuneration)
– Chair and independent Non-Executive Directors’
fees review
2 3
5
4
Capitalising on, and investing
in,our Specialist Technologies
2
Driving operational
improvement
5
Investing in structural
growth opportunities
4
Investing in
Emerging Markets
3
Acquisitions
6
Safety and
Climate Change
1
Core Values
Strategic report Governance Financial statements Additional information
49
Bodycote plc annual report 2022
Corporate governance statement continued
Board responsibilities
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
– 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
– ensures progress on ESG impact
tracking and reporting
– 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
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;
– whistle-blowing and review of whistle-blowing arrangements; and
– environmental, social and governance topics.
Strategic report Governance Financial statements Additional information
50
Bodycote plc annual report 2022
Governance framework
Directors’ information and training sessions 2022 Board
March Climate Change Risk and Governance Update
May SHE Update
June Insurances – market overview/Cyber Risk
July IT Security Update, Risk Updates
September Strategy Update including ESG
October Economist briefing, broker briefing and
policy reviews
December SHE Update, Risk Review, Environmental Update
and Corporate Governance 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
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). Cyber security is covered by annual briefings and ad hoc updates by the CFO. The Board
also has a programme of briefings from the Group’s external advisers on a range of topics. This enables current and future plans to be set in
the wider context of the broader environment.
Decision What happened
RCF extension In line with our long-term strategy, the Board gave approval to proceed with the extension of the Rolling Credit Facility
(RCF) by another year to expire on 27 May 2027. The Board considered the financial benefits of the RCF extension
as well as the benefits to stakeholders.
Final dividend for 2021 The Board understands the importance of paying dividends whilst taking a prudent view and assuring that
the Group’s cash position is protected during uncertain times.
ESG – Science-
based targets
The Board agreed the submission of science-based targets to be reached by 2030 to the SBTi. This takes the view
of our stakeholders and in particular shareholders into account and positions Bodycote positively for the future.
The Board’s areas of focus in 2023 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; and
– Principal and emerging risks review.
Strategic report Governance Financial statements Additional information
51
Bodycote plc annual report 2022
Governance Report
Board and Board Committees meeting attendance
Attendance of Directors at regular scheduled meetings of the Board and its Committees in 2022 is shown in the table below:
Board
Formal meetings
Audit
Committee
Nomination
Committee
Remuneration
Committee
Meetings held during the year 7
5 6 12
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
Daniel Dayan
n/a n/a
Eva Lindqvist
Ian Duncan
Patrick Larmon
Lili Chahbazi
Kevin Boyd
Cynthia Gordon (appointed 1 June 2022)
All Directors attended the maximum number of formal Board, Audit, Remuneration and Nomination Committee meetings that they were
scheduled to attend. Non-members D. Dayan, 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 2022.
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 2022, including a specific meeting to review the Group’s long-term and ESG strategy. The Board
of Directors comprises 10 members, including CFO designate from 24 February 2023, of whom seven are Non-Executive Directors and three
are Executive Directors, led by the Group’s Non-Executive Chair, D. Dayan, who also chairs the Nomination Committee. The Group Chief
Executive is S.C. Harris, and the Senior Independent Non-Executive Director is I.B. Duncan. I.B. Duncan chaired the Audit Committee until the
AGM in May 2022 when K. Boyd took over as Audit Committee Chair. E. Lindqvist is Chair of the Remuneration Committee and P. Larmon is
the Chair of the Employee Engagement Groups. L. Chahbazi and C. Gordon (appointed on 1 June 2022) are Non-Executive Directors.
It is anticipated that C. Gordon will take over the Chair of the Remuneration Committee at the AGM in May 2023. E. Lindqvist remains
independent for the purposes of the Code and will continue to serve as the Chair of the Remuneration Committee until the 31 May 2023 AGM
to ensure a smooth transition of the Remuneration Committee Chair responsibilities before standing down from the Board. Dominique Yates,
who is the Chief Financial Officer, will retire on 30 April 2023 and Ben Fidler, the Chief Financial Officer designate, joined on 24 February
2023. Brief biographical details of all Directors are given on pages 46 to 47. During the year the Board visited facilities in Derby, UK and
Hebron, Kentucky, USA. Such events involve meeting with local management and the workforce to understand more clearly technical and
operational performance in countries where Bodycote has a significant presence.
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
tostand down from the Board, will offer themselves for re-election at the AGM. Accordingly, D. Dayan, S.C. Harris, P. Larmon, I.B. Duncan,
L. Chahbazi and K. Boyd will stand for re-election at the AGM in May 2023. C. Gordon and B. Fidler will stand for election in May 2023.
The Board recommends to shareholders that they re-elect all the Directors. The performance of each Director 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.
Board evaluation
Following the external Board evaluation in 2021, the Board agreed to undertake an internal evaluation in 2022. To ensure that all aspects of
good governance are covered by the review, the Group Company Secretary distributed a tailored questionnaire to each member of the Board.
Questions were framed under the following seven topics:
– remit and objectives;
– composition, training and resources;
– corporate governance/risk management;
– stakeholder engagement;
– Board meetings and visits;
– Board procedures and administration; and
– evaluation and effectiveness.
Corporate governance statement continued
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52
Bodycote plc annual report 2022
The process of the internal Board and Committee evaluation consists of four steps: a) design and initiation; b) data collection; c) review by
chairs; and d) discussion and actions. At a meeting of the Nomination Committee in October 2022, the Directors assessed the conclusions
reached and are in the process of implementing a number of recommendations. Additional emphasis will be placed on succession
planning, reviewing longer-term strategy and approach to ESG. The Board evaluation covered the activities of the main Board and each
of its Committees.
Arising from the exercise, the Board concluded that its focus should remain on divisional growth strategies, risk and sustainability as well
as continued training. The overall conclusion is that the Board is performing well, and high governance standards have been adopted.
The Executive is strongly challenged by the Board 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 S.C. Harris and D. Yates will be appraised in March 2023.
Led by the Senior Independent Director, the Directors carried out an evaluation of the Chair’s performance in July 2022. The Board was
satisfied with the Chair’s commitment and performance.
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. Plant visits to Derby, UK and
Hebron, Kentucky, USA were undertaken during 2022. 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.
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
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53
Bodycote plc annual report 2022
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
isauthorised to make decisions, within limits defined by the Board,
inrespect 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 Employee 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 in the Groups is rotated at certain intervals
to allow a variety of opinions and voices to be heard and to ensure
effectiveness. The Board felt that the Engagement Groups,
headed by a designated Non-Executive Director, assist the Board
in understanding the views of employees and act as a conduit of
information from employees to the Board.
Main activities of the Employee Engagement Groups
Participants are encouraged to discuss all aspects of the business
including views, motivations and conditions of employees of
Bodycote. This applies to all levels and 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 2022, the Board and the Executive
Committee visited the Derby, UK and Hebron, Kentucky, USA sites.
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 Nomination 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 2022 female representation on our Board was 33% (2021: 38%).
At senior manager level, it is 33% (2021: 28%). Females represent
21% (2021: 19%) of our total workforce. Whilst we are at the 33%
by 2020 voluntary target for female representation on Boards
recommended by the FTSE Women Leaders Review, we continue
to believe it is difficult to set targets or timescales for increasing
the proportion of women, or any other minority group, on our Board
and do not propose to do so. We will increase female and/or other
minority representation on the Board if appropriate candidates are
available when Board vacancies arise. We are working towards
complying with LR 9.8.6 which requires listed companies to have
40% female representation on the Board and at least one of the
Chair, CEO, SID or CFO being female. We have two Board members
from minority ethnic backgrounds, one from an Asian British
background and one from a mixed/multiple ethnicity background.
We will keep compliance with LR 9.8.6 in mind when undertaking
Board succession and will endeavour to comply as soon as possible.
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
67%
Female
33%
Corporate governance statement continued
Gender categories
ONS gender category
No. of
Board
members
% of
Board
No. of senior
positions on
the Board
(CEO/CFO,
SID or Chair)
No. in
executive
management
% of executive
management
Men (incl. those self-identifying as men) 6 67% 4 2 100%
Women
(incl. those self-identifying as women) 3 33% 0 0 0%
Non-binary 0 n/a 0 0 n/a
Not specified/prefer not to say 0 n/a 0 0 n/a
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54
Bodycote plc annual report 2022
Ethnicity categories
ONS ethnicity category
No. of
Board
members
% of
Board
No. of
senior
positions on
the Board
(CEO/CFO,
SID or Chair)
No. in
executive
management
% of executive
management
White British or White Other 7 78% 4 2 100%
Mixed/Multiple ethnic groups 1 11% 0 0 n/a
Asian/Asian British 1 11% 0 0 n/a
Black/African/Caribbean/Black British 0 n/a 0 0 n/a
Other ethnic group 0 n/a 0 0 n/a
Not specified/prefer not to say 0 n/a 0 0 n/a
The data was collected by asking the Directors concerned and the reference date is the 31 December 2022.
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 reached the end of her ninth consecutive year as a Non-Executive
Director and Chair of the Remuneration Committee during 2021. E. Lindqvist will not stand for re-election at the May 2023 AGM and will retire
from the Board. C. Gordon will take on the Chair of the Remuneration Committee with effect from May 2023.
Shareholder relations
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 can view up-to-date news on the Group and its share price via the Bodycote website at www.bodycote.com.
D. Dayan, the Chair, wrote to the top 10 shareholders during 2022 to offer introductory meetings and, if requested, these took place during
December 2022 and January 2023.
We have communicated with existing and potential shareholders in a number of different ways during the year:
March 2022 – Full year results announcement and analysts’ presentations
– UK shareholder roadshow
– Annual Report and Accounts and Notice of AGM posted to shareholders and placed on the website
May 2022 – Trading Update
– Annual General Meeting
July 2022 – Half year results announcement and analysts’ presentation
August 2022 – Consultation on remuneration with major shareholders
September 2022 – UK shareholder roadshows
November 2022 – Trading Update
Users of the website can access recent announcements and copies of results presentations and can enroll to hear live presentations.
On a regular basis, Bodycote’s financial advisers, corporate brokers and financial public relations consultants provide the Directors with
opinion surveys from analysts and investing institutions following 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 83. All Non-Executive Directors (excluding the Chair) serve on each Board Committee.
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55
Bodycote plc annual report 2022
Business ethics and culture
A healthy culture is one in which the Group has a purpose, values
and strategy that are respected by the Group’s stakeholders and
an operating environment that is inclusive, diverse and engaging;
encouraging employees to make a positive difference for
stakeholders. Corporate culture is guided by the principles against
which the Board monitors how the culture exists and is viewed by
employees. These are:
– Values as explained in the Sustainability section on pages 35 to 45
– 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.
Accountability
Internal control and risk management
In accordance with the FRC ‘Guidance on Risk Management,
Internal Control and Related Financial Business Reporting’ the Board
recognises that it is responsible for the Group’s system of internal
control and risk management. The system has been designed to
manage rather than eliminate the risk of failure to achieve business
objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss.
The Board has embedded a continuous process for identifying,
evaluating and managing the Group’s significant risks, including
risks arising out of Bodycote’s corporate and social engagement.
The Board’s monitoring covers all significant strategic, financial,
operational and compliance risks. It is based principally on reviewing
reports from management and from Internal Audit (IA) to consider
whether any significant 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 away from internal combustion engines towards electric
vehicles; and
– 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
2022 and continues to operate up to the date of the approval of this
report. The key elements of the Group’s system of internal control
that is monitored by the Board include:
– Key financial, legal and compliance policies that apply across
the Group including: Detailed Financial Policies, Group Authority
Matrix, Anti-Bribery and Anti-Corruption, Anti-Slavery and Human
Trafficking, Core Values and Code of Conduct. There are also
procedures in place for the identification, reporting and resolution
of potential fraudulent activities.
– A comprehensive financial planning, accounting and
reporting framework.
– Bodycote has engaged BDO to monitor and assist in improving
the Group’s internal control system. IA reviews are conducted
on the basis of a risk-based plan approved annually by the Audit
Committee. To provide assurance on the continued operation of
controls, financial control self-assessments (CSAs) have been
developed and implemented in each division. The results of these
CSAs 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 at 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.
During 2022, in compliance with Provision 29 of the Code, the
Executive Committee performed an assessment of its risk
management processes by holding risk reviews. Risk reviews
were conducted via an internally facilitated risk workshop and
also an externally facilitated workshop with BDO. Management’s
assessment, which has been reviewed by the Board, included a
review of the Group’s key strategic, operational and emerging risks.
The 2022 emerging risk discussion focused on the wider effects
of climate change on the Group and the rise in inflation and energy
costs on Bodycote’s business. As a result of the discussion, it was
concluded that the principal risks reported as at December 2022
remained valid. Refer to pages 28 to 32 for further information on
principal risks and uncertainties affecting the Group.
Annual General Meeting
The 2023 Annual General Meeting will be held on 31 May 2023
in accordance with the notice being sent to shareholders under
separate cover.
By order of the Board:
U.S. Ball
Group Company Secretary
17 March 2023
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
Corporate governance statement continued
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56
Bodycote plc annual report 2022
Directors’ report
Directors’ report
The Directors are pleased to submit their report and the audited
financial statements for the year ended 31 December 2022.
The Chair’s statement, the Chief Executive’s review on pages 11
to 12, the Chief Financial Officer’s report and all the information
contained on pages 25 to 27, together comprise the Directors’
report for the year ended 31 December 2022. For going concern
please see the CFO statement on page 27 and pages 96 to 97
of the consolidated financial statements.
Strategic report
The Strategic report is provided on pages 1 to 45 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 2022, key performance indicators and a description
of the principal risks and uncertainties facing the Group.
The Strategic report has been prepared solely to assist the
shareholders in assessing the Group’s strategies and the potential
of those strategies. It should not be relied on by any other party for
any other purpose. Forward-looking statements have been made
by the Directors in good faith using information available up to the
date of this report and such statements should be regarded with
caution because of the inherent uncertainties in economic trends
and business risks. Since the end of the financial year, no important
events affecting the business of the Group have occurred.
Dividends
The Board has recommended a final dividend of 14.9p (2021: 13.8p)
bringing the total ordinary dividend to 21.3p per share (2021: 20.0p).
If approved by shareholders, the final dividend of 14.9p per share will
be paid on 2 June 2023 to all shareholders on the register at the
close of business on 21 April 2023.
Share capital
The Company’s issued ordinary share capital as at 31 December
2022 was £33.1m. No shares were issued during the year.
At the Annual General Meeting on 25 May 2022, 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 31 May 2023, at which time
a further authority will be sought from shareholders.
Capital structure
Details of the issued share capital are shown in note 22 of the
consolidated financial statements.
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 25 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 48. 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 Directors serving during 2022 and their biographies are listed on
pages 46 to 47 and all with the exception of C. Gordon have served
throughout the year. In line with the UK Corporate Governance
Code, all Directors retired at the Annual General Meeting in 2022
and 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 2023 Annual General Meeting are
D. Dayan, S.C. Harris, I.B. Duncan, P. Larmon, L. Chahbazi and
K. Boyd. C. Gordon having joined the Board on 1 June 2022 and
B. Fidler having joined on 24 February 2023 will stand for election.
D. Yates announced his retirement on 7 February 2022 and will retire
on 30 April 2023 and, therefore, will not stand for reappointment.
E. Lindqvist, having served from more than nine years, will not stand
for re-election. The service agreements for S.C. Harris and
B. Fidler are terminable by 12 months’ notice. The remaining
Directors do not have service agreements with the Company and
their appointments are terminable by six months’ notice.
Strategic report Governance Financial statements Additional information
57
Bodycote plc annual report 2022
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 68
to 82. No Director has had any dealings in any shares or options in
the Company since 31 December 2022. 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 2022 and, as at the date
of this report, remain in force for the benefit of the current Directors
in relation to certain losses and liabilities which they may incur (or
have incurred) to third parties in the course of their duties. Apart from
these exceptions, none of the Directors had a material interest
in any contract of significance in relation to the Company and its
subsidiaries at any time during the financial year.
Potential conflicts of interest
During 2008, the duties owed by Directors to a company were
codified and extended by the Companies Act 2006 so that Directors
not only had to declare actual conflicts of interest in transactions
as they arose, but also had a duty to avoid such conflicts whether
real or potential. Potential conflicts of interest could arise where a
single Director owes a fiduciary duty to more than one organisation
(a ‘Situational Conflict’) which typically will be the case where a
Director holds directorships in more than one company. 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 2023 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 is the Group’s policy to give full and fair consideration to
applications for employment from disabled persons, having regard to
their particular aptitudes and abilities, and to encourage the training
and career development of all personnel employed by the Group,
including disabled persons. Should an employee become disabled,
the Group, where practicable, will seek to continue the employment
and arrange appropriate training. An equal opportunities policy is in
operation in the Group.
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 48 to 56.
Greenhouse gas emissions
Details of greenhouse gas emissions and Streamlined Energy and
Carbon Reporting (SECR) are included within the Sustainability
section of this report.
Donations
There were no political contributions in 2021 or 2022.
Shareholders
An analysis of the Company’s shareholders and the shares in issue
at 7 March 2023 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 153.
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 2023 Annual General Meeting will be held on 31 May 2023
in accordance with the notice being sent to shareholders under
separate cover.
By order of the Board:
U.S. Ball
Group Company Secretary
17 March 2023
Springwood Court
Springwood Close
Tytherington Business Park
Macclesfield
Cheshire
SK10 2XF
Directors’ report continued
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Bodycote plc annual report 2022
Report of the Nomination Committee
Committee
membership
No. of meetings 2022:
6 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.
D. Dayan
I.B. Duncan
E. Lindqvist
P. L ar mon
L. Chahbazi
K. Boyd
C. Gordon (as of 1 June 2022)
Dear Shareholders,
I am pleased to introduce the Nomination Committee report for 2022. 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.
Succession planning was the focus for the Committee during the year with the appointment of Cynthia Gordon as Non-Executive Director on
1 June 2022 and the appointment of Ben Fidler as Chief Financial Officer designate on 24 February 2023. Cynthia will succeed Eva Lindqvist
as Chair of the Remuneration Committee after the 31 May 2023 AGM and Ben will take over as CFO on 1 May 2023. Eva will retire from the
Board at the 2023 AGM after more than 9 years as a Non-Executive Director of the Group, and Dominique Yates will retire from the Board
on 30 April 2023 after seven fruitful years as CFO. We thank them both for their service and wise counsel. The Committee will continue to
focus on ensuring that the present and future composition of the Board is appropriate and that all relevant UK Corporate Governance Code
requirements continue to be met as far as possible.
I am pleased to confirm that, following an internal review of the effectiveness of our Board and its committees, the Nomination Committee
continues to operate effectively.
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.
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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59
Bodycote plc annual report 2022
Report of the Nomination Committee continued
Key activities
Board composition/succession planning Non-Executive Directors
– Reviewed and updated succession plans for the Board and
Senior Management
– Appointed a new Chair as of 1 January 2022
– Recruited a new Non-Executive Director, Cynthia Gordon, who
commenced on 1 June 2022 and who will take over as Chair of the
Remuneration Committee after the 2023 AGM
– Recruited a new CFO during 2022, who commenced on
24 February 2023
– 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
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 and the services of independent external advisers to facilitate the search as appropriate.
A long list of candidates is drawn up, from which an appropriate number will be selected for interview. Upon completion the Committee
recommends to the Board the appointment of the preferred candidate.
1-3
4-6
6-9
>9
Board tenure (years)
Board diversity
222
3
Board composition
Male 6
Female 3
BAME 2
White 7
Executive
Directors
2
Non-Executive
Chair
1
Independent
Non-Executive
Directors
6
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.
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Bodycote plc annual report 2022
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.
Board induction programme for Daniel Dayan – 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 Meetings with the Group Company Secretary and with major shareholders
Legal Meeting with General Counsel
IT Meeting with Chief Digital Officer
Operations Meetings with the Group CEO, Executive Committee members, VPs of Finance, Shared Services and Tax & Treasury
were undertaken
Facilities 12 visits have taken place
Board induction programme for Cynthia Gordon – undertaken since June 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 Chief Digital Officer
Operations Meetings with the Group CEO, Executive Committee members, VPs of Finance, Shared Services and Tax & Treasury
were undertaken
Facilities Four visits have taken place
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, anti tax evasion, the share dealing code, data protection, IT security and anti-
slavery regulations.
Board succession planning
C. Gordon joined the Board as a Non-Executive Director on 1 June 2022. In line with the UK Corporate Governance Code 2018 criteria,
C. Gordon is independent. The recruitment process was led by the Chair, who was advised by international search consultancy Russell
Reynolds in the process of identifying suitably qualified individuals. D. Yates announced his retirement on 7 February 2022 and his successor,
B. Fidler, who commenced on 24 February 2023, was announced on 31 October 2022. D. Yates will retire on 30 April 2023 after completion
of B. Fidler’s induction and the handover process. The recruitment process was led by the CEO, who was advised by Russell Reynolds.
This involved a thorough discussion of the skills, experience and leadership behaviours required. Russell Reynolds has no other connections to
Bodycote plc. There were no further changes to the Board structure during the year.
As in previous years the Committee spent time during 2022/23 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 identify 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.
The Committee is confident that it has carried out its role effectively during the year and its work will help to ensure that a strong pipeline of
talented individuals is available to support the Group and meet its future business objectives and fulfil its strategic goals.
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61
Bodycote plc annual report 2022
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 2022 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 60 as part of the Corporate Governance
statement. We are pleased to report that during 2022 the female representation on the Board was 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 external Board evaluation in 2021, the Board agreed to undertake an internal evaluation during 2022. Further details of the
review can be found in the Corporate Governance section of the Annual Report. Recommendations from the 2022 internal Board evaluation
such as a continued review of the strategy including ESG are being addressed and focusing on people and succession planning are topics that
are ongoing.
In December 2022, 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 Directors serving in 2022 can be found on pages 46 and 47.
The Committee, having reviewed its independence and contribution to Board matters, confirms that the performance of each of the Directors
standing for re-election at this year’s Annual General Meeting continues to be effective and demonstrates commitment to their roles,
including independence of judgement and time commitment for Board and Committee meetings. E. Lindqvist and D. Yates will retire from
the Board and not stand for re-election at the 2023 AGM. C. Gordon will take on the Chair of the Remuneration Committee with effect from
31 May 2023. Accordingly, the Committee has recommended to the Board that all current Directors of the Company with the exception of E.
Lindqvist and D. Yates 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 on 31 May 2023, 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
17 March 2023
Report of the Nomination Committee continued
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Bodycote plc annual report 2022
Report of the Audit Committee
Committee
membership
No. of meetings 2022:
5 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. Review and report to the Board on significant
financial reporting issues and judgements.
– Review the content of the Annual Report and advise the Board whether,
taken as a whole, it is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s position and
performance, business model and strategy.
– Monitor and review the adequacy and effectiveness of the Group’s internal
financial control and risk management systems.
– Monitor and review the effectiveness of the Group’s Internal Audit function
and its key findings and trends arising, and the resolution of these matters.
– Oversee the relationship with the external auditor including approving
the remuneration, audit scoping and terms of engagement, reviewing
outcomes of the external audits, ensuring compliance with the policy for
the provision of non-audit services, conduct the tender process and make
recommendations to the Board, subject to the approval by shareholders,
on the appointment, reappointment or removal of the external auditor.
– Monitor policy on the engagement of the external auditor to supply non-audit
services, ensuring there is prior approval of non-audit services, considering
the impact this may have on independence, taking into account the relevant
regulations and ethical guidance in this regard and report to the Board on any
improvement or action required.
– Review and monitor the external auditor’s independence, effectiveness
and objectivity.
The full terms of reference for the Committee can be found on the
Group’s website.
K.J. Boyd (Chair)
I.B. Duncan
E. Lindqvist
P. L ar mon
L. Chahbazi
C. Gordon as of 1 June 2022
Chairman’s introduction
I am pleased to present my first report as Chairman 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.
The Committee fulfils an important oversight role providing effective governance over the Group’s reporting, including the adequacy of related
disclosures, the management and oversight of the Group’s systems of internal control, the management of financial risks, the performance
of Internal Audit as well as the appointment and evaluation of the external auditor. During the year, the Committee continued to focus on the
integrity of Bodycote’s financial reporting, financial risk management, internal controls and on the quality of the external and internal audit
processes and will continue to keep its activities under review as the regulatory environment changes.
I would like to thank Ian Duncan for his contribution as Chairman over the past seven years. We have worked together this year to ensure
a smooth transition.
This report contains information on the activities undertaken by the Committee during the year which has enabled it to monitor and assess the
effectiveness of the Group’s control environment.
Kevin Boyd
Chairman of the Audit Committee
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63
Bodycote plc annual report 2022
Report of the Audit Committee continued
Committee membership and meetings
The Audit Committee is comprised entirely of independent Non-Executive Directors. Their biographical details are shown on pages 46 and 47,
and their remuneration on page 73. The Group Company Secretary is the secretary to the Audit Committee.
Kevin Boyd was appointed as Chairman of the Audit Committee in May 2022. Mr Boyd is a Chartered Accountant and a Chartered Engineer
with substantial experience in senior finance roles. The Board considers that Kevin Boyd has extensive recent and relevant financial,
accounting and sector experience required to chair the Committee.
All Committee members have significant and widespread experience in both executive and non-executive capacities of multinational industrial
companies and are considered to have competencies relevant to their duties.
The Audit Committee met five times during 2022 and in March 2023; 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 Internal Audit to
attend all regular meetings. Other Senior Management 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, which provides internal audit services, also attended one meeting. As part of the process of working with the Board to carry out its
responsibilities and to maximise effectiveness, regular meetings of the Committee generally take place just prior to Board meetings.
Kevin Boyd also held preparatory meetings separately with the external auditor, the Group Chief Financial Officer, the Group Director of
Finance, Group Financial Controller and the Group Head of Internal Audit before regular Committee meetings to review their reports and
discuss issues in detail. PwC, the Group Head of Internal Audit and the internal auditors (BDO LLP) met with the Audit Committee without
the executives present.
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 and the classification of certain costs and revenues as exceptional in
the annual report and financial statements;
– whether the annual report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders
to assess the Group’s strategy, business model and performance;
– reviewing with both management and the external auditor to ensure audit scoping was appropriate and that the external auditor had applied
the necessary level of professional scepticism in performing their work;
– reviewing various materials to support the statements on risk management and internal control and related disclosures made in the annual
report and financial statements on this matter; and
– consideration of the topics raised by the UK Government‘s Department for Business, Energy and Industrial Strategy (BEIS) proposals which
includes work on internal controls, sources of assurance, identifying fraud risks and reporting of resilience.
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 2022 financial
statements is set out in the table below.
During the year, the Financial Reporting Council’s (FRC) Corporate Reporting Review team carried out a review of the Group’s 2021 annual report and
financial statements as part of the usual review cycle of publicly listed annual reports and accounts, with no questions or queries raised. The FRC’s letter
only considered compliance with reporting requirements and does not verify the accounts nor provide any assurance that the annual report and financial
statements are correct in all material respects and accepts no liability for reliance on their review by the Group or any third party, including but not
limited to, investors and shareholders. The FRC noted certain matters where it believes users of the annual report would benefit from improvements in
existing disclosures. The Committee has reviewed these matters and has ensured that they have been addressed through amendments to the current
year disclosures.
Going concern, viability statement and financial resilience
The Committee receives regular updates from management on the underlying performance of the business, the strength of the Group’s liquidity
and its operational and financial resilience. The Committee has reviewed the 2022 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. The Committee challenged assumptions related to current and future inflation and changes in energy
costs on cash flows ensuring that these cash flows include the cost of actions to be undertaken within the time frame under review consistent with the
carbon reduction initiatives recently agreed with the Science Based Targets initiative. Sensitivity analyses were undertaken to understand the impact of
changes to key variables and included severe but plausible downside scenarios and stress testing. The Committee was satisfied that these represented
accurate assessments of the Group’s financial position. For further detail on the going concern and viability statements please refer to pages 27 and 33,
respectively.
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64
Bodycote plc annual report 2022
Fair, balanced and understandable
The Committee has reviewed the form and content of the interim results for the half year and the annual report and financial statements
and a paper prepared by management setting out the approach taken in their preparation. The review included the consideration of oversight
throughout the year based on review of regular financial results and reports from both Senior Management and PwC, consideration of
regulatory and governance requirements for reporting, the process of planning and preparing the annual report and ensuring it contains
complete 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.
In addition to these matters, the Committee considered the following significant topics impacting the financial statements:
Area of focus Actions
Valuation of assets
As set out in the accounting policies, the Group performs
an impairment test over the carrying amounts of goodwill
at least annually, whilst tangible and other intangible
assets are considered for impairment indicators. Refer
to note 9 of the consolidated financial statements.
The Committee considered reports from management describing potential
impairment indicators for tangible and intangible assets and the outcome of related
tests as performed at year end. The annual impairment test was performed for all
cash generating units with a goodwill balance, as required by accounting standards.
The Committee reviewed these reports and challenged the results including the
future forecasts underlying the value-in-use calculations, and the assumptions,
particularly the discount rate and the assessment of future inflationary impacts
and growth factors used in the discounted cash flow calculations for each cash
generating unit and the sensitivity analysis applied.
The Committee considered the adequacy of the disclosures provided. Details of
sensitivity analysis applied to key assumptions used in the impairment review as
well as conclusions are set out in note 9 to the consolidated financial statements.
The Committee was satisfied with the carrying value of assets and goodwill and the
related disclosures and that no impairment was required as of 31 December 2022.
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 and challenged with management the key judgements behind the
provisions, taking note of the range of possible outcomes, and was satisfied
with the accounting treatment and corresponding disclosures on these matters.
Taxation
The Group operates in a number of tax jurisdictions
and is subject to increasing reviews by different tax
authorities across the Group in the ordinary course
of business. A number of judgements are involved in
calculating tax provisions and the level of deferred tax
assets/liabilities to be recognised.
Provisions are made based on the tax laws in the relevant
country and the expected outcomes of any negotiations
or settlements.
Recognition of deferred tax assets relating to future
utilisation of accumulated tax losses and other tax assets
is dependent on future profitability and performance
of the underlying business.
Refer to notes 6 and 19 of the consolidated
financial statements.
The Committee 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 27 of the consolidated financial statements).
These variables can have a material impact in calculating
the quantum of the defined benefit pension liability.
Management obtained independent external specialist advice in determining
pension liabilities. The Committee reviewed reports prepared by management
and key assumptions used from external advisers and is comfortable that the
fundamental assumptions are reasonable.
The Committee agreed to the treatment and the corresponding disclosures
on these matters. See note 27 of the consolidated financial statements.
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65
Bodycote plc annual report 2022
Report of the Audit Committee continued
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. This year, 2022, was Mr. Simon Morley’s fourth 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. Audit fees for the year were agreed at £2.2m.
Key audit matters and the audit approach to these matters are discussed in the Independent Auditor’s Report (pages 84 to 91), 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 its conclusions.
– It was considered that there was an appropriate level of challenge during the audit over management’s judgements and assertions of matters
including critical accounting judgements and key sources of estimation uncertainty.
– PwC demonstrated a good understanding of the Group and identified and focused on areas of greatest financial reporting risk.
The Committee assessed the effectiveness of management in the external audit process by considering timely identification and resolution
of areas of accounting judgement, the quality and timeliness of papers analysing those judgements and other documents provided for review
by the external auditor and the Committee.
The Committee considered the UK Financial Reporting Council’s (FRC) 2021/22 report on Audit Quality Inspections which included a review
of audits carried out by PwC. If the Bodycote audit is selected for quality review, the Committee understands that any resulting reports will
be sent to the Committee by the FRC. After considering all of the relevant matters, the Committee concluded that the external audit had
been effective and objective. During 2022, 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 formally confirmed by PwC at the March 2022 Audit Committee and was confirmed again in March 2023.
The Committee considered PwC’s presentation and confirmed that it considered the auditor to be independent.
Non-audit services
The external auditor may be invited to provide services where their position as auditor renders them best placed to undertake the work.
In order to safeguard the auditor’s independence and objectivity, and in accordance with the FRC’s Ethical Standard, the Group does not
engage PwC for any non-audit services except where the proposed services are permissible in the context of the Ethical Standard in the first
instance, and where it is work that it must, or is clearly best suited to, perform. Non-audit services, regardless of scope, cannot be awarded
to the external auditor without prior approval from the Committee Chairman, on behalf of the Committee. In addition to the Group’s policy, the
auditor runs its own independence and compliance checks, prior to accepting any engagement, to ensure that all non-audit work is compliant
with the FRC’s Ethical Standard and that there is no conflict of interest. The only non-audit fees paid to the auditor in 2022 were for the half
year interim review and are shown in note 2 of the consolidated financial statements representing 5% (2021: 8%) of the audit fee.
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Bodycote plc annual report 2022
Internal audit
The internal audit plan for 2022 was presented to the Committee in October 2021. 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. The internal audit approach for 2022 was focused on providing
assurance over the Group’s principal risks and key financial and IT controls. IT controls, including the ongoing ERP implementation programme,
and cyber security risk remain continued areas of focus and are reviewed annually.
At each regular meeting, the Group Head of Internal Audit presented a report to the Committee on the status of the internal audit plan, points
arising from audits completed and follow-up action plans to address areas of weakness. The status of these actions is monitored closely by
the Committee until they are completed. The Committee also received reports on actual or suspected frauds and thefts by third parties and
employees; none had any material financial impact on the Group.
The Group Head of Internal Audit provides independent assurance over the key financial processes and controls in operation across the Group.
The Group engaged BDO LLP to provide co-sourced internal audit services.
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. The accuracy of returns
was monitored by Internal Audit by verification visits to a sample of sites. A control self-assessment has also been obtained from each of the
divisional finance teams, financial shared services, Group IT services and Group finance teams.
The effectiveness of internal audit is reviewed and discussed annually with the Group Head of Internal Audit and the BDO LLP engagement
partner. Audit quality is assured through a detailed review of each report being carried out by the Group Head of Internal Audit, and a summary
of each report’s findings being reviewed by the Audit Committee. The review confirmed that the internal audit function was independent and
objective and remained an effective element of the Group’s corporate governance framework.
Risk management
The Committee reviewed the Group’s financial risk management and internal control systems’ effectiveness through regular updates from
the Group Head of Internal Audit who has responsibility for monitoring the Group’s risk management and internal controls framework.
The Executive Committee is responsible for developing the risk framework.
The Committee reviewed changes to the principal financial risks and mitigating actions identified by management and also monitored
the emerging risk identification process and provided its support to the Board in concluding that a robust assessment of the principal and
emerging risks has been undertaken in 2022. Refer to the Principal Risks and Uncertainties report on pages 28 to 32.
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 58 for further information.
Committee evaluation
The Committee’s activities formed part of an internal review of Board effectiveness which was undertaken in July 2022 and approved by
the Board in October 2022. The Committee considered it had operated effectively during the year and the Directors indicated a high level of
satisfaction with the work of the Committee. Based on this, and as a result of the work done during the year, the Committee has concluded
that it has acted in accordance with its terms of reference and carried out its responsibilities effectively.
On behalf of the Audit Committee:
Kevin Boyd
Chairman of the Audit Committee
17 March 2023
Strategic report Governance Financial statements Additional information
67
Bodycote plc annual report 2022
Board report on remuneration
Committee
membership
No. of meetings
2022: 12
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 (Chair)
I.B. Duncan
P. L ar mon
L. Chahbazi
K. Boyd
C. Gordon (as of
1 June 2022)
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 2022.
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 68-69).
– An ‘at a glance’ of the remuneration decisions taken during the year (page 70).
– The Annual Report on Remuneration, which describes how our Directors’ Remuneration Policy was applied during 2022 (pages 68-82).
The Directors’ Remuneration Policy was approved by shareholders at the 2022 Annual General Meeting and became effective from that date.
There are no proposals to amend the Policy at the 31 May 2023 Annual General Meeting. The Committee addressed the principles prescribed
in Provision 40 of the 2018 UK Corporate Governance Code when determining the Policy (see page 81).
The full Policy is available on our website at www.bodycote.com/wp-content/uploads/2022/03/Bodycote-annual-report-2021.pdf on page 76.
Executive Director changes
Dominique Yates will step down as Chief Financial Officer on 30 April 2023. Ben Fidler was appointed as Chief Financial Officer designate
and as a member of the Board on 24 February 2023, and will take up the role of Chief Financial Officer on 1 May 2023. Ben will be based
in the UK. The treatment of Dominique Yates’ remuneration arrangements is set out on page 77. The Committee has agreed the following
remuneration arrangements for Ben Fidler:
– An annual salary of £500,000 which, taking into account the highly competitive market for talent and quality of the candidate, is competitively
positioned against industry peers.
– A pension opportunity equal to 10% of base salary, which is in line with the level available to the majority of the UK workforce.
– A maximum annual bonus opportunity of 150% of base salary and a maximum Bodycote Incentive Plan (“BIP”) opportunity of 175% of base
salary, which is in line with the Remuneration Policy.
The Committee has agreed to buy out Ben Fidler’s 2022 annual bonus and in-flight share incentives which were forfeited by him on leaving
his previous employer. The buy-out awards will be structured on a like-for-like basis and are therefore dependent on the performance of his
previous employer. Final details of the buy-out awards will be determined during 2023 and will therefore be disclosed in the 2023 Directors’
Remuneration Report.
Business performance and incentive outcomes for 2022
The Group performed well during the year with good progress against the Group strategy. We enjoyed particularly strong revenue growth in
our Civil Aerospace business and our Emerging Markets. Our ADE and AGI focused Specialist Technologies revenues continue to outperform
their Classical Heat Treatment revenue development, in line with our strategy.
This strong revenue performance and the fact that the Group successfully passed on inflationary impacts to its customers resulted in a 19%
increase in headline earnings per share to 42.7p. While there are obvious geopolitical and macroeconomic uncertainties, we see the prospect
of ongoing medium-term volume growth in each of our key market sectors and geographies.
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.
Strategic report Governance Financial statements Additional information
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Bodycote plc annual report 2022
Annual bonus
The 2022 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 the key internal financial metrics currently and therefore form the core annual bonus
metrics. Headline operating profit at constant currency increased by 19% to £112.5m and headline operating cash flow at constant currency
declined by 10% to £109.8m.
The personal scorecard primarily reflects how Executive Directors have delivered on our strategic goals and specific critical initiatives.
For further details please see the personal scorecards on page 75.
The annual bonus paid out at 61% of maximum for the Group Chief Executive and 59% of maximum for the Chief Financial Officer.
In accordance with the policy, 35% will be deferred into shares for three years. Please see page 77 for the treatment of Dominique Yates’
deferred share awards on stepping down as Chief Financial Officer.
Bodycote Incentive Plan (BIP)
The 2020 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 2022.
Whilst ROCE and EPS performance improved compared to last year, only the ROCE threshold was achieved. The headline EPS threshold
target was not achieved. The overall outcome is 1.4% of the maximum performance.
Shareholder and employee engagement
The Group obtained a 77% vote in favour in respect of approval of the 2022 Directors’ Remuneration Policy. While the Committee is pleased
that the Policy was approved by shareholders, it also acknowledges the views of the shareholders who opposed the resolution. The principal
concern was that our Policy now explicitly states that salary increases and pension contributions for Executive Directors are determined
considering salary increases and pension contributions for the wider Bodycote workforce in the country the Executive Director lives and/or
works as well as the wider Bodycote workforce across Western Europe including the UK.
The Committee wrote to the Company’s largest shareholders and key proxy agencies following the 2022 Annual General Meeting (for
further information please see the statement of shareholder voting on page 82) to confirm that this is not a change in how we remunerate
our Executive Directors and rather clarifies the approach applied by the Committee for several years. The Committee continues to strongly
consider the approach to be appropriate as this reflects pay practices and salary inflation in the countries in which the Executive Directors live
and work, as well as having regard to salary increases awarded to Group employees across Western Europe including the UK. The Committee
invited comments from the Company’s largest shareholders to ensure that the rationale for the approach was fully understood.
Concerning the 2022 inflationary increase for the CEO, Czech salary inflation of 6% was moderated by the Western European weighted
average budgeted wage inflation of 3.2% and the weighted average budgeted CIP inflation of 4.2% in arriving at a figure of 4%.
We operate Employee Engagement Groups (see page 54 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.
Application of Policy for 2023
An overview of our intended application of Policy for 2023 is set out on page 70 within the ‘At a Glance’ section.
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.
This year will also be my last as Remuneration Committee Chair as I will not be seeking re-election at the 2023 AGM. I would like to thank
the Committee members for their continued support and will work with my successor, Cynthia Gordon, to ensure a smooth handover.
I look forward to receiving your support at our 2023 Annual General Meeting, where I will be pleased to answer any questions you may have
on this report or any of the Committee’s activities.
E. Lindqvist
Chair of the Remuneration Committee
17 March 2023
Strategic report Governance Financial statements Additional information
69
Bodycote plc annual report 2022
Board report on remuneration continued
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)
BIP value
at grant
price
(£000)
Share
price
gain on
vesting
of BIP
between
grant and
vest date
Subtotal
(£000)
Total
(£000)
Executive Directors
S.C. Harris 2022 634 149 41 824 767 16
3
14 –
5
783 1,607
2021 609 146 40 795 1,174 –
4
– – 1,174 1,969
D. Yates 2022 425 100 29 554 374 12
3
10 –
5
386 940
2021 420 101 28 549 606 –
4
– – 606 1,155
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 insurance 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 to leave him/her in a neutral position.
2 35% of the annual bonus will be deferred in shares.
3 The 2022 figures relate to BIP awards granted on 23 March 2020 with a performance period ended on 31 December 2022. Shares vested as the targets were achieved at 1.4% of the
maximum opportunity. This includes dividend equivalents. For 2022 dividend equivalents for S.C. Harris were £1,550 and for D. Yates were £1,118. An estimated market price at vesting was
used of £5.49 calculated as the three months’ average from 1 October to 31 December 2022.
4 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.
5 Share price gains on vesting of BIP are under £500.
Incentive outcomes for 2022
Annual bonus
The Group Chief Executive and Chief Financial Officer earned a bonus equal to 61% and 59% of maximum respectively.
Outcome
S.C. Harris D. Yates
% of award Threshold Target Maximum
Actual
performance
achieved
1
% of max
% of
salary % of max
% of
salary
Headline operating profit 77% £100m £ 115m £125m £112.5m 55.0% 84.7% 55.0% 63.5%
Headline operating cash
flow 10% £100m £114m £114m £109.8m 69.8% 14.0% 69.8% 10.5%
Personal score card 13% n/a 86.0% 22.3% 72.0% 14.0%
Total 60.5% 121.0% 58.7% 88.0%
1 Figures quoted are at constant currency rates.
BIP
The underpin target of 37.4p together with the ROCE threshold target were achieved. The headline EPS threshold target was not achieved.
The vesting outcome amounted to 1.4% of the maximum opportunity based on performance against ROCE targets. The performance targets
and actual performance are set out in the table below.
ROCE
1
Headline EPS
Performance
target
Vesting of element
(% of maximum)
Performance
target
Vesting of element
(% of maximum)
Maximum performance 19.5% 100% 62p 100%
Threshold performance 14.0% 0% 44p 0%
Performance achieved 14.2% 2.9% 42.7p 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 2020) only.
Strategic report Governance Financial statements Additional information
70
Bodycote plc annual report 2022
Illustration of application of Policy for 2023
The remuneration package for the Executive Directors is designed to provide an appropriate balance between fixed and variable performance-
related components. The Committee is satisfied that the composition and structure of the remuneration package is appropriate, clearly
supports the 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%
33%
29%
38%
44%
32%
24%
26%
20%
100%
52%
36%
12%
39%
44%
17%
35%
41%
24%
54%
£862,102
£2,242,485
100% 38%
36%
26%
Minimum Maximum
with 50%
share price
increase
On-target
Maximum
Stephen Harris
Ben Fidler
Dominique Yates
Minimum Maximum
with 50%
share price
increase
On-target
Maximum
Minimum Maximum
with 50%
share price
increase
On-target
Maximum
£3,356,770
£3,938,860
£492,917
£1,313,842
£2,006,958
£2,444,458
£192,277
£368,650
£500,611
£543,750
£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
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 2023, benefits received in 2022 and pension opportunity applying from 1 January 2023.
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71
Bodycote plc annual report 2022
Board report on remuneration continued
Implementation of the Policy in 2023
Set out below is a summary of the key elements of the Policy for Executive Directors, together with how the Policy is intended to be
implemented in 2023.
Key features Implementation for 2023
Salary – Base salaries are reviewed in January
every year
– Salary reviews are based on role, experience,
performance, internal increases and the
external market
– Stephen Harris receives a salary of £665,245, an increase of 5%.
– Dominique Yates receives a salary of £446,562, an increase of 5%.
– In determining the salary increases for Stephen Harris and
Dominique Yates, the Committee had regard to the average
increases awarded to employees across Czech Republic and
Switzerland (the respective countries where Stephen Harris and
Dominique Yates live and work) and Western Europe, including
the UK. The average increases awarded to employees was 15.1%
across Czech Republic, 2.2% across Switzerland, 8.3% across
the UK and 6% across Western Europe. With these increases
in mind, the Committee considered a 5% increase for Stephen
Harris and Dominique Yates to be appropriate. The Committee
also considered Dominique Yates’ commitment to ensure a
successful transition of the Chief Financial Officer role, including
agreeing to stay in role until 30 April 2023, when determining his
salary increase.
– Ben Fidler was appointed on a salary of £500,000.
Benefits – A range of cash benefits and benefits in kind – In line with benefits provided in 2022.
Pension – Contribution to the Company’s defined
contribution scheme, or cash equivalent
– Stephen Harris receives a cash equivalent equal to 23.5% of base
salary. This is aligned with the company pension contributions
of the Czech Republic workforce, the country where he lives
and works.
– Dominique Yates receives 23.5% of base salary. This is aligned
with the company pension contributions of the Switzerland
workforce, the country where he lives and works.
– Ben Fidler receives a cash equivalent equal to 10% of base salary.
This is aligned with the company pension contributions of the UK
workforce, the country where he lives and works.
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% of base salary for Stephen Harris.
– Maximum opportunity of 150% of base salary for Dominique
Yates, pro-rated for time served as Chief Financial Officer during
the year.
– Maximum opportunity of 150% of base salary for Ben Fidler.
– 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 2023 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 base salary for all Executive
Directors. Dominique Yates’ opportunity will be pro-rated for time
served as Chief Financial Officer during the vesting period.
– Awards are based on performance against ROCE (50%) and
headline EPS (50%) targets over a three-year period ending
31 December 2025.
– 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
– Stephen Harris and Dominique Yates have met the
shareholding requirement.
– Ben Fidler will work towards building his shareholding.
Strategic report Governance Financial statements Additional information
72
Bodycote plc annual report 2022
2023 BIP awards
The targets for the 2023 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% 70.0p 100%
Threshold performance 14% 0% 56.0p 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 2023) only.
If headline EPS at the end of the performance period is below 47.5p, then no awards will vest. Furthermore, the Committee has discretion to
amend the vesting outcome where it considers that it is not a fair and accurate reflection of business performance. 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 2022.
This section of the report is audited while the Annual Report on Remuneration is subject to an advisory vote by shareholders at the 2023
Annual General Meeting.
Auditable section
Total single figure table
Fixed pay Variable pay
Financial
year
Salary/
fees
(£000)
Pension
(£000)
Taxable
benefits
1,5
(£000)
Subtotal
(£000)
Annual
bonus
4
(£000)
BIP
(£000)
BIP value
at grant
price
(£000)
Share
price
gain on
vesting
of BIP
between
grant and
vest date
Subtotal
(£000)
Total
(£000)
Executive Directors
S.C. Harris 2022 634 149 41 824 767 16
2
14 –
9
783 1,607
2021 609 146 40 795 1,174 –
3
– – 1,174 1,969
D. Yates 2022 425 100 29 554 374 12
2
10 –
9
386 940
2021 420 101 28 549 606 –
3
– – 606 1,155
Non-Executive
Directors
D. Dayan
6
2022 275 – – 275 – – – 275
2021 – – – – – – – –
P. L ar mon 2022 73 – – 73 – – – 73
2021 71 – 4 75 – – – 75
E. Lindqvist 2022 75 – – 75 – – – 75
2021 71 – 2 73 – – – 73
I.B. Duncan
8
2022 77 – – 77 – – – 77
2021 81 – 0 81 – – – 81
L. Chahbazi 2022 62 – – 62 – – – 62
2021 61 – 0 61 – – – 61
K. Boyd
8
2022 71 – – 71 – – – 71
2021 61 – 0 61 – – – 61
C. Gordon
7
2022 36 – – 36 – – – 36
2021 – – – – – – – –
Notes accompanying the total single figure table
1 Taxable benefits consist of company car (or allowance), family level private medical insurance, life insurance 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 to leave him/her in a neutral position.
2 The 2022 figures relate to BIP awards granted on 23 March 2020 with a performance period ended on 31 December 2022. Shares vested as the targets were achieved at 1.4% of the
maximum opportunity. This includes dividend equivalents. For 2022 dividend equivalents for S.C. Harris were £1,550 and for D. Yates were £1,118. An estimated market price at vesting was
used of £5.49 calculated as the three months’ average from 1 October to 31 December 2022.
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 35% of the annual bonus will be deferred in shares and is subject to the conditions stated in the Remuneration policy approved by shareholders from time to time.
5 Four of the Non-Executive Directors received benefits of less than £500 in 2021.
6 D. Dayan was appointed to the Board on 1 January 2022.
7 C. Gordon was appointed to the Board on 1 June 2022.
8 I. Duncan stepped down as Chair of Audit Committee on 25 May 2022 and K. Boyd was appointed Chair of the Audit Committee on 25 May 2022.
9 Share price gains on vesting of BIP are under £500.
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Board report on remuneration continued
Salary
The base salaries of the Executive Directors are reviewed in January every year. In determining the salary increases for Stephen Harris and
Dominique Yates, the Committee had regard to the average increases awarded to employees across Czech Republic and Switzerland (the
countries where Stephen Harris and Dominique Yates live and work) and Western Europe. The average increases awarded to employees
was 15.1% across Czech Republic, 2.2% across Switzerland, 8.3% across the UK and 6% across Western Europe. With these increases in
mind, the Committee considered a 5% increase for Stephen Harris and Dominique Yates to be appropriate. The Committee also considered
Dominique Yates’ commitment to ensure a successful transition of the Chief Financial Officer role, including agreeing to stay in role until
30 April 2023, when determining his salary increase.
Executive Director
Salary from
1 January 2023
Salary from
1 January 2022
Salary
increase
S.C. Harris £665,245 £633,567 5%
D. Yates £446,562 £425,297 5%
Pension
The Executive Directors received a pension contribution or salary supplement in lieu of pension at a rate of 23.5% of base salary during 2022.
The rate of 23.5% of base salary remains unchanged for 2023 and is aligned with the company pension contributions of the wider Bodycote
workforce in the country that the Executive Directors work and live in.
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 £24,524
D. Yates £12,000 £1,200 £15,304
Incentive outcomes for 2022
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 2022, the Group Chief Executive
earned a bonus equal to 60.5% of maximum and the Chief Financial Officer 58.7% of maximum. 35% of the amount earned will be deferred
into shares for three years subject to continued employment. See page 77 for the treatment of Dominique Yates’ deferred share awards on
stepping down as Chief Financial Officer.
The performance targets and actual performance are set out below.
Outcome
S.C. Harris D. Yates
% of
award Threshold
2
Target
2
Maximum
2
Actual
performance
achieved
1
% of max
% of
salary % of max
% of
salary
Headline operating profit 77% £100m £115m £125m £112.5m 55.0% 84.7% 55.0% 63.5%
Headline operating cash flow 10% £100m £114m £114m £109.8m 69.8% 14.0% 69.8% 10.5%
Personal score card 13% n/a 86.0% 22.3% 72.0% 14.0%
Total 60.5% 121.0% 58.7% 88.0%
1 Figures quoted are at constant currency rates.
2 Payout is pro-rated between threshold, target and maximum. Achievable awards are as follows: Headline operating profit: threshold 30%, target 60%, maximum 100% and Headline
operating cash flow: 0% threshold and 100% for target and maximum.
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Personal scorecards
S.C. Harris Link to strategy
Overview For 2022 the CEO’s objectives were: leadership of the Enterprise Resource
Planning (ERP); leadership of the Group Executive including recruitment and
on-boarding of the new CFO and two other Executives; drive the Group Strategy
forward; systematically improve asset management and capital investment
implementation; establish SBTi targets and accelerate the environmental strategy
and carbon reduction programme.
Key achievements in the year – Progress was made with the ERP implementation in 2022.
– All key executives were recruited. The new CFO started in February 2023.
– Group Strategy was validated and a number of initiatives undertaken.
– Asset management and capital investment implementation is much improved.
– Carbon reduction targets were submitted to SBTi and accepted. Numerous carbon
reduction projects are well underway.
5
1
1 3 5
2 4 6
Rating The Committee assessed achievement for all personal scorecard objectives with
an overall rating of 86%.
D. Yates
Overview
For 2022 the CFO’s objectives were: leadership of the Group Finance function;
leadership of the ERP including progress on cost accounting and data warehousing;
on-boarding of a successor including successful transition.
Key achievements in the year – The Group Finance function has performed well and has progressed on
multiple fronts.
– ERP implementation has progressed in 2022.
– The CFO designate was on-boarded at the end of February 2023 and the
transition is well underway.
Rating The Committee assessed achievement for all personal scorecard objectives with
an overall rating of 72%.
Bodycote Incentive Plan (BIP)
BIP awards granted on 23 March 2020 had a three-year performance period ended 31 December 2022, 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 37.4p,
then no awards would vest.
The underpin target of 37.4p together with the ROCE threshold target were achieved. The headline EPS threshold target was not achieved.
The vesting outcome amounted to 1.4% of the maximum opportunity based on performance against ROCE targets.
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
Vesting of element
(% of max)
Performance
target
Vesting of element
(% of max)
Maximum performance 19.5% 100% 62p 100%
Threshold performance 14.0% 0% 44p 0%
Performance achieved 14.2% 2.9% 42.7p 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 2020) only.
5
5
5
5
Capitalising on, and investing
in,our Specialist Technologies
2
Driving operational
improvement
5
Investing in structural
growth opportunities
4
Investing in
Emerging Markets
3
Acquisitions
6
Safety and
Climate Change
1
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Bodycote plc annual report 2022
Board report on remuneration continued
The table below sets out the 2020 BIP outcome for S.C Harris and D. Yates.
Number
of shares
granted
End of
performance
period
% award
vesting
Number
of shares
vesting
Dividend
equivalents
Total
estimated
value of
awards on
vesting
Proportion
of award
attributable
to share price
appreciation
since grant
1
Vesting
date
End of
holding
period
S.C. Harris 183,611
31 Dec
2022 1.4% 2,623 £1,550 £15,950 £446
20 Mar
2023
21 Mar
2025
D. Yates 132,483
31 Dec
2022 1.4% 1,892 £1,118 £11,5 05 £322
20 Mar
2023
21 Mar
2025
2
1 Market price at date of award of £5.32 as a three-day average share price following the announcement of results for 2019 (12, 13 and 16 March 2020). An estimated market price at vesting
was used of £5.49 calculated as the three months’ average from 1 October to 31 December 2022.
2 D Yates will step down as Chief Financial Officer on 30 April 2023, post-employment shareholding requirements apply.
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
28 March 2022 and will vest after three years in March 2025. The performance period will end on 31 December 2024. 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.
ROCE
1
Headline EPS
Performance target
Vesting of element
(% of max)
Performance
target
Vesting of element
(% of max)
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 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. 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 28 March 2022 153,197 £6.959 £1,066,098
D. Yates 28 March 2022 105,683 £6.959 £735,448
1 The three-day volume weighted average share price following the announcement of results for 2021 (14, 15 and 16 March 2022).
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.
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Bodycote plc annual report 2022
Chair and Non-Executive Directors’ fees
Chair of the Board and other Non-Executive Directors fees were as follows:
Roles
Fee for
2021
Fee for
2022
6
% increase in
NED role fees
D. Dayan
1
– Non-Executive Chair
– Chair of Nomination Committee
– £275,000 n/a
P. L ar mon – Non-Executive Director
– Chair of Employee Engagement Groups
– Member of Audit, Remuneration and Nomination Committees
£70,534 £72,650 3.0%
E. Lindqvist
5
– Non-Executive Director
– Chair of Remuneration Committee
– Member of Audit and Nomination Committees
£70,534 £75,359 6.8%
I.B. Duncan
3
– Non-Executive Director
– Member of Audit, Remuneration and Nomination Committees
– Senior Independent Director
£80,525 £76,983 (4.4%)
L. Chahbazi – Non-Executive Director
– Member of Audit, Remuneration and Nomination Committees
£60,543 £62,359 3.0%
K. Boyd
4,5
– Non-Executive Director
– Chair of Audit Committee
– Member of Audit, Remuneration and Nomination Committees
£60,543 £71,025 17. 3%
C. Gordon
2
– Non-Executive Director
– Member of Audit, Remuneration and Nomination Committees
– £62,359 n/a
1 D. Dayan was appointed as Chair to the Board on 1 January 2022.
2 C. Gordon was appointed to the Board on 1 June 2022 and earned fees of £36,376 for the 7-month period in 2022. The amount shown in this table represents the full annual fee.
3 The 2022 total for I.B. Duncan includes an additional fee for his role as Audit Committee Chair from 1 January 2022 to 30 April 2022 and his SID fee for the full year.
4 The 2022 total for K. Boyd includes an additional fee for his role as Audit Committee Chair from 1 May 2022 to 31 December 2022.
5 Both the Audit Committee Chair and the Remuneration Committee Chair fees were increased from £9,991 in 2021 to £13,000 in 2022 to reflect the additional workload.
6 Taxable benefits are stated in the single figure table above.
Non-Executive Director fees were increased for 2022 based on market benchmarking against Non-Executive Director fees in the FTSE 250
and other companies of similar size and complexity.
At 31 December 2022 the aggregate annual fees for all Non-Executive Directors, including the Chair, was £695,735, 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, excluding the Chair, comprise the following elements:
Fees for 2022
Base fee £62,359
Remuneration Committee Chair/Audit Committee Chair £13,000
Senior Independent Director £10,291
Chair of Employee Engagement Groups £10,291
Board changes in 2022
Dominique Yates, Chief Financial Officer, advised the Board in February 2022 of his intention to retire from the Company and the Board.
He will step down and leave the Company on 30 April 2023. The treatment of Dominique Yates’ remuneration arrangements is set out in
the table below. This has been agreed by the Committee, taking into account his contribution to the Group over the last seven years and his
commitment to ensure a successful transition of the Chief Financial Officer role. There were no payments for loss of office in 2022.
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Bodycote plc annual report 2022
Board report on remuneration continued
Element Agreed treatment
Base salary, benefits and pension Will continue to receive his salary, benefits and pension until he steps down as Chief Financial Officer.
Annual bonus Will be eligible to receive a bonus equal to 150% of salary for the year ended 31 December 2023
pro-rated for time served as Chief Financial Officer during the year. Any bonus earned will be paid at
the usual time in 2024, following the assessment of the Group’s performance for the full 2023 year.
Deferred bonus awards Unvested deferred bonus awards will vest in full following him stepping down as Chief Financial Officer.
BIP awards
Unvested BIP awards will:
– continue to vest in accordance with their normal vesting timetable, subject to the achievement
of the relevant performance metrics;
– be pro-rated for time served as Chief Financial Officer during the relevant vesting periods; and
– will be granted a BIP award in 2023 equal to 175% of salary pro-rated for time served as Chief Financial
Officer during the vesting period.
Any shares that vest will be subject to a two-year post-vesting holding period.
Dominique Yates will be required to comply with the post-employment shareholding guidelines.
Payments to past Directors
No payments to past Directors were made during the year.
Directors’ shareholdings and scheme interests
The Board operates a shareholding retention policy under which Executive Directors and other senior executives are expected, within five
years of appointment, to build up a shareholding in the Company. For the purposes of this requirement, only beneficially owned shares and the
net of tax value of 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 of 31 December 2022, 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 2022
3
Executive Directors
S.C. Harris (200% of salary min holding requirement) 445,443 96,077 46 7, 915 Yes
D. Yates (200% of salary min holding requirement) 329,697 5 0,19 6 328,610 Yes
Non-Executive Directors
D. Dayan 45,500 – – n/a
P. L ar mon 5,000 – – n/a
E. Lindqvist 12,200 – – n/a
I.B. Duncan – – – n/a
L. Chahbazi – – – n/a
K. Boyd 6,000 – – n/a
C. Gordon – – – n/a
1 Figures relate to deferred shares granted in 2020 and 2022.
2 Figures relate to unvested awards granted under the BIP in 2020, 2021 and 2022. The BIP awards granted on 23 March 2020 vested at 1.4% of the maximum opportunity in March 2023.
3 Closing share price on 31 December 2022 was £5.69.
As at 17 March 2023, 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 2022 are as follows.
Interests as at
1 January 2022
Granted in
year
Vested
in year
Lapsed
in year
Interests as at
31 December
2022
1
BIP S.C. Harris 429,950 153,197 – 115, 23 2 467, 915
D. Yates 306,071 105,683 – 83,144 328,610
Deferred bonus
shares
2
S.C. Harris 66,608 59,048 29,579 – 96,077
D. Yates 35,431 30,468 15,703 – 50,19 6
1 The BIP awards granted on 23 March 2020 vested at 1.4% of the maximum opportunity in March 2023.
2 The face value of granted deferred bonus shares is £410,915 for S.C. Harris and £212,027 for D. Yates. Market price at grant date is three day volume weighted average share price following
the announcement of results for 2021 (14, 15 and 16 March 2022). Shares granted under deferred bonus plan are conditional only on continued employment.
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Bodycote plc annual report 2022
End of auditable section
Comparison of overall performance and pay
The chart below shows the value over the last 10 financial years of £100 invested in Bodycote plc compared with that of £100 invested in the
FTSE All Share Industrial index. The Committee has chosen this index as it is a broad market index of which Bodycote plc is a constituent and
reflects the wider sector in which the Group operates. The points plotted represent the values at each financial year end.
Historical TSR performance
Growth in the value of a hypothetical £100 holding over 10 years
Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18
Dec 19 Dec 20 Dec 21
Bodycote TSR
FTSE All Share
Industrial Index
Dec 22
£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 10 years.
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Single figure of remuneration (£000) 3,089 1,803 771 875 2,280 2,728 1,862 783 1,969 1,607
Annual bonus (% of max) 46% 73% 20% 19% 98% 68% 50% 0% 96% 61%
Long-term incentive (% of max) 99% 44% 0% 0% 48% 89% 84% 0% 0% 1%
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 2021 to 2022
Salary/
fees Benefits
5
Annual
bonus
6
Salary/
fees Benefits
5
Annual
bonus
6
Salary/
fees Benefits
5
Annual
bonus
Executive Director
S.C. Harris 7. 0% 2.8% (100%) 2% 0.1% 100% 4.0% 1.6% (35%)
D. Yates 2.3% 0.8% (100%) 2% (0.5%)
7
100% 1.2% 0.0%
7
(38%)
Non-Executive
Directors
D. Dayan
1
– – – – – – n/a n/a –
P. L ar mon 3.0% (83.2%) – 2% 1,934.9% – 3.0% (100%) –
E. Lindqvist 3.0% (93.3%) – 2% 3,984.5% – 6.8% (100%) –
I.B. Duncan 3.0% (61.5%) – 2% 23.4% – (4.4%) (100%) –
L. Chahbazi 3.0% (70.6%) – 2% 19.0% – 3.0% (100%) –
K. Boyd
2
n/a n/a – 2% (8.3%) – 17.3% (100%) –
C. Gordon
3
– – – – – – n/a n/a –
Average employee
4
4.1% 2.4% (100%) 2.9% 10.0% 100% 5.7% 9.8% (9.2%)
1 D. Dayan was appointed as Chair to the Board on 1 January 2022.
2 K. Boyd was appointed to the Board on 1 September 2020.
3 C. Gordon was appointed to the Board on 1 June 2022.
4 The annual percentage change of the average remuneration of the listed parent entity employees (excluding Directors), calculated on a full-time equivalent basis.
5 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.
6 No bonuses were paid to Executive Directors or the Company’s employees in respect of 2020.
7 Benefits received in Swiss francs, negative or minimal change in the benefits due to the fluctuation of pound against the Swiss franc.
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Board report on remuneration continued
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
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
2022 Option A 52:1 41:1 28:1
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.
2022 pay ratios have decreased from 2021 due to a decrease in the Group Chief Executive’s total remuneration. Considering the BIP
remuneration equated to 1% of the total 2022 remuneration, while no BIP was earned in 2021. The decline in 2022 is explained by the lower
bonus outcome achievement of 61% of maximum opportunity compared to 96% of maximum opportunity in 2021. No bonus or BIP were
earned 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. In 2022 the proportion of the Group
Chief Executive’s bonus and BIP was 48% of total remuneration. The median pay ratio trend shows a slight decrease from 2021 which is
mainly attributable to the decline in the Chief Executive’s bonus portion of total remuneration in 2022 compared to 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
(£)
25th percentile
2,3
(£)
Median
2,3
(£)
75th percentile
2,3
(£)
2022
Total pay and benefits 1,605,592
1
30,750 39,361 56,940
Salary component 633,567 29,601 37,152 51,200
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 5 97, 25 4 26,150 34,859 47,37 3
2019
Total pay and benefits 1,861,501
1
26,512 33,685 46,206
Salary component 55 8,181 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.
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Bodycote plc annual report 2022
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 2021 and 2022.
2022
(£m)
2021
(£m)
%
change
Staff and employee costs 276.5 252.5 9.5%
Distribution to shareholders 38.5 49.0 (21.4%)
Committee membership
During 2022 the Committee was chaired by E. Lindqvist. The Committee also comprised I.B. Duncan, P. Larmon, L. Chahbazi, K. Boyd and
C.Gordon.
The Committee’s full terms of reference are available on the Group’s website. No Committee members have any personal financial interest
(other than as a shareholder), conflict of interest, cross-directorships or day-to-day involvement in the running of the business.
Committee activities
During 2022 the Committee met 12 times to consider, amongst other matters:
Theme Agenda items
Best practice – Consideration of feedback from shareholders and proxy agencies following
the 2022 AGM
– Update on market practice and corporate governance
Executive Directors’ and senior
executives’remuneration
– Base salary increases
– Granting annual bonus and BIP awards, including the setting of targets
– Assessment of annual bonus and BIP outcomes
Reporting – Consideration and approval of the Directors’ Remuneration Report
How the Committee addressed the factors in Provision 40 of the UK Corporate Governance Code when
determining the Policy
Our Policy is designed to support an effective pay-for-performance culture which enables the Company to attract, retain and motivate
Executive Directors who have the necessary experience and expertise to execute our strategy and deliver value to shareholders. Below is
an explanation of how the Committee has addressed the principles prescribed in Provision 40 of the 2018 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 71 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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Board report on remuneration continued
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 its services to the Committee during the year, based on time and expenses, amounted to £90,900 excl VAT.
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
and to approve the Directors’ Remuneration Policy at the 2022 AGM.
Annual Report on
Remuneration
(% votes)
Directors’
Remuneration
Policy
(% votes)
Votes cast 89% 89%
For 98% 77%
Against 2% 23%
Number of abstentions 11,6 6 3, 38 5 11,8 02,612
E. Lindqvist
Chair of the Remuneration Committee
17 March 2023
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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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Independent auditors’ report to the members
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 2022 and of the Group’s profit and the Group’s cash flows for the year then ended;
– the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards as applied in
accordance with the provisions of the Companies Act 2006;
– the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”, and applicable law); and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the Group consolidated balance sheet and
the Company balance sheet as at 31 December 2022; 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 consolidated financial statements, we have provided no non-audit services to the Company
or its controlled undertakings in the period under audit.
Our audit approach
Context
Bodycote plc is a global business operating in the thermal processing sector. The business operates in a number of countries around the
world and provides services primarily to the automotive, general industrial, aerospace, defence and energy markets. During 2022, the Group
continued its recovery from the COVID-19 pandemic, resulting in an increased level of profitability for the financial year.
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: £6,000,000 (2021: £5,700,000) 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 current
year profit before tax would have resulted in a lower level of materiality in 2022 than in 2021 despite the fact that the Group’s profit before tax
has increased year-on-year.
– Overall Company materiality: £4,700,000 (2021: £5,100,000) based on approximately 1% of total assets.
– Performance materiality: £4,500,000 (2021: £4,275,000) (Group) and £3,525,000 (2021: £3,825,000) (Company).
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The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
The key audit matters below are consistent with last year.
Key audit matter How our audit addressed the key audit matter
Impairment assessment of goodwill (Group)
The group has goodwill of £227.8 million as at 31 December 2022
(2021: £213.9 million). Refer to note 9 of the consolidated financial
statements and the Audit Committee’s views set out on page 65.
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. Notwithstanding the apparent decline in the impact
of the COVID-19 pandemic, there remains ongoing uncertainty
around the timing of recovery for many key sectors in which the
Group operates, in particular due to the uncertainty associated with
the impact on global supply chains, energy availability and prices,
and broader cost inflation from the Russian invasion of Ukraine.
Therefore, given the resulting effect of this area on the overall audit
strategy, the allocation of resources in the audit and directing the
efforts of the engagement team, we considered the impairment
assessment of goodwill to be a key audit matter.
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 2023 forecast to
the Board approved budget, 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 2027
and the expected recovery in the Group’s revenues and operating
margin performance.
We agreed the underlying carrying values of the CGUs to audited
financial information.
We challenged management’s key assumptions for revenue, profit
and cash flow 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 and the
impact of the Russian invasion of Ukraine on global supply chains.
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 this rate,
and considered whether the rate used by management was within
a supportable range. We used this independently calculated discount
rate and our estimate of the long-term growth rate, alongside our
view of certain other assumptions, to calculate our view of the
recoverable amount.
We also considered management’s application of a mid-term growth
rate to years six to ten in its impairment assessment, and performed
sensitivity analysis by removing this assumption and applying a
long-term growth rate to determine the terminal value from the fifth
year of management’s cash flow forecasts. This did not result in a
different conclusion to that of management.
We obtained management’s sensitivity analyses, which showed the
impact of its view of reasonably possible changes to key assumptions
and performed our own sensitivity analyses. Our sensitivity
analysis sought to cover the potential risks associated with climate
change, inflationary pressures and geopolitical risks. Whilst we
did not identify specific sensitivities for each item, we modelled
what we considered to be suitably severe overall assumptions
impacting margins and growth that took these factors into account.
We considered the appropriateness of the disclosures in note 9 to
the consolidated financial statements.
Based on the procedures performed, we noted no material issues
from our work.
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Key audit matter How our audit addressed the key audit matter
Uncertain tax positions (Group)
The Group has operations in a number of geographical locations
and as such is subject to multiple tax jurisdictions, giving rise to
complexity in accounting for the Group’s taxation. Refer to notes
6 and 19 of the consolidated financial statements, and the Audit
Committee’s views set out on page 65.
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 £28.1 million
(2021: £24.0 million), which are treated as a significant audit risk
and for this reason, and given the resulting effect on the overall
audit strategy, the allocation of resources in the audit and directing
the efforts of the engagement team, we considered uncertain tax
positions to be a key audit matter.
Our audit work, which involved taxation audit specialists at the Group
level, included the assessment of the Group’s uncertain tax positions.
Our assessment included considering the current status of new
and historical tax assessments and investigations to monitor
developments in ongoing disputes, in addition to reviewing
correspondence with tax authorities. We considered external tax
advice received by the Group where relevant, to satisfy ourselves
that the tax provisions had been appropriately recorded or adjusted to
reflect the latest tax legislative developments. Where no advice was
available, we understood management’s rationale based on internal
analysis and other supporting information. We also considered
significant transactions to identify uncertain tax positions that may
arise from those transactions.
In assessing the adequacy of the tax provisions, we considered
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.
We considered the appropriateness of the related disclosures
in notes 6 and 19 to the consolidated financial statements.
Based on the procedures performed, we noted no material issues
from our work.
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 27 of the consolidated financial
statements and the Audit Committee’s views set out on page 65.
The Group’s net retirement benefit obligation is £10.9 million
(2021: £13.9 million). This net position also includes the UK
scheme, which had an accounting surplus of £3.0 million as at
31 December 2022, which was unrecognised, consistent with
prior years.
The assets of the Group’s schemes total £72.7 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 £80.6 million.
The Group relies on management’s experts to determine the
valuation of the obligations, which involves estimation and
judgement in selecting appropriate actuarial assumptions.
Whilst the UK surplus remains unrecognised, an immaterial
misstatement could lead to this surplus being eroded and result in
pension balances needing to be recognised on the consolidated
balance sheet. On this basis we identified the risk as elevated for
the audit. 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, which is our elevated audit risk,
the following procedures were performed.
We assessed the pension assumptions used to derive the scheme
obligations, including discount rates, inflation and mortality, using
our actuarial experts where necessary. We also considered and
challenged the appropriateness of the actuarial assumptions against
our internally developed benchmark ranges, finding them to be within
an acceptable range.
We performed testing to ensure that the obligations were consistent
with the most recent funding valuations and that the movement in
the obligations during the year was reasonable. For any assumptions
where updates had not been made as at 31 December 2022
compared with prior years, we performed independent analysis to
satisfy ourselves that any such updates would not materially change
the overall obligation.
Independent investment manager confirmations were obtained for all
material PIVs and bank letters obtained for all scheme bank accounts.
The total asset value was also 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/or 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 on
a sample basis 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 ensured
that there had been no changes since previous years when the
appropriateness of this judgement had been confirmed with our
internal actuarial and accounting experts.
Certain of the above procedures were also performed by
component teams in their related audit work on overseas schemes,
where relevant.
We also considered the appropriateness of the related disclosures
in note 27 of the consolidated financial statements.
Based on the procedures performed, we noted no material issues
from our work.
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Independent auditors’ report continued
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at components by us, as the
Group engagement team, or component auditors operating under our instruction.
We identified one component (2021: one) as financially significant in 2022 (as defined within ISAs (UK)). We obtained full scope audit reporting from
a further twelve components (2021: twelve), where we concluded that the component engagement leader is a Key Audit Partner, and an additional
seven (2021: nine) 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 75% of the Group’s revenue (2021: 80%) and 73% of consolidated absolute profit
before tax (2021: 78%).
Specified procedures over specific financial statement line items were performed at one further component (2021: one) and central testing was
performed on selected items, such as goodwill, uncertain tax positions and the consolidation, primarily to ensure appropriate audit coverage.
The components included within our audit scope were determined based on each individual components’ contribution to the Group’s key financial
statement line items (in particular revenue and profit before tax), and considerations relating to aggregation risk within the Group. Where work was
performed by component auditors, we determined the level of involvement we needed to have in the audit work at those components to be able
to conclude on whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as
a whole.
We issued formal written instructions to all component auditors setting out the audit work to be performed by each of them and maintained regular
communication with them throughout the audit cycle. The audit was conducted in a hybrid working environment, through remote working and virtual
meetings, as well as in-person meetings with all Key Audit Partners. The Group engagement team also reviewed selected audit working papers for
certain in-scope component teams, including those where the engagement leader was determined to be a Key Audit Partner.
In addition, given the extent of testing performed by our Czech Republic team at the Group’s Prague Shared Services Centre, which supports the
financial accounting for the majority of the Group’s European businesses, a working paper review was also conducted of this team’s work.
The impact of climate risk on our audit
In planning our work, including identifying areas of audit risk and determining an appropriate response, we were mindful of the increased focus
on the impact of climate change risk on companies and their financial reporting, and also that the Group has identified climate change as a
principal risk. Climate change risk is expected to have an impact on the Group’s business as the operations and strategy of the Group evolve
to address the potential physical and transition risks that could arise and the opportunities associated with climate change, including from its
customer base. Climate change initiatives and commitments impact the Group in a variety of ways, as described within the Annual Report.
We challenged the completeness of management’s climate risk assessment by considering the appropriateness of extending the cash flows
as modelled in the Group’s impairment assessment into perpetuity and assessing how management had considered the impact of the Group’s
sustainability initiatives on the cash flows included in this assessment.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on
the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate,
on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements – Group Financial statements – Company
Overall
materiality
£6,000,000 (2021: £5,700,000). £4,700,000 (2021: £5,100,000).
How we
determined it
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 current year profit before tax
would have resulted in a lower level of materiality in 2022 than
in 2021 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 increased
level of revenue and profit before tax. The materiality selected
is equivalent to approximately 6% of current year profit before
tax (2021: 7%).
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.
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For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was between £500,000 and £3,200,000.
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.
Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to £4,500,000 (2021: £4,275,000) for the Group financial
statements and £3,525,000 (2021: £3,825,000) 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 £300,000 (Group
audit) (2021: £285,000) and £235,000 (Company audit) (2021: £255,000) 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 2023 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 agreed the forecasts to the Group’s latest Board-approved
Financial Plan and analysed the forecasts projected by management and considered these in the context of wider market data; and
– We assessed the severe but plausible downside scenario adopted by management, including considering the relevant downside risks that
the Group may face over the next twelve months. This included, but was not limited to, the impact on the Group of energy price rises and
inflationary pressures, as well as the risk of declines in demand for the Group’s services.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the Company’s
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt
the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of
assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based
on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that
fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and the Directors’ report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as
described below.
Strategic report and the Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and the Directors’ report
for the year ended 31 December 2022 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 of remuneration to be audited has been properly prepared in accordance with the Companies Act 2006.
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Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate
governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our
review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting
on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to
add or draw attention to in relation to:
– The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
– The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
– The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
– The directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers and why the
period is appropriate; and
– The directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the Group and Company was substantially less in scope than an
audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is
in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the
financial statements and our knowledge and understanding of the Group and Company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
– The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy;
– The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
– The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s compliance
with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by
the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities in respect of the financial statements, the directors are responsible
for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and
fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to breaches of environmental regulations and health and safety regulations, and we considered the extent to which non-compliance
might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the
financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation
of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting
inappropriate journal entries and management bias in accounting estimates and judgements. The Group engagement team shared this risk
assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work.
Independent auditors’ report continued
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Audit procedures performed by the Group engagement team and/or component auditors included:
– Discussions with management, Internal Audit and the Group’s internal legal counsel, including consideration of potential instances of
non-compliance with laws and regulation and fraud;
– Assessment of matters reported through the Group’s whistleblowing helpline and the results of management’s investigation of such matters;
– 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 Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– we have not obtained all the information and explanations we require for our audit; or
– adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches
not visited by us; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– the Company financial statements and the part of the Board report of 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 four years, covering
the years ended 31 December 2019 to 31 December 2022.
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
17 March 2023
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Consolidated income statement
For the year ended 31 December 2022
Note
2022
£m
2021
1
£m
Revenue 1 74 3 .6 6 15 . 8
Cost of sales and overheads excluding exceptional items
1
2 (646 .2 ) (535.8 )
Other operating income excluding exceptional items
1
2 9. 2 3.8
Other operating expenses excluding exceptional items
1
2 (4 . 5 ) (1. 2 )
Net impairment (losses)/gains on financial assets (0 .1 ) 1. 2
Operating profit prior to exceptional items 1,2 10 2. 0 8 3. 8
Exceptional items 4 – –
Operating profit 2 10 2 .0 8 3. 8
Finance income 5 0. 4 0. 3
Finance charge 5 (7.1 ) (6.6 )
Profit before taxation 95 .3 7 7. 5
Taxation charge 6 (21.0 ) (1 7. 5 )
Profit for the year 74 . 3 6 0.0
Attributable to:
Equity holders of the Parent 73 .7 5 9.5
Non-controlling interests 0.6 0. 5
Earnings per share 8
Pence Pence
Basic 38 .6 31. 2
Diluted 38.5 31. 2
1 The consolidated income statement has been represented to present the gross balances for other operating income and other operating expenses as separate line items. These balances
were not material in the prior year and were presented within cost of sales and overheads excluding exceptional items.
All activities have arisen from continuing operations. Total cost of sales and overheads, other operating income and other operating expenses
including exceptional items are £6 41.5 m (2021: £53 3 .2 m).
Consolidated statement of comprehensive income
For the year ended 31 December 2022
Note
2022
£m
2021
£m
Profit for the year 74 . 3 6 0. 0
Items that will not be reclassified to profit or loss:
Actuarial gains on defined benefit pension schemes 27 5.8 1.7
Tax on items that will not be reclassified 19 (0. 2 ) 0 .1
Total items that will not be reclassified to profit or loss 5.6 1. 8
Items that may be reclassified subsequently to profit or loss:
Exchange gains/(losses) on translation of overseas operations 5 7. 2 (14 . 8 )
Movements on hedges of net investments 18 (3 .1 ) 0.5
Movements on cash flow hedges (0. 3 ) 0. 5
Total items that may be reclassified subsequently to profit or loss 5 3.8 (13. 8 )
Other comprehensive income/(expense) for the year 59. 4 (12 . 0 )
Total comprehensive income for the year 13 3.7 4 8. 0
Attributable to:
Equity holders of the parent 13 3. 3 4 8. 2
Non-controlling interests 0.4 (0.2 )
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Consolidated balance sheet
At 31 December 2022
Note
2022
£m
2021
£m
Non-current assets
Goodwill 9 2 2 7. 8 2 13. 9
Other intangible assets 10 11 6 . 9 10 8 .1
Property, plant and equipment 11 51 6. 3 4 8 9.3
Right-of-use assets 12 59.6 5 7. 6
Deferred tax assets 19 1. 5 2 .2
Trade and other receivables 14 1. 5 1. 6
Current assets
Inventories 13 2 7. 8 19 . 3
Current tax assets 24 .4 2 0.6
Trade and other receivables 14 154 .4 117. 0
Cash and bank balances 15 3 7. 2 3 9. 3
Derivative financial instruments 18 – 0. 5
Assets held for sale 16 0.3 0. 4
Total assets 1 ,1 6 7. 7 1, 0 6 9 . 8
Current liabilities
Trade and other payables 20 124 . 9 11 0 . 0
Current tax liabilities 4 2.8 3 4. 0
Borrowings 17 70.6 9 1.7
Lease liabilities 12 12 . 3 12 . 9
Derivative financial instruments 18 0.3 –
Provisions 21 10. 2 14 . 4
Net current liabilities (1 7. 0 ) (6 5.9 )
Non-current liabilities
Lease liabilities 12 5 3.7 51. 6
Retirement benefit obligations 27 10. 9 13 . 9
Deferred tax liabilities 19 51.0 4 7. 0
Provisions 21 7. 9 7. 4
Other payables 20 1 .1 1. 5
Total liabilities 3 8 5.7 38 4 .4
Net assets 78 2.0 685.4
Equity
Share capital 22 3 3 .1 3 3 .1
Share premium account 1 7 7.1 17 7.1
Own shares (5. 2 ) (6. 2 )
Other reserves
1
Translation reserves
1
Retained earnings 35 9.8 319 . 4
Equity attributable to equity holders of the parent 78 0.9 6 8 4 .7
Non-controlling interests 1 .1 0 .7
Total equity 7 82 .0 68 5.4
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Consolidated cash flow statement
For the year ended 31 December 2022
Note
2022
£m
2021
£m
Net cash from operating activities 24 14 2 . 9 14 4 . 3
Investing activities
Purchases of property, plant and equipment (5 7. 2 ) (4 5 .1 )
Proceeds on disposal of property, plant and equipment and intangible assets 4 .7 11 . 7
Purchases of other intangible assets (9.8 ) (6.9 )
Proceeds from disposal of investment in an associate – 1. 5
Acquisition of businesses, net of cash acquired 23 – (66 .0 )
Interest received 0.4 0. 3
Net cash used in investing activities (61.9 ) (10 4 . 5 )
Financing activities
Interest paid (6. 2 ) (5.5 )
Dividends paid 7 (38.5 ) (4 9.0 )
Principal elements of lease payments (13 . 8 ) (14. 4 )
Drawdown of bank loans 50 .7 15 5 . 5
Repayments of bank loans (75. 0 ) (1 16.9 )
Net cash used in financing activities (8 2. 8 ) (30. 3 )
Net (decrease)/increase in cash and cash equivalents (1. 8 ) 9 .5
Cash and cash equivalents at beginning of year 3 7. 9 2 9. 2
Effect of foreign exchange rate changes 0 .1 (0. 8 )
Cash and cash equivalents at end of year 24 36. 2 3 7. 9
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Consolidated statement of changes in equity
For the year ended 31 December 2022
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 2021 3 3 .1 1 7 7. 1 (6.9 ) 13 2. 6 3 7. 9 3 0 6 .7 6 80 .5 0 .9 6 8 1. 4
Profit for the year – – – – – 5 9.5 5 9. 5 0 .5 6 0 .0
Exchange differences on translation of
overseas operations – – – – (1 4 .1 ) – (14 .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 ) 6 1. 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 – – – – – (4 9.0 ) (49.0 ) – (4 9.0 )
31 December 2021 3 3 .1 1 7 7.1 (6 . 2 ) 1 3 7. 5 23.8 319. 4 6 8 4 .7 0.7 6 85 .4
Profit for the year – – – – – 7 3.7 73 .7 0.6 74 . 3
Exchange differences on translation of
overseas operations – – – – 5 7. 4 – 5 7. 4 (0. 2 ) 5 7. 2
Movements on hedges of net investments – – – (3 .1 ) – – (3 .1 ) – (3 .1 )
Movements on cash flow hedges – – – (0. 3 ) – – (0. 3 ) – (0. 3 )
Actuarial gains on defined benefit pension
schemes net of deferred tax – – – – – 5.6 5.6 – 5.6
Total comprehensive income for the year – – – (3. 4 ) 5 7. 4 7 9.3 13 3. 3 0.4 13 3.7
Acquired in the year/settlement of share
options – – 1.0 (0. 9 ) – (0 .1 ) – – –
Share-based payments – – – 1.7 – – 1.7 – 1.7
Deferred tax on share-based payment
transactions – – – – – (0. 3 ) (0. 3 ) – (0 .3 )
Dividends – – – – – (38.5 ) (38.5 ) – (38 .5 )
31 December 2022 3 3 .1 17 7.1 (5. 2 ) 13 4. 9 8 1. 2 3 59.8 7 80. 9 1.1 7 82 .0
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Notes to the consolidated financial statements
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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27. Retirement benefit schemes continued
Assumptions for 2022 (UK Scheme)
2022
% per annum
2021
% per annum
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Notes to the consolidated financial statements continued
Year ended 31 December 2022
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Company balance sheet
At 31 December 2022
Note
2022
£m
2021
£m
Non-current assets
Intangible assets 3 27.1 18.8
Property, plant and equipment 4 0.2 0.2
Right-of-use assets 5 0.1 0.2
Investments in subsidiaries 6 388.9 389.0
Trade and other receivables 7 49.9 101.3
466.2 509.5
Current assets
Trade and other receivables 7 6.8 4.0
Cash and bank balances – 0.1
6.8 4.1
Total assets 473.0 513.6
Current liabilities
Trade and other payables 8 7.3 13.2
Lease liabilities 5 0.1 0.2
7.4 13.4
Net current liabilities (0.6) (9.3)
Non-current liabilities
Trade and other payables 8 4.8 14.0
Deferred tax liabilities 9 1.3 –
Lease liabilities 5 – 0.1
6.1 14.1
Total liabilities 13.5 27.5
Net assets 459.5 486.1
Equity
Share capital 10 33.1 33.1
Share premium account 177.1 17 7.1
Own shares (5.2) (6.3)
Other reserves 136.6 136.3
Profit/(loss) for year 10.6 (3.0)
Retained earnings 107.3 148.9
Total equity 459.5 48 6 .1
The financial statements of Bodycote plc, registered number 519057, were approved by the Board of Directors and authorised for issue on
17 March 2023.
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 2022
Share
capital
£m
Share
premium
account
£m
Own
shares
£m
Other
reserves
£m
Retained
earnings
£m
Total
£m
1 January 2021 33.1 177.1 ( 7.0 ) 132.4 197. 5 5 33 .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 3 3.1 177.1 (6.3) 136.3 145.9 4 86.1
Profit for the year – – – – 10.6 10.6
Exchange differences on translation of overseas
operations – – – (0.4) – (0.4)
Actuarial gain on defined benefit pension
schemes net of deferred tax – – – – 0.1 0.1
Total comprehensive income for the year – – – (0.4) 10.7 10.3
Dividends paid – – – – (38.5) (38.5)
Share-based payments – – – 1.7 – 1.7
Settlement of share options – – 1.1 (1.0) (0.2) (0.1)
31 December 2022 33.1 177.1 (5.2) 136.6 117.9 459.5
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 25 of the consolidated financial statements.
Own shares are held in the Bodycote International Employee Benefit Trust. The Bodycote International Employee Benefit Trust holds
Bodycote plc shares and satisfies awards made under various employee incentive schemes when issuance of new shares is not appropriate.
At 31 December 2022, 639,125 (2021: 775,962) 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 £3.6m (2021: £6.7m).
Included in other reserves is £6.6m (2021: £5.9m) relating to a share option reserve and a capital redemption reserve of £129.8m
(2021: £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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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 statement on pages 96 to 97.
Investments
Investments are held at cost less provision for impairment. Any potential impairment is determined whereby the carrying value of the
investment is not supported by the net assets of the investment, or discounted future cash flows in the form of expected dividend income.
Foreign currencies
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each
balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the
balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Gains and
losses arising on retranslation are included in net profit or loss for the year.
Pension costs
The Company participates in a final salary defined benefit pension scheme in the United Kingdom which is funded by the payment
of contributions to a separately administered trust fund. This is a defined benefit plan which shares the risks between entities under
common control.
There is no contractual arrangement or policy for charging the net benefit cost between the entities who participate in this scheme.
The Company is considered to be the entity that is legally the sponsoring employer of this scheme. As such, the Company recognises the net
defined benefit cost as per the requirements of IAS 19 Employee Benefits, as described in further detail in the accounting policies applied in
the Group consolidated financial statements.
For defined contribution schemes, the amount charged to the profit and loss account in respect of pension costs is the contributions payable
in the year.
Right-of-use assets
To the extent that a right-of-control exists over an asset subject to a lease, with a lease term exceeding one year, a right-of-use asset,
representing the Company’s right to use the underlying leased asset, and a lease liability, representing the Company’s obligation to make
lease payments, are recognised in the Company’s balance sheet at the commencement of the lease.
The right-of-use asset is initially measured at cost and includes the amount of initial measurement of the lease liability and any direct costs
incurred, including advance lease payments and an estimate of the dismantling, removal and restoration costs required by the terms and
conditions of the lease.
Depreciation is charged to the income statement to depreciate the right-of-use asset from the commencement date until the earlier of the end
of the useful life of the right-of-use asset or the end of the lease term. The lease term includes the period of any extension option where it is
reasonably certain that the option will be exercised. Where the lease contains a purchase option the asset is written off over the useful life of
the asset when it is reasonably certain that the purchase option will be exercised.
The lease liability is measured at the present value of the future lease payments, including any variable lease payments where applicable that
depend on an index and the exercise price of purchased options where it is reasonably certain that the option will be exercised, discounted
using the interest rate implicit in the lease, if readily determinable. If the rate cannot be readily determined, the Company’s incremental
borrowing rate is used. Finance charges are recognised in the income statement over the period of the lease.
Lease arrangements that are short term in nature or low value are charged directly to the income statement when incurred.
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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
At each balance sheet date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists or an asset is not in use and therefore requires an
annual test, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
Recoverable amount is the higher of fair value less costs to dispose and value-in-use. If the recoverable amount of an asset is estimated to be
less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an
expense immediately in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment
loss been recognised for the asset in prior years.
A reversal of an impairment loss is recognised as income immediately.
Receivables
Receivables are initially recognised at fair value. Trade receivables, loans and other receivables that have fixed or determinable payments that
are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the
effective interest method, less any impairment.
Per IFRS 9, a simplified 12-month Expected Credit Loss (ECL) model is used to assess receivables for impairment.
Amounts owed by subsidiary undertakings falling due after more than one year are classified as such according to the loan agreement in place
until 27 May 2027, in line with the maturity date of the Group’s Revolving Credit Facility. The interest rate for such facility was at SONIA plus
1.95% margin in 2022.
Payables
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Non-interest-bearing financial liabilities are stated at their nominal value. Trade payables are recognised at fair value.
The Company derecognises financial liabilities when, and only when, the Company obligations are discharged, cancelled or they expire.
Amounts owed to subsidiary undertakings falling due after more than one year are classified as such according to the loan agreement in place
until 27 May 2027, in line with the maturity date of the Group’s Revolving Credit Facility. The interest rate for such facility was at SONIA plus
1.2% margin in 2022.
Taxation
Current UK corporation tax and foreign tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have
been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the
balance sheet date. Temporary differences are differences between the Company’s taxable profits and its results as stated in the financial
statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised
in the financial statements.
A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be
regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying temporary
differences can be deducted.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the temporary differences are expected
to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
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Share-based payments
The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured
at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed
on a straight-line basis over the vesting period. At each balance sheet date, the Company revises its estimate of the number of equity
instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original
estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimates with a corresponding
adjustment to the equity-settled employee benefits reserve.
The Company recognises and maintains the share-based payment reserve for all eligible Group employees. Appropriate provisions for
non-Company employees vesting share awards are passed on to other Group companies in the form of a non-interest-bearing loan payable
to the Company. When share awards are exercised by non-Company employees the Company charges other Group companies for the
weighted average cost to purchase the shares exercised. The Company reduces the loan receivable from the other Group company for
the shares exercised, recognising the difference between grant and exercise price within retained earnings settlement of share 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, accounting for retirement benefit schemes under IAS 19 requires
an assessment of the future benefits payable in accordance with actuarial assumptions. The discount rate and the mortality rates applied
in the calculation of scheme liabilities are a key source of estimation uncertainty for the Company. Details of the accounting policies applied
in respect of retirement benefit schemes are set out in note 27 of the Group consolidated financial statements. Refer to note 12 for judgements
identified in relation to the non-recognition of the pension surplus.
Company accounting policies continued
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Notes to the company financial statements
Year ended 31 December 2022
1. Profit for the year
Bodycote plc has made use of the exemption from presenting a profit and loss account, in accordance with Section 408 of the Companies Act 2006.
Bodycote plc reported a profit for the financial year ended 31 December 2022 of £10.6m (2021: loss of £3.0m).
The auditor’s remuneration for audit and other services is disclosed in note 2 of the Group’s consolidated financial statements.
2. Employees
2022
Number
2021
Number
Average monthly number of employees 48 51
£m £m
Their aggregate remuneration comprised:
Wages and salaries 6.3 8.3
Social security costs 1.0 1.2
Pension costs 0.5 0.4
7.8 9.9
Included in wages and salaries are share-based payments (excluding social charges) resulting in a charge of £0.4m (2021: £1.1m).
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 68 to 82.
3. Intangible assets
Software
£m
Cost
At 1 January 2022 37.7
Additions 10.4
Disposals (2.6)
At 31 December 2022 45.5
Amortisation
At 1 January 2022 18.9
Charge for the year 1.6
Disposals (2.1)
At 31 December 2022 18.4
Net book value
At 31 December 2022 27.1
At 31 December 2021 18.8
Included in software assets are ongoing development costs related to the Group’s ERP solutions. £22.9m (2021: £12.6m) 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.
Additions include £4.3m (2021 £nil) charged from other Group companies for the ongoing ERP development.
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Notes to the company financial statements continued
For the year ended 31 December 2022
4. Property, plant and equipment
Fixtures
and fittings
£m
Cost
At 1 January 2022 1.0
Additions 0.3
Disposals (0.3)
At 31 December 2022 1.0
Depreciation
At 1 January 2022 0.8
At 31 December 2022 0.8
Net book value
At 31 December 2022 0.2
At 31 December 2021 0.2
5. Right-of-use assets
Buildings
and vehicles
£m
Cost
At 1 January 2022 and 31 December 2022 2.3
Depreciation
At 1 January 2022 2.1
Charge for the year 0.1
At 31 December 2022 2.2
Net book value
At 31 December 2022 0.1
At 31 December 2021 0.2
2022
£m
2021
£m
Lease liabilities
Maturity analysis – contractual undiscounted cash flows
Less than one year 0.1 0.2
One to five years – 0.1
Total undiscounted cash flows 0.1 0.3
Current 0.1 0.2
Non-current – 0.1
Total lease liabilities 0.1 0.3
6. Investments in subsidiaries
£m
Cost
At 1 January 2022 397.6
Disposals (2.1)
At 31 December 2022 395.5
Provision for impairment
At 1 January 2022 8.6
Disposals (2.0)
At 31 December 2022 6.6
Net book value
At 31 December 2022 388.9
At 31 December 2021 389.0
Disposals in the year are of Bodycote Canada Property Inc. which was dissolved in December 2022.
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6. Investments in subsidiaries continued
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 2022.
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 149.
7. Trade and other receivables
2022
£m
2021
£m
Amounts falling due within one year:
Amounts owed by subsidiary undertakings 2.1 0.9
Corporation tax 2.8 2.7
Other receivables and prepayments 1.9 0.4
6.8 4.0
Amounts falling due after more than one year:
Amounts owed by subsidiary undertakings
1
49.2 100.3
Other receivables 0.7 1.0
49.9 101.3
56.7 105.3
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 27 May 2027, in line with the maturity date of the Group’s Revolving Credit Facility.
8. Trade and other payables
2022
£m
2021
£m
Amounts falling due within one year:
Trade payables 0.4 0.1
Amounts owed to subsidiary undertakings 0.2 4.3
Other taxes and social security 0.2 0.6
Other payables 2.3 3.9
Accruals 4.2 4.3
7.3 13.2
Amounts falling due after more than one year:
Amounts owed to subsidiary undertakings
1
4.8 14.0
4.8 14.0
1 Intercompany loan from Bodycote Finance Limited, repayable on 27 May 2027, in line with the maturity date of the Group’s Revolving Credit Facility.
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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
£m
Retirement
benefit
obligations
£m
Other timing
differences
£m
Total
£m
At 1 January 2021 1.3 – 0.4 1.7
(Charge)/credit to profit or loss (1.8) ( 0.1) 0.1 (1.8)
Credit to other comprehensive income – 0.1 – 0.1
At 1 January 2022 (0.5) – 0.5 –
Charge to profit or loss (1.0) – (0.3) (1.3)
At 31 December 2022 (1.5) – 0.2 (1.3)
Deferred tax assets and liabilities are offset where the Company has a legally enforceable right to do so. The following is the analysis of the
deferred tax balances (after offset) for financial reporting purposes:
2022
£m
2021
£m
Net deferred tax liability (1.3) –
10. Share capital
Share capital:
Ordinary shares (allotted, called-up and fully paid)
Number of
shares £m
At 1 January 2022 191,456,172 33.1
At 31 December 2022 191,456,172 3 3.1
Details of share options in issue on the Company’s share capital and share-based payments are set out in note 25 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 £74.4m
(2021: £94.1m). The likelihood of these guarantees being called is considered to be unlikely, therefore the estimated financial effect on the
Company is £nil (2021: £nil).
12. Pension commitments
The Company participates in a final salary defined benefit scheme in the UK, the details of which are disclosed in note 27 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
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 surplus not recognised at 31 December 2022 was £3.1m (2021: £14.0m).
Full disclosures concerning the scheme as required by IAS 19 are set out in note 27 of the consolidated financial statements and full disclosure
concerning IFRIC 14 is set out in note 27 of the consolidated financial statements.
The contributions made by the Company over the financial year to the defined contribution scheme amounted to £0.5m (2020: £0.4m).
As at 31 December 2022, contributions of £nil (2021: £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 retirement benefit schemes set out in note 27 of the consolidated financial statements and the Directors set
out in the Board report on remuneration on pages 68 to 82 and note 26 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.
Notes to the company financial statements continued
For the year ended 31 December 2022
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Bodycote plc annual report 2022
2022
£m
2021
£m
2020
£m
2019
£m
2018
1
£m
Revenue 743.6 615.8 598.0 719.7 728.6
Profit:
Headline operating profit 112.2 94.8 75.3 134.9 140.7
Amortisation of acquired intangible assets (9.3) (10.3) (9.8) (4.6) (3.7)
Acquisition costs (0.9) (0.7) (2.1) (1.7) (0.5)
Operating profit prior to exceptional items 102.0 83.8 63.4 128.6 136.5
Exceptional items – – (58.4) – –
Operating profit 102.0 83.8 5.0 128.6 136.5
Net finance charge (6.7) (6.3) (6.5) (4.7) (4.3)
Profit/(loss) before taxation 95.3 77.5 (1.5) 123.9 132.2
Taxation (21.0) (17.5) 2.3 (29.9) (28.6)
Profit after taxation 74.3 60.0 0.8 94.0 103.6
Non-controlling interests (0.6) (0.5) (0.4) (0.2) (0.4)
Profit attributable to the equity holders of the parent 73.7 59.5 0.4 93.8 103.2
Headline earnings per share (pence) 42.7 35.8 27.8 52.1 55.9
Dividend per share (pence) 21.3 20.0 19.4 19.3 19.0
Special dividend per share (pence) – – – – 20.0
Assets employed
Intangible assets 344.7 322.0 323.5 212.4 206.9
Property, plant and equipment 516.3 489.3 522.6 534.5 546.6
Other assets and liabilities 20.4 (9.5) (66.6) 17.4 9.9
881.4 801.8 779.5 764.3 763.4
Financed by
Share capital 33.1 33.1 3 3.1 33.1 33.1
Reserves 747.8 651.6 6 47.4 671.9 685.5
Shareholders’ funds 780.9 684.7 680.5 705.0 718.6
Non-controlling interests 1.1 0.7 0.9 0.8 0.7
Lease liabilities 66.0 64.5 75.6 79.4 80.3
Net debt/(cash) 33.4 51.9 22.5 (20.9) (36.2)
Capital employed 881.4 801.8 779.5 764.3 763.4
Net assets per share (pence) 407.9 357.6 355.4 368.2 375.3
Return on capital employed (%):
Headline operating profit divided by the average of opening
and closing capital employed 13.3 12.0 9.8 17.7 18.9
1 Restated following adoption of IFRS 16 Leases on 1 January 2018.
Five- year summary (unaudited)
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Bodycote plc annual report 2022
Bodycote uses various APMs, in addition to those reported under International Financial Reporting Standards (IFRS), as management consider
these measures enable users of the financial statements to assess the headline trading performance of the business. These APMs of financial
performance, position or cash flows are not defined or specified according to IFRS and are defined below and, where relevant, are reconciled
to IFRS measures. APMs are prepared on a consistent basis for all periods presented in this report.
The APMs used include headline operating profit, headline operating margin, headline profit before taxation, EBITDA, headline EBITDA,
organic revenue, 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
2022
£m
2021
£m
Operating profit 102.0 83.8
Add back:
Amortisation of acquired intangibles 9.3 10.3
Acquisition costs 0.9 0.7
Exceptional items – –
Headline operating profit 112.2 94.8
Headline operating margin
2022
£m
2021
£m
Headline operating profit 112.2 94.8
Revenue 743.6 615.8
Headline operating margin 15.1% 15.4%
Headline profit before taxation
2022
£m
2021
£m
Profit before taxation 95.3 77.5
Add back:
Amortisation of acquired intangibles 9.3 10.3
Acquisition costs 0.9 0.7
Exceptional items – –
Headline profit before taxation 105.5 88.5
Alternative performance measures (APMs) – unaudited
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Bodycote plc annual report 2022
EBITDA and headline EBITDA (earnings before interest, taxation, depreciation and amortisation)
2022
£m
2021
£m
Operating profit 102.0 83.8
Depreciation and amortisation 84.3 83.7
Depreciation on mothballed sites due to restructuring recognised in exceptional items – 0.6
Impairment (reversal)/charge of property, plant and equipment and other assets - recognised in exceptional items (0.1) 5.5
Impairment of property, plant and equipment and other assets – recognised in operating profit 4.8 –
Profit on disposal of property, plant and equipment – recognised in operating profit (1.7) –
Profit on disposal of right-of-use assets – recognised in operating profit (0.1) –
Loss/(profit) on disposal of property, plant and equipment – recognised in exceptional items 0.1 (4.8)
Share-based payments 1.7 4.7
Income from associate prior to disposal – (0.1)
Loss on disposal of associate – 0.4
EBITDA 191.0 173.8
Acquisition costs 0.9 0.7
Exceptional items, excluding impairments (0.1) (1.3)
Share-based payments (1.7) (4.7)
Headline EBITDA 190.1 168.5
Headline EBITDA margin 25.6% 27.4%
Organic revenue
Excludes revenues from acquisitions in the current and comparative period to provide a like-for-like comparison, reconciled in the table below:
2022
£m
2021
£m
Total revenue 743.6 615.8
Less adjustments for revenue from acquisitions completed in the current or prior year (8.6) (32.8)
Total organic revenue 735.0 583.0
Headline operating cash flow
2022
£m
2021
£m
Headline EBITDA 190.1 168.5
Less:
Net maintenance capital expenditure (52.2) (4 3.1)
Net working capital movement (25.3) (3.4)
Headline operating cash flow 112.6 122.0
Free cash flow
2022
£m
2021
£m
Headline operating cash flow 112.6 122.0
Less:
Restructuring cash flows (7.4) (2.3)
Income taxes paid (15.4) (9.5)
Interest paid (5.8) (5.2)
Free cash flow 84.0 105.0
Headline operating cash conversion
2022
£m
2021
£m
Headline operating cash flow 112.6 122.0
Headline operating profit 112.2 94.8
Headline operating cash conversion 100.4% 128.7%
Free cash flow conversion
2022
£m
2021
£m
Free cash flow 84.0 105.0
Headline operating profit 112.2 94.8
Free cash flow conversion 74.9% 110. 8%
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Bodycote plc annual report 2022
Headline tax charge
2022
£m
2021
£m
Tax charge/(credit) 21.0 17.5
Tax on amortisation of acquired intangibles 2.3 2.5
Tax on exceptional items and acquisition costs 0.2 (0.3)
Headline tax charge 23.5 19.7
Headline tax rate
2022
£m
2021
£m
Headline tax charge 23.5 19.7
Headline profit before taxation 105.5 88.5
Headline tax rate 22.3% 22.3%
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
2022
£m
2021
£m
Cash and bank balances 37.2 39.3
Bank overdrafts (included in borrowings) (1.0) (1.4)
Derivative financial instruments – 0.5
Bank loans (included in borrowings) (69.6) (90.3)
Net debt (33.4) (51.9)
Lease liabilities (66.0) (64.5)
Net debt plus lease liabilities (99.4) (116 .4)
Return on capital employed (%)
Year to 31 December 2022
ADE
£m
AGI
£m
Central
cost and
eliminations
£m
Consolidated
£m
Headline operating profit 50.8 80.8 (19.4) 112.2
Average capital employed
1
426.4 442.8 (27.6) 841.6
Return on capital employed (%) 11.9% 18.2% n/a 13.3%
Year to 31 December 2021
ADE
£m
AGI
£m
Central
cost and
eliminations
£m
Consolidated
£m
Headline operating profit 44.2 69.5 (18.9) 94.8
Average capital employed
1
407.0 436.6 (53.6) 789.9
Return on capital employed (%) 10.8% 15.9% n/a 12.0%
1 Average capital employed is defined as the average opening and closing net assets adjusted for net (debt)/cash 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 2022
ADE
£m
AGI
£m
Central
cost and
eliminations
£m
Consolidated
£m
Revenue 312.7 430.9 – 743.6
Constant exchange rates adjustment (17.5) (4.0) – (21.5)
Revenue at constant currency 295.2 426.9 – 722.1
Headline operating profit 50.8 80.8 (19.4) 112.2
Constant exchange rates adjustment (2.4) 0.8 1.9 0.3
Headline operating profit at constant currency 48.4 81.6 (17.5) 112.5
Alternative performance measures (APMs) – unaudited
continued
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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
3
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
9 Shirley Avenue, Kitchener, Ontario, N2B 2E6, Canada
Bodycote Canada Property Inc.
4
– company dissolved 13.12.2022
4211 Mainway, Burlington, Ontario, L7L 5N9, Canada
Bodycote Heat Treatment Canada, Inc.
1
Bodycote Thermal Processing Canada, Inc
1
1100-1959 ST Upper Water Halifax Nova Scotia B3J 3N2, Canada
Bodycote Surface Technology Canada Ltd.
1
30 de l’Aeroport Boulevard, Bromont Québec JSL 1S6, Canada
Bodycote Surface Technology Canada Property, Inc.
4
Incorporated in China
No. 68 Ningbo East Road, Taicang Economic Development Area, Taicang City, Jiangsu, China
Bodycote Heat Treatments Technology (Taicang) Co., Limited
1
Room 201, 2F, Building 9, International Innovation Park (Phase II), Jiaxing Advanced Manufacturing Industrial Base,
No. 1188 Fenghua Road, Jiaxing Economic and Technological Development Zone, Jiaxing City, China
Bodycote (Jiaxing) Heat Treat Co., Ltd.
1
2012 Kehang Road, High Tech District, Jinan City, Shandong, China
Bodycote (Jinan) Heat Treatments Technology Co., Ltd.
1
No.12 Building, No. 78, Gu Cheng Zhong Road, Yu Shan Town, Kunshan City, Jiangsu Province, China
Bodycote (Kunshan) Heat Treatments Technology Co., Ltd.
1
No.B2-A, Wuxi National Hi-New Tech Industrial Development Z, Wuxi City, Jiangsu Province, 214028, China
Bodycote Wuxi Technology Co., Ltd.
1
Incorporated in Czech Republic
Liberec 30, Tanvaldska 345, PSC, 46311, Czech Republic
Bodycote HT s.r.o.
1
Rohanske nabrezi 671/15, Karlin, 186 00, Praha 8, Czech Republic
Bodycote SSC s.r.o.
6
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Bodycote plc annual report 2022
Subsidiary undertakings continued
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 – company dissolved 18.05.2022
Incorporated in Jersey
50 La Colomberie, St Helier, JE2 4QB, Jersey
Bodycote Jersey Finance Limited
6
– company dissolved 30.12.2022
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 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
Incorporated in Switzerland
chemin du Pavillon 2, 1218 Le Grand-Saconnex, Switzerland
Bodycote (Suisse) SA
6
BDC Enterprises SA
3,6
Jurastrasse 59, 2503, Biel, Canton de Berne, Switzerland
HTM Biel GmbH
1
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Bodycote plc annual report 2022
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
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 2022, 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 2022 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 Reinvestment 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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Bodycote plc annual report 2022
Shareholder analysis
Analysis of share register as at 7 March 2023:
Holding range
Number of
shareholders %
Number of
shares %
1 to 1,000 715 43.5 279,942 0.2
1,001 to 10,000 595 36.2 1,919,206 1.0
10,001 to 100,000 187 11.4 6,793,040 3.6
100,001 to 500,000 76 4.6 17,15 4,0 32 8.9
500,001 and over 70 4.3 165,309,952 86.3
1,643 100.0 191,456,172 100.0
Type of shareholders
% of
shareholders
% of total
shares
Directors’ interests 0.4 0.4
Major institutional and corporate holdings 29.0 98.5
Other shareholdings 70.6 1.1
100.0 100.0
As at 27 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 %
Martin Currie Investment Management Ltd. 13,240,015 6.9
NNIP Advisors B.V. 11,8 42,50 0 6.2
Baillie Gifford & Co. 9,186,526 4.8
Fidelity Management & Research Company LLC 9,035,569 4.7
The Vanguard Group, Inc. 8,536,218 4.5
Newton Investment Management Ltd. 7,429,9 35 3.9
Aberdeen Standard Investments (Edinburgh) 6,892,991 3.6
Alantra Asset Management SGIIC, S.A. 6,506,627 3.4
Artemis Investment Management 5,980,681 3.1
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Bodycote plc annual report 2022
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 31 May 2023
Final dividend for 2022 2 June 2023
Interim results for 2023 July 2023
Interim dividend for 2023 3 November 2023
Results for 2023 March 2024
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Bodycote plc annual report 2022
www.bodycote.com
For the online version of this report go to
www.bodycote.com/investors
Bodycote plc
Tel: +44 (0)1625 505300
Fax: +44 (0)1625 505313
Email: info@bodycote.com
© Bodycote plc 2023
Produced by Radley Yeldar
www.ry.com