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RNS Number : 1343O
Bodycote PLC
28 May 2020
28 May 2020
Bodycote plc
Trading Update
Bodycote, the world's leading provider of heat treatment and
specialist thermal processing services, is issuing a trading update
covering the four-month period from
1 January to 30 April 2020 ("the period"), ahead of the
Company's 67(th) Annual General Meeting, which will be held at
12.00pm today.
COVID-19
Bodycote's primary concern remains the safety and well-being of
our employees, customers and the wider community. We have taken
action to provide a safe working environment for our employees and
prevent the spread of infection, generally exceeding locally
mandated requirements. Where necessary, we have made changes to our
processes to maintain social distancing and we have also
facilitated technology-enabled remote working where possible.
At the request of our customers, some of our facilities have
been refocussed to provide support for production of tooling for
PPE or the production of ventilator and other medical equipment
components. This activity has been undertaken as part of the
company's ESG responsibility and without regard to its
profitability.
Indeed, almost all of our facilities provide some designated
essential services and have been operating throughout the period
during which restrictions have been in place.
Trading
Activity levels were relatively normal through to the third week
of March with the exception of China, where there was significant
disruption in February with business since returning to
pre-COVID-19 levels.
From the third week of March, the business outside of China has
been severely impacted by COVID-related lockdowns across a wide
variety of geographies. In terms of our market sectors, since the
COVID-19 related crisis has taken hold, we have seen the biggest
immediate impact in our automotive and civil aerospace businesses,
as many OEMs have had extended production halts. Bodycote's
diversification by market sector and geography has been a
benefit.
It is worth a reminder that Bodycote holds no inventory and
supplies directly into our customers' inventories. Accordingly,
when customers are running down their inventories, Bodycote tends
to see a sharp revenue decrease that is typically more pronounced
than the revenue falls our customers see themselves. Once they stop
destocking Bodycote revenues rebound to the ongoing levels of
production at the customers' facilities. When our customers restock
the rebound of Bodycote's revenues tends to be strong. At this
stage, it is too early to reliably predict the trajectory of
end-market demand and our customers' production, destocking and
restocking patterns.
Total Group revenue for the first four months was 12% lower at
GBP216m (down 11% at constant currency and 13% excluding the impact
of acquisitions). The month of April experienced constant currency
revenues 30% lower than in April last year (35% lower, excluding
the impact of acquisitions).
By swift and decisive action, we have significantly mitigated
the impact of the revenue decline on the Group's profitability,
with the Group having positive Headline Operating Profit and
generating net cash in each of the first four months of the year,
including April.
Management actions
The pre-COVID-19 restructuring plan announced in March focused
on our Classical Heat Treatment activities in Western Europe. With
the onset of the COVID-19 pandemic, this restructuring plan has
been extended in both scale and geography. Manning levels have been
permanently reduced at facilities where the level of business is
not expected to return to previous levels in the medium to longer
term. Some facilities are being eliminated, with equipment
redeployed to other sites. Overall, the production capacity in the
Group will be largely unaffected but will be situated where there
is greater long term demand and where it can be more efficiently
utilised.
The restructuring activities underway will reduce full-time
employees by more than 700 - some 13% of total headcount. Together
with savings in infrastructure from closed plants, c.GBP45m of
annualised costs will be permanently eliminated from the business.
Savings from the restructuring program will be realised
progressively through 2020, with most being completed by year-end
and the full annualised savings in place from Q2 2021. The cash
cost of the expanded restructuring program is now expected to be
c.GBP25m, versus the c.GBP15m announced at the Full Year
results.
The restructuring activity is designed to right-size our
business, so that we will emerge from the current downturn in a
strong position, with good, sustainable profitability and cash flow
generation, as well as healthy margins and returns.
Bodycote has also looked to contain costs by a further temporary
reduction in full-time employees and careful management of ongoing
expenditure on utilities, consumables and other overheads. The
current level of cost containment measures represents savings of
c.GBP7m per month, which is over and above that achieved so far
through the restructuring program.
Financial position and liquidity
Net debt as at 30 April 2020 was GBP44m (excluding lease
liabilities), compared with net cash of GBP21m at 31 December 2019,
after paying GBP94m in part settlement of the Ellison Surface
Technologies acquisition on April 3. Free cash flow of GBP38m
during the period compares favourably with free cash generation of
GBP5m in the comparable period last year, reflecting both strong
control over costs and a net working capital inflow.
With GBP80m currently drawn on its facility, the Group has
[GBP170m] of facility headroom, having recently agreed an extension
until 2025 to our revolving credit facility on favourable terms,
which reflect the Group's credit strength. The Group also has cash
in hand of over GBP40m. As indicated in our announcement last
month, the Group is keeping the proposal for the final 2019
dividend under review and will update on this later in the
year.
Summary and Outlook
The Group has moved rapidly to adjust its cost base in response
to lower demand deriving from the COVID-19 crisis. Based on what we
have seen to date, we are confident that the restructuring and cost
reduction actions we are taking should enable us to operate
profitably through the downturn and that we will emerge stronger as
end markets recover.
Trading Update Conference Call
The Company will be hosting a conference call for analysts and
investors at 08.00am today (Thursday 28 May 2020).
Participants' dial in numbers:
UK Toll-Free: 0800 358 2205
UK Toll: +44 333 300 9271
Participants will be asked for names only, no PIN required
For further information, please contact:
Bodycote plc
Stephen Harris, Group Chief Executive
Dominique Yates, Chief Financial Officer
Tel No +44(0) 1625 505300
FTI Consulting
Richard Mountain
Susanne Yule
Tel No +44 (0) 2037271340
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END
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May 28, 2020 02:00 ET (06:00 GMT)
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