Heat treatment specialist reports steady progress in trading update

Bodycote, the Macclesfield specialist heat treatment group, said trading for the four months to April 30, has been steady, in an update ahead of its annual general meeting today, but warned it could have to pay back certain tax exemptions following a European Commission investigation.

Bodycote was the subject of a state aid investigation by the European Commission and in its last report and accounts warned that it could be subject to a maximum potential liability of £20m in relation to this investigation.

The group revealed today that, on April 25, the European Commission released its decision that certain tax exemptions offered by the UK authorities constituted state aid and, as such, will need to be recovered.

Bodycote said it is working with its tax advisers to understand the implications of this and determine what, if any, exceptional charge may need to be booked.

The group, which is a leading provider of heat treatment and specialist thermal processing services with more than 40,000 customers serviced by around 180 facilities around the world, said group revenue for the four month period was £245m, which is 1% higher than the same period last year, or flat at constant currency levels.

Within the overall group result, specialist technologies’ revenues grew 3% at constant currency, while emerging markets’ revenues grew 6%.

Aerospace and defence revenues grew 15%, with the strong growth trend seen through the second half of last year continuing into 2019.

Automotive revenues fell 4%, with car and light truck revenues negatively impacted by lower production volumes, particularly in Western Europe.

Year-on-year growth comparisons in car and light truck are somewhat skewed, however, as the first half of 2018 was particularly strong due to manufacturers accelerating deliveries ahead of the introduction of the WLTP regulations.

General industrial revenues were 6% lower, with good growth in the emerging markets more than offset by weakness in the developed economies.

The revenue declines in the developed markets are due to the impact of business that was discontinued in the second half of 2018, as well as what appears to be some hesitation in customers’ capital investment decisions.

Energy revenues were broadly flat, with stronger revenues from subsea projects offsetting a decline in North American onshore oil and gas revenues as a result of customer destocking.

Net cash as at April 30, was £31m, compared with £36m at December 31, 2018.

This reflects continued strong underlying cash generation in light of the typical working capital outflows in the first few months of the year; the ongoing investment in the growth of the business; and the purchase of shares for the settlement of future long-term incentive awards.

The board will pay a final dividend of 13.3p per share and the special dividend of 20p per share on June 7, at a total cost of £64m.

The group said today: “In the first four months, we have seen excellent growth in civil aerospace revenues, offset by anticipated weakness in automotive and general industrial revenues against strong comparatives from the same period last year.

“The full year outlook for civil aerospace remains strong, and revenue growth for specialist technologies’ is also expected to be good.

“With easing comparatives in automotive in the second half of the year, and provided current macroeconomic conditions do not deteriorate, year-on-year growth should strengthen. The board’s expectations for the full year remain unchanged.”

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