Heat treatment group reassures shareholders on financial resilience

Stephen Harris

Macclesfield-based Bodycote announced the completion of its acquisition of North American-based Ellison Surface Technologies, and a trading update for the first quarter.

The group, which is the world’s largest provider of heat treatments and specialist thermal processing services, said trading in the first quarter has not been significantly impacted by disruption from the coronavirus pandemic.

But is said it has already been taking mitigating actions in anticipation of tougher conditions to come.

These actions are designed to align its cost base with any reduced demand and it said the group will continue to take further action in response to developments and as it deems necessary.

Following today’s announcement today of the completion of the acquisition of Ellison Surface Technologies, Bodycote is approximately £83m drawn on its £230m revolving credit facility, which has two more years to run.

Accordingly, there remains £147m of immediately available liquidity.

The group said it has a very strong balance sheet and can withstand a significant decline in trading conditions.

Nonetheless, given the uncertainty in the current environment, the board said it is keeping the proposal for the final dividend under review.

Group chief executive, Stephen Harris, said: “Bodycote’s financial position is strong and our agile and devolved approach to managing the business from day-to-day puts us in a good position to weather the unprecedented disruption which we are likely to face.

“I also take this opportunity to recognise the commitment, courage and professionalism shown by our employees during this challenging time.”

The group reiterated that its primary concern has always been the safety and well-being of its stakeholders, including its employees, customers and the wider community.

The reality of the COVID-19 pandemic has given this priority even greater predominance, it said.

The group’s facilities have introduced additional personal protection measures, intensified hygiene, and social distancing protocols that meet, or exceed, WHO, government and local guidelines.

Operations are being managed safely as Bodycote maximises business continuity to provide its essential services and continues to support customers.

A COVID-19 task force convenes daily to monitor the situation and coordinate activities on the ground while managing communications with customers and employees, keeping them informed about the evolving situation.

Bodycote announced the proposed acquisition of Ellison Surface Technologies in December 2019, for a total of £162m. It said £97m was paid on April 3, 2020, the date of completion of the deal, with the remaining £65m due to be paid on April 3, 2021.

Ellison employs almost 400 people across six sites located across the United States, Canada and Mexico.

The business generated revenues of £48m for 2019, with associated pro-forma EBITDA of £10m.

This represented revenue growth on 2018 of 17%, while pro-forma EBITDA increased 48%, reflecting the fact that Ellison has been successfully gaining share.

This also positions the business for further revenue and profit growth in future years. Bodycote will receive tax benefits worth at least £24m in the years to come.

Bodycote said the acquisition creates one of the largest providers of thermal spray and engineered coating surface technology services in the world.

Stephen Harris said: “This acquisition continues our strategy to build our specialist technolgies portfolio and enhance our exposure to the civil aerospace market, where we see structural growth over the long term, notwithstanding the current hiatus in the industry.

“Ellison’s business is one that we have respected for a long time and is a perfect strategic fit for Bodycote’s specialist technologies businesses.”

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