Bodycote permanently slashes costs amid Covid downturn

The FTSE 250 company said its headline operating profit plunged 43% to £37.8m, while its return on sales slid to 12.3% for the six months ended 30 June, from 18.3% a year earlier.

Its headline profit before tax was off 45% at constant currency to £35m, with the board also noting £32.1m of exceptional restructuring costs during the period.

Free cash flow was 56% lower than the first half of 2019 at £69.7m, with basic headline earnings per share 45% lower at 14.2p.

On a statutory basis, Bodycote swung to an operating loss of £1m, from a profit of £64.4m a year earlier, while basic losses per share came in at 1.3p, compared to earnings of 24.7p 12 months ago.

Bodycote said it implemented immediate cost saving initiatives at the outbreak of the pandemic, with its first half operational gearing at 42%.

It also “stepped up” its restructuring activities, yielding permanent future annualised cost savings of £58m.

The board described its free cash flow as “excellent” at £69.7m, while net debt stood at £23.6m pre IFRS16.

A 2019 deferred dividend of 13.3p would be paid in September, while a decision on a 2020 interim dividend would be made “in due course”.

“Bodycote reacted swiftly to the sharp revenue declines arising from the pandemic related downturn,” said group chief executive officer Stephen Harris.

“Most cost elements have been reduced in line with sales which has yielded a resilient operating margin of 12.3%.

“Moreover, the excellent free cash flow performance is testament to the cash generative nature of our business.”

Harris said the organisational restructuring programme announced in March had been expanded and accelerated, and would permanently reduce operating expenses by around 10%, which would allow “good profits” to be achieved at lower volumes, and should enable margin expansion beyond historic levels when revenues return to normal.

“The immediate outlook varies by sector and is difficult to predict for obvious reasons.

“Bodycote benefits from its geographic and sector diversification, and its strong business model.

“We remain focused on strong cash and cost discipline and we expect to continue to generate sustainably attractive returns for our shareholders.”

At 1024 BST, shares in Bodycote were up 0.92% at 603.5p.