Bodycote, the world’s largest commercial heat treater issued a trading update November 26, 2020 covering the 4 month period from July 1 to October 31. Our feeling at “The Monty Heat Treat News” is that there is no better summary of the heat treating industry than a Bodycote financial report by dint of the fact that Bodycote does heat treating for virtually every single type of product which requires heat treating and does it on a global basis. Below you will find a condensed version with the full report available at Trading Update – Bodycote Plc We searched through our photo archives to find an interesting “Bodycote” photo to go with this report and came up with this one taken at the “Bodycote” facility in Hudiksvall, Sweden.

COVID-19 has severely impacted the global economy and Bodycote’s business with it. We have responded to this challenge and, through this response, we have ensured that a stronger Bodycote will emerge as the global economy recovers. Overall, profitability has held up relatively well in light of the significant drop in revenues. We have continued to prioritise the health and safety of our employees and other stakeholders. We are taking all necessary actions to maintain a safe working environment for our employees, who have responded magnificently to this year’s challenges.

Group revenue for the period was £193.6m, 20% lower than last year (18% lower at constant currency). This represents a recovery from the 28% decline in constant currency revenues in the second quarter when the COVID-19 related downturn was at its peak. Group revenue for the 10 months to 31 October 2020 was £500.3m, 18% down on last year (17% lower at constant currency).

All percentage movements in the following review of the Group’s markets compare to the same period from July to October 2019, at constant currency, unless otherwise stated.

Our two divisions experienced differing fortunes during the period, with revenues in the ADE business declining 33% (excluding the £10.3m revenue contribution from the Ellison acquisition), while revenues in the AGI division were down 15%.

As anticipated, civil aerospace revenue declined the most, with like-for-like revenues down 50%. This reflects the impact throughout the period of the downturn in civil aerospace that has affected our business from May onwards. The impact is across all our geographies, but is most acute in Western Europe, where the weighting in our wide-bodied business is greater.

Energy revenue declined 18% as a result of weakness in our onshore US oil & gas business, which is dependent on the fortunes of the Permian Basin. Lower oil prices have reduced activity in this area among our customers.

Car and light truck revenue declined 11%, which represents a very significant bounce back from the more than 50% decline in the second quarter. The recovery was strongest in North America, where inventory levels were also lowest following the production shutdowns seen in the second quarter.

General industrial revenue was 13% lower, with most categories continuing to experience weakness and the negative impact of destocking continuing to weigh on performance.

Emerging markets, dominated by automotive and general industrial revenues, returned to growth, increasing 2%, with a 20% increase in our revenues in China more than offsetting continued weakness across Eastern Europe.

Specialist Technologies’ revenues, with their relative bias towards the harder hit ADE business, declined 21% in the period, excluding the contribution from Ellison. Each of the Specialist Technologies in the AGI business registered revenue growth in the period and, as expected, Specialist Technologies continued to outperform the background market.

Management Actions; The restructuring announced in the first half was mainly focused on our AGI business, which was most immediately impacted by the COVID-19 related downturn. As this restructuring programme continues to be implemented, Bodycote’s headcount has reduced to 4,813 FTEs at 31 October. This compares with proforma FTEs of 5,764 at the beginning of the year. Once the restructuring announced in the first half has been fully completed, headcount will be reduced by a further 100 FTEs. Our expectation is that the civil aerospace market will remain near the current low levels for at least the next 18 months. This provides us with the opportunity to consolidate our ADE footprint into fewer, larger facilities. The exercise to do this requires significant study, since we expect the civil aerospace market to recover strongly in due course and we want to be in the best position possible to take full advantage as this happens. There will, therefore, be a further restructuring programme, similar to the programme already announced in the first half, but which will be more focused on our ADE business. We will provide further details with our full year results in March.

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