Bodycote cuts 1,000 jobs, plans second restructuring

Shares of Macclesfield-based heat treatment and thermal processing giant Bodycote fell about 5% on Thursday after it published a trading update covering the four-month period to October 31, 2020.

“COVID-19 has severely impacted the global economy and Bodycote’s business with it,” said the company.

Bodycote said its restructuring announced in the first half of the year was mainly focused on its AGI (automotive & general industrial) business and resulted in a reduced headcount to 4,813 at October 31 from 5,764 at the beginning of the year.

About 100 further job cuts are expected as part of that restructuring.

The company said it is now planning a second restructuring programme more focused on its ADE (aerospace, defence & energy) business. 

Group revenue for the four-month period fell 20% to £193.6 million, with revenue for the 10 months to October 31 down 18% to £500.3 million.

Nonetheless, Bodycote paid a deferred 2019 dividend in September that amounted to £25.1 million and is proposing an interim dividend for 2020 amounting to £11.4 million.

Revenues in the firm’s ADE (aerospace, defence & energy) business fell 33% while revenues in its AGI (automotive & general industrial) division were down 15% during the four-month period.

“As anticipated, civil aerospace revenue declined the most, with like-for-like revenues down 50%,” said Bodycote.

“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 …”

On its finances, Bodycote said: “Underlying cash flows in the period remained strong, although, as revenue recovered from the low levels in the second quarter and trade receivables correspondingly increased, there was an element of unwinding of the working capital benefit that had such a positive impact on cash flows in the first half.

“Accordingly, with the payment of the deferred 2019 dividend in September (£25.1m) and c£4m expenditure associated with the restructuring programme in the period, net debt (excluding lease liabilities) at 31 October 2020 was £46.6m, compared with net debt of £23.6m at 30 June 2020 …

“The board has also approved the payment of an interim dividend for 2020 of 6.0p to be paid on 12 February 2021 to shareholders on the register at the close of business on 8 January 2021.

“This will cost £11.4m.”

In its outlook, Bodycote said: “Our AGI business has recovered strongly from the steep revenue declines that we saw in the second quarter.

“Indeed, as we have reduced our cost base, significant parts of this business are exiting the period with higher margin levels than at the back end of 2019, despite continued lower revenues.

“As revenues recover further, therefore, we are well placed to benefit from the step change improvement in the quality of this business.

“The ADE business remains under pressure, given the scale of the impact on revenues.

“We are taking necessary actions to improve the business in the short term, while protecting our ability to take advantage of the upturn when it comes.

“Through these actions, we continue to reinforce the long-term quality of this business and remain confident that it will deliver strong margins as the civil aerospace market recovers.”