Bodycote Plc · LSE:BOY
Bodycote — Investor Day (November 2014)
55 slides from Bodycote's investor day presentation, Nov 21, 2014
Slide 1: Capital Markets Day
Capital Markets Day 21st November 2014, London Overview Stephen Harris, Group Chief Executive
Slide 2: Agenda
Agenda Bodycote today Strategic update A new insight 2
Slide 3: Agenda
Agenda Bodycote today Strategic update A new insight 3
Slide 4: What does Bodycote do?
What does Bodycote do? Heat treatment Hot Isostatic Pressing (HIP) Surface Technology Highly precise improvement of The ultimate strengthening Temperature, corrosion and material properties in metal process wear protection components Thermal processing – an essential enabler of modern technology 4
Slide 5: Where is Bodycote?
Where is Bodycote? Network simplifies complexity Economies of scale More than 190 plants / more than 2,000 process lines 5
Slide 6: Spread of activities
Spread of activities H1 2014 Revenue Markets Geography Southern Other Low Europe 2% Countries 2% 6% Energy UK 10% Aerospace North General Emerging America & Defence 7% Industry 34% Nordic 12% Automotive France Germanic 15% 12% 6
Slide 7: Competitive landscape
Competitive landscape Overall market is estimated at 12% around £20bn* Approximately 20%* of the 8% overall market is outsourced to 4% independents Bodycote the only global player 0% Bodycote Long tail of local suppliers Handful of regional players Mostly localised groups or single site op
Slide 8: Agenda
Agenda Bodycote today Strategic update A new insight 8
Slide 9: Strategic update
Strategic update What we said three years ago... Divisional market focus Maximise return on existing assets Enhance business processes Migrate with our customers to emerging markets Accelerated growth from targeting specialist technologies 9
Slide 10: Progress so far ....
Progress so far …. Divisional market focus Maximise return on existing assets Enhance business processes Migrate with our customers to emerging markets Accelerated growth from targeting specialist technologies 10
Slide 11: Progress so far ....
Progress so far …. Divisional market focus Maximise return on existing assets Enhance business processes Migrate with our customers to emerging markets Accelerated growth from targeting specialist technologies 11
Slide 12: Progress so far ....
Progress so far …. Divisional market focus Maximise return on existing assets Enhance business processes Migrate with our customers to emerging markets Accelerated growth from targeting specialist technologies 12
Slide 13: Progress so far ....
Progress so far …. Divisional market focus Maximise return on existing assets Enhance business processes Migrate with our customers to emerging markets Accelerated growth from targeting specialist technologies 13
Slide 14: Progress so far ....
Progress so far …. Divisional market focus Maximise return on existing assets Enhance business processes Migrate with our customers to emerging markets Accelerated growth from targeting specialist technologies 14
Slide 15: And we added acquisitions to the strategic agenda
And we added acquisitions to the strategic agenda Divisional market focus Maximise return on existing assets Enhance business processes Migrate with our customers to emerging markets Accelerated growth from targeting specialist technologies Acquisitions on the strategic agenda 15
Slide 16: And successfully acquired and integrated £85 million worth of businesses
And successfully acquired and integrated £85 million worth of businesses Divisional market focus Maximise return on existing assets Enhance business processes Migrate with our customers to emerging markets Accelerated growth from targeting specialist technologies Acquisitions on the strate
Slide 17: Strategic update: what we said three years ago
Strategic update What we said three years ago… Revenue Headline Margin % Base = 100 22% 150 21% 140 20% +3% 19% 130 +2% 18% +1% 120 17% Median 16% 110 -1% 15% -2% 14% 100 -3% 13% 90 12% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 At the 2011 Capital Markets Day we scaled future rev
Slide 18: We have delivered…
We have delivered… Revenue Headline Margin % Base = 100 22% 150 21% 140 20% +3% 19% 130 +2% 18% +1% 120 17% Median 16% 110 -1% 15% -2% 14% 100 -3% 13% 90 12% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Achievement = 18
Slide 19: We have delivered…
We have delivered… Revenue Headline Margin % Base = 100 22% 150 21% 140 20% +3% 19% 130 +2% 18% +1% 120 17% Median 16% 110 -1% 15% -2% 14% 100 -3% 13% 90 12% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Revenue CAGR of 7.8% since 2011 19
Slide 20: Financial performance
Financial performance Revenue £m Headline margin % H2 H1 H1 H2 18 18 17 17 16 291 15 15 281 266 240 11 9 271 291 298 312 229 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Return on capital employed Cash flow pence 20% Headline EPS Free Cash PS 18% 44 41 42 16% 38 38 33 31 10% 18 2010 2011 2012 2
Slide 21: Agenda
Agenda Bodycote today Strategic update A new insight 21
Slide 22: A new insight
A new insight Classical Heat Treatment and our Specialist Technologies Different scale Different growth rates Different margins Different development routes 22
Slide 23: Classical Heat Treatment
Classical Heat Treatment What is it? Heat treatment is used to alter the material properties of metals and alloys Heat treatment can improve hardness, wear resistance, temperature resistance, ductility, strength and many other fundamental material properties 23
Slide 24: Classical Heat Treatment
Classical Heat Treatment What is it? Classical Heat Treatment describes a group of mature processes such as Nitriding, Carburising, Annealing, Tempering (and many more) that are used to achieve the desired material properties of the metal or alloy Today, Classical Heat Treatment utilises precise
Slide 25: Performance: Classical Heat Treatment
Performance Classical Heat Treatment Revenue £m Headline Margin % At constant currency Before central costs 600 20% 481 500 395 Acquisitions 15% 400 300 10% Base 200 5% 100 0 0% 2010 2013 2010 2013 Organic growth 9% over 3 years, including greenfields ‘Self-funded’ acquisitions added 13% to reve
Slide 26: Achieving margin gain
Achieving margin gain Classical Heat Treatment It’s not just about ‘drop through’ from volume – it’s mainly about mix… Generating… We have We have We are refined our enhanced our more selective Higher network management about the margins processes ‘quality’ of business 26
Slide 27: Specialist Technologies
Specialist Technologies What are they? Hot Isostatic Pressing HIP Services Low Pressure Carburising Product Fabrication Specialty Stainless Steel Surface Technology Corr-I-Dur® Processes 27
Slide 28: Revenue growth
Revenue growth Specialist Technologies 2007 2014 H1 Revenue Revenue Specialist 14% Specialist 26% Classical Classical Heat Heat Treatment Treatment 86% 74% High growth 28
Slide 29: 2010-2013 Cumulative growth
2010-2013 Cumulative growth Specialist Technologies S3P and HIP PF - growing the fastest and have the greatest potential 29
Slide 30: 2014 H1 Revenue & operating profit split
2014 H1 Revenue & operating profit split Specialist Technologies Revenue Operating Profit Specialist 26% Classical Specialist Heat 40% Classical Treatment Heat 60% Treatment 74% Much higher growth and much higher margin 30
Slide 31: Enhancing quality of earnings
Enhancing quality of earnings Specialist Technologies The growth rates and margins of the Specialist technologies are enhancing Bodycote’s quality of earnings Generating… Enhanced High growth Superior margins Greater profit quality of earnings 31
Slide 32: Summary: Classical Heat Treatment
Summary Classical Heat Treatment Improving the mix Focusing on higher added- Improving the value business footprint, aligning with opportunity 9% cumulative organic growth over 3 years Margin expanded 600bps over last 3 years – still further potential 32
Slide 33: Summary: Specialist Technologies
Summary Specialist Technologies High growth Superior margins Strong market positions 39% cumulative organic growth over 3 years High growth and higher margin – benefits overall Group margin Further potential… 33
Slide 34: Capital Markets Day
Capital Markets Day 21st November 2014, London
Slide 35: Investment & Cash Flow
Capital Markets Day 21st November 2014, London Investment & Cash Flow David Landless, Group Finance Director
Slide 36: Agenda
Agenda Financial performance Market volatility Investment Cash generation Cash utilisation 36
Slide 37: Agenda
Agenda Financial performance Market volatility Investment Cash generation Cash utilisation 37
Slide 38: Financial performance
Financial performance Revenue £m Headline margin % Return on capital employed Cash flow pence 38
Slide 39: Agenda
Agenda Financial performance Market volatility Investment Cash generation Cash utilisation 39
Slide 40: Market volatility: revenue by sector
Market volatility H1 2014 Revenue by sector Broad spread of served industries 40
Slide 41: Market volatility: revenue by geography
Market volatility H1 2014 Revenue by geography Broad spread of geographies 41
Slide 42: Market volatility: US QoQ growth by sector
Market volatility US QoQ growth by sector Source: US Federal Reserve data Automotive Heavy Truck Construction Machinery Power generation Drilling, Oil & Gas Wells Aircraft parts Individual markets can be volatile 42
Slide 43: Managing volatility
Market volatility Managing volatility Source: US Federal Reserve data weighted by Bodycote sales mix US Market amalgam – QoQ growth But Europe tends to be phased differently to the US Result – volatility further reduced 43
Slide 44: Agenda
Agenda Financial performance Market volatility Investment Cash generation Cash utilisation 44
Slide 45: Investment: Enhancing the business
Investment Enhancing the business Three years since last Capital Markets Day: Capital expenditure £150m Depreciation £154m Averaging 1.0x depreciation 45
Slide 46: Investment: What did it buy?
Investment What did it buy? Three years since last Capital Markets Day: Specialist Technologies: Large capacity increase, for example: Expanded S3P lines New HIP capacity added Classical Greenfields sustaining Classical Classical Heat Treatment: greenfield Greenfields New capability Clas
Slide 47: Sustaining versus enhancement
Investment Sustaining versus enhancement Capex to sustain the asset base and infrastructure totals some 50% of depreciation So expansion capex is funded from depreciation too… How is this possible? The structure of a furnace lasts indefinitely Burners, elements, seals, controls and moving pa
Slide 48: Agenda
Agenda Financial performance Market volatility Investment Cash generation Cash utilisation 48
Slide 49: Cash generation
Cash generation Leading to… Minimal pension Funding growth Highly cash No inventory deficit or other capex from generative legacy spend depreciation business model 49
Slide 50: Free cash and headline earnings per share
Cash generation Free cash and headline earnings per share Headline EPS 50 Free cash flow per share Cash earnings exceeded EPS each year 45 40 And in 2009 and 2010 too 35 30 Operating cash conversion averaged 110% 25 20 15 10 5 0 2011 2012 2013 Class-leading cash generation 50
Slide 51: Agenda
Agenda Financial performance Market volatility Investment Cash generation Cash utilisation 51
Slide 52: Cash utilisation: Priorities
Cash utilisation Priorities 1 2 Organic growth Enhancing core dividends 3 4 Supplemental distributions as Acquisitions appropriate 52
Slide 53: 2010-2013 Cash usage
Cash utilisation 2010-2013 Cash usage Net debt at 31 December 2010 of £51m Last 3 years’ free Capital expenditure Ordinary dividends Acquisitions Supplemental cash (before capex) distributions £381m £150m £63m £85m £19m (2014) Averaging 1.0x Dividend per Added 12% to depreciation share operating Sur
Slide 54: Summary
Summary Strong financial performance Market volatility not always as large an effect as perceived Investment programme focused on Specialist Technologies and adding capacity and capability to Classical Heat Treatment Strong cash generation Clear prioritisation for use of cash 54
Slide 55: Capital Markets Day
Capital Markets Day 21st November 2014, London