Bodycote H1 2025 Earnings Report

Bodycote EPS Results

• Actual EPS: GBX 21.30
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Bodycote Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Bodycote Announcement Details

• Quarter: H1 2025
• Date: 7/30/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, July 30, 2025
• Conference Call Time: 4:30AM ET

The leading provider of heat treatment and specialist thermal processing services worldwide. Heat treatment encompasses a variety of techniques and specialist engineering processes which improve the properties of metals and alloys and extend the life of components and is a vital part of any manufacturing process. Bodycote (LON:BOY) is uniquely placed via our global network and the experience and knowledge of our people to offer high quality, reliable and cost-effective services to manufacturers whatever their size or market sector.

Bodycote H1 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Despite challenging end markets, Bodycoat delivered sequential 4% revenue growth in Q2 versus H2 2024, showing improving momentum across key segments.
• Positive Sentiment: The expanded OPTIMIZE program now targets exiting 30 sites and retaining 25% of the associated revenues, with at least £15 m run-rate benefits by mid-2027 at a net cost of £10–15 m.
• Negative Sentiment: Organic core margins declined by 220 basis points to 15.4% and adjusted EPS fell 15% to 21.3p, reflecting lower top-line volumes and an increased tax rate.
• Positive Sentiment: Management announced a further £30 m share buyback, supported by healthy free cash flow and a comfortable net debt/EBITDA leverage of 0.6x.
• Positive Sentiment: Full-year outlook remains unchanged with an expected H2 profit improvement driven by Aerospace & Defense growth, Specialist Technologies contract ramp-ups, and optimized cost savings.

Presentation

[Jim Fairbairn, CEO & Director at Bodycote]

Good morning and welcome to Bodycoat's 2025 Interim Results. I'm Jim Fairbairn, CEO and I'm pleased to have with me our CFO, Ben Fiddler. I will kick off today with a summary covering the strategic progress that we've made in the first half of the year and the context in terms of our end market environment. Ben will then take you through the half year results in more detail and I'll come back and take you through an update on how we're executing the strategy, the benefits we're now beginning to see and our outlook for the full year where we remain on track and in line with on how we're executing the strategy, the benefits we're now beginning to see and our outlook for the full year where we remain on track and in line with expectations. So to start with some key points about the first half.

[Jim Fairbairn, CEO & Director at Bodycote]

We have made some important strategic progress on all of the areas we flagged at the Capital Markets Day and at our full year results in March. And that's against the backdrop that has been one of challenging end markets. In terms of the first half highlights, firstly, as I said, market conditions have been very tough. But sequentially, we've seen 4% growth in revenue versus the second half of last year. And I have been pleased with how we have executed particularly in Q2.

[Jim Fairbairn, CEO & Director at Bodycote]

Secondly, we're really happy with the momentum of the OPTIMIZE program and we've decided to expand it. Ben and I will talk about that later. In short, we are increasing the benefit and significantly reducing the cost. Then on growth, whilst this period was challenging, we're still sowing the seeds for future growth through our investments and M and A activity. I'll talk about some of our current organic investments later.

[Jim Fairbairn, CEO & Director at Bodycote]

Today, we're also announcing a further £30,000,000 share buyback. The strong financial characteristics of our business means that we can invest well and at the same time provide shareholder returns. And our full year outlook remains unchanged and with an improvement in profit expected in the second half. So overall, I'm pleased with the progress we've made in difficult markets and encouraged by our operational response. This gives us confidence in our medium term targets.

[Jim Fairbairn, CEO & Director at Bodycote]

Looking at the end markets, I want to give you the context for our first half performance. So the left hand chart shows it was a challenging period. Year over year core revenues were down 3.6%. We saw growth accelerating in Aerospace and Defence as expected, up 3% year on year and remembering that's against a strong comparator. Clearly market conditions in Industrial and Automotive were tougher.

[Jim Fairbairn, CEO & Director at Bodycote]

Energy revenue was down 12.9%. This was largely expected as we flagged several oil and gas contracts that ended in the second half of last year. Moving to the right hand chart. This chart shows our sequential growth versus the second half of last year. And overall core revenue was up 4% and there was a sequential momentum in almost all of our key end markets.

[Jim Fairbairn, CEO & Director at Bodycote]

And although we do typically have a slight bias towards the first half, the growth rate we've seen has gone beyond that. Most markets have stabilized and have improved from what was a weak base in the 2024. And although automotive and general industrial are likely to remain challenging. We did improve sequentially there. However, it just remains too soon to call any type of recovery.

[Jim Fairbairn, CEO & Director at Bodycote]

But we expect continuing momentum in the second half in Aerospace and Defense. Therefore, it's key that we can expect continuing momentum in the second half in aerospace and defense. Therefore, it's key that we continue to focus on controlling what we can control. And with that, I hand over to Ben to take you through the detail of the half.

[Benjamin Fidler, CFO & Director at Bodycote]

Well, you, Jim. And just to add my welcome to all of you. Thanks for coming along today to the new venue. I'm now going to spend a few moments just talking through in some more detail the key elements around the financial performance that we delivered in the first half of the year, as well as taking a little bit of time just to dig into some of the more detailed aspects of our technical guidance for the rest of the year. So let's start off with a reminder of some of the key highlights of the numbers.

[Benjamin Fidler, CFO & Director at Bodycote]

As Jim said, some challenging market conditions compared to the first half of last year saw core revenues decline by 3.6% organically, sequentially up just over 4%, but clearly down year over year. We worked hard to manage costs, while also maintaining the capacity that we need and are going to need in Specialist Technologies for the higher level of activity that we can see there in the second half of this year. But as a result of the lower top line, core margins were down two twenty basis points to 15.4%, Reflecting the lower operating profit as well as the higher tax rate, EPS fell to 21.3p. And as you can see here, cash conversion remained healthy at 68%. Leverage remains very comfortable at 0.6 times, that's 0.3 times higher than the year end as we executed on the further share buyback in the first half of the year and paid the final dividend in June, taking total shareholder returns for the period to £60,000,000 Now let's delve into the numbers in a little bit more detail on this next slide.

[Benjamin Fidler, CFO & Director at Bodycote]

Firstly, focusing on the core business, a 3.6% organic revenue decline in the period. That reflected challenging market conditions and delivery phasing in Specialist Technologies this year. On that lower revenue base, core operating profit fell by 14.7% organically, as you can see here to £54,300,000 margins of 15.4%. Margins will improve in the second half as divisional mix improves and also as optimised benefits ramp up further, but more on this in more detail from Jim later. Secondly, looked at through the group lens, including our non core activities, revenues were £369,000,000 down just over 4.5% organically with group operating profit of £55,100,000 a margin of 14.9%.

[Benjamin Fidler, CFO & Director at Bodycote]

With higher financing costs and a 70 basis point increase in tax rate, together with the lower share count benefiting from the share buyback, adjusted EPS fell 15% to 21.3p. Despite the lower EPS, the interim dividend was held stable at 6.9p. Next, I want to look at the key drivers of the group's operating profit performance. I'm going to talk in a moment more about the divisions in more detail. But as you can see here, looked at in aggregate divisional profit fell by a combined £11,400,000 that reflected the lower volumes both in Specialist Technologies and also in Precision Heat Treatment.

[Benjamin Fidler, CFO & Director at Bodycote]

Non core profit was unchanged over the prior first half. That's despite the decline in revenues in non core. Why is that? Well, it's primarily because we focused our site closures as you'd expect on the most underperforming and loss making locations in the first half. Central costs as you can see here were £1,700,000 lower.

[Benjamin Fidler, CFO & Director at Bodycote]

That reflected overhead savings together with lower incentive share based payment costs. And finally, foreign exchange had about a £2,000,000 headwind to profit in the first half of the year, primarily movements in the euro and dollar. All of which put it all together led to the delivery of our £55,100,000 of group operating profit. Let's now turn to look at each of the two divisions, the core divisions in a bit more detail. Compared to a strong prior year revenue comparator, Specialist Technologies had quite a challenging first half.

[Benjamin Fidler, CFO & Director at Bodycote]

Revenues, as you can see here, down 7.7% organically of what was you can see from that bottom left hand bar chart a particularly high revenue base in the 2024. That was though nonetheless an improvement from the negative 11% revenue. You may remember we reported at the May trading statement for the first four months of the year. May and June did improve. In fact May and June revenues for Specialist Technologies were flat year on year showing improved momentum as we went through the second quarter, which we're confident will carry into the second half of the year for this division.

[Benjamin Fidler, CFO & Director at Bodycote]

Looks at by end market. Aerospace and Defence growth was good, up over 7% with a nice acceleration in particular being evident there in the second quarter. But other markets were challenging. Industrial suffered a material decline in the more CapEx driven end markets such as extrusion and tool steel. Consumer, medical and other remained weak in Specialist Technologies.

[Benjamin Fidler, CFO & Director at Bodycote]

And as expected earlier in the year, energy was impacted by the end of a sizable oil and gas contract in our surface treatment business. Now we've worked hard to replace much of that lost work, which will ramp up as we go through the second half of this year. Finally, there was also a phasing impact in hip product fabrication, where delivery volumes will be unusually second half weighted this year. Margins in Specialist Technologies were lower, not surprisingly impacted by the revenue phasing we saw here, but still good at over 25%. So as we look to the second half of Specialist Technologies, we've got good line of sight for growth and performance to improve significantly.

[Benjamin Fidler, CFO & Director at Bodycote]

Aerospace supply chains should continue to improve. We very much saw that in the second quarter that will carry that momentum into the second half. Also revenue phasing on hip product fabrication contracts will ramp up. A lot of that is in our backlog. And the ramp up of the new oil and gas work that we've won on Surface Technology will also feed into the second half growth.

[Benjamin Fidler, CFO & Director at Bodycote]

Turning to Precision Heat Treatment, a resilient performance in the face of some challenging end markets. On an organic basis, revenues fell 1.8% to £246,000,000 with growing volumes of IGT work within our Energy sub segment, growth in Aerospace, in Consumer Medical and Other, offset by weakness in automotive and industrial markets. Sequentially, precision heat treatment revenues were up 7%, which is ahead of our normal level of seasonality and did compare to a particularly soft level of activity in the 2024. We took a number of actions to manage the cost base carefully here. And although margins fell on the weaker top line, they were maintained at over 14.5%.

[Benjamin Fidler, CFO & Director at Bodycote]

Let's look at cash flow. So we delivered cash flow in line with expectations in the first half. As you can see here adjusted headline operating cash flow of £38,000,000 That was a decline of £11,000,000 year over year, but entirely reflected the lower level of profit and was achieved despite a 10% increase in capital expenditure. Cash flow was also helped by the non recurrence of the provision outflow that we'd seen in the first half of last year. Overall operating cash conversion stood at 68%, below last year, but in line with normal type of first half levels for Bodycoat.

[Benjamin Fidler, CFO & Director at Bodycote]

Restructuring spend rose to £7,000,000 as you'd expect as we deliver and execute at pace on the Optimize program. And finally, cash tax was back to a more normalized level of phasing after the unusual weighting that we had in the 2024 when some prior year payments fell due. Overall, this left free cash flow at £18,000,000 After executing £30,000,000 of share buyback in the first half and payment of the final dividend in June, net debt at the end of the half rose to £112,400,000 That saw leverage increase slightly, but still at a very comfortable 0.6 times net debt to EBITDA towards the bottom end of our 0.5 times to 1.5 times target range. We continue to apply a disciplined and balanced approach to capital allocation exactly what you should be expecting us to continue to do at BodyCoke. CapEx rose by 10% to £38,000,000 as we drive investment in future growth to enable and to enable continual operational improvement both of which are key to our strategic execution and delivery levers.

[Benjamin Fidler, CFO & Director at Bodycote]

Dividends were paid of £29,000,000 And as you heard earlier, the first half dividend held flat at 6.9p per share. And finally, 31,000,000 deployed on share buybacks. We do continue to progress well on building our M and A capabilities to support and to drive our growth strategy. But based on what we can see in the pipeline in the near term, together with the strength of the balance sheet, we've announced today a further £30,000,000 share buyback, which is an attractive use of capital to drive value. And finally, I know your summers wouldn't be complete without your technical guidance slide.

[Benjamin Fidler, CFO & Director at Bodycote]

Some details to consider here then as you just revisit and build out some of your forecasts for 2025. I'm not going to step through every single one of these. A lot of them haven't changed compared to what we talked about in March, but just a couple to draw out. Firstly, on foreign exchange rates have been fluctuating as you know quite a lot recently. And if maintained at today's levels, this means we could well see a larger headwind than we'd flagged in March.

[Benjamin Fidler, CFO & Director at Bodycote]

We now expect potentially a £3,000,000 profit headwind from FX, more than half of which was felt in the first half. Secondly, due to the additional £30,000,000 share buyback that we've announced today, our guidance for share count and interest costs have also modestly changed compared to what we said in March. With that, I'll hand back to Jim now to cover the update on strategy and to focus more on outlook. Thank you.

[Jim Fairbairn, CEO & Director at Bodycote]

Thank you, Ben. As I said earlier, what's one of the most pleasing aspects about the half is the strategic progress we've made across the three legs of the strategy. As you know optimize is about enhancing the quality of our portfolio. As you'll recall this involved exiting around 10% of our sites and just over 5% of our group revenue which was lower quality and lower margin. We are progressing well and are ahead of plan in terms of cost efficiency and time line.

[Jim Fairbairn, CEO & Director at Bodycote]

We have also decided to expand the scope of the program and I'll give details on that shortly. Perform focuses on identifying areas for performance excellence and also driving internal best practice. We execute this through the HEAT framework and we continue to make progress on a daily basis of each of the elements of HEAT. And that's an important distinction. Every day in Bodyco teams are working on each element of heat to make us better and I'll give a really good example of this later.

[Jim Fairbairn, CEO & Director at Bodycote]

And our priority in grow is about driving organic growth and improving the overall business mix. And as you know 65% of our business is in high end improving the overall business mix. And as you know 65% of our business is in higher growth high margin markets. Our strategic actions will get that to at least 75% in the medium term. And I'll come back to some details in a few slides.

[Jim Fairbairn, CEO & Director at Bodycote]

In May, we launched our Carbon Smart program offering customers a reduced carbon footprint for their in house heat treatment. So we're in full engagement mode now with many European and U. S. Customers. As Ben mentioned, our acquisition pipeline is also very much focused on this high growth, high margin area of our business.

[Jim Fairbairn, CEO & Director at Bodycote]

And whilst nothing is imminent, we've continued to make good progress on building the pipeline. Moving to Optimize. At the recent AGM statement, we signaled we saw the potential to expand the scope of the Optimize program. And we've been doing lots of work in the background and now we're confident of being able to deliver an increased benefit for a significantly reduced cost. Let me take you through the key changes in this graphic at the bottom of the slide.

[Jim Fairbairn, CEO & Director at Bodycote]

As you can see on the far left, the original program involved around 20 sites and that was set to deliver a 12,000,000 to £14,000,000 in recurring benefits for a cost of £25,000,000 to £30,000,000 And let me step through the red boxes. Firstly, improved execution. We have been delivering well on this plan and have increased confidence in our ability to retain the planned revenue and to deliver at lower cost. We expect around £5,000,000 lower cash costs than initially guided. Next, we've expanded the scope of the original program.

[Jim Fairbairn, CEO & Director at Bodycote]

This partly reflects the increased confidence I just mentioned around our ability to execute site consolidations and also some of our end markets particularly in areas such as automotive in Western Europe remain challenging. And with that backdrop, we've taken a fresh look and expanded the scope of the program with some additional sites and also some further overhead reductions. This will cost around £10,000,000 and delivers an attractive payback. Thirdly, we also looked at other execution options including divesting some sites and we've been able to further reduce the cost of the program. We've entered into a contractual process with a buyer for a package of automotive and industrial sites in France.

[Jim Fairbairn, CEO & Director at Bodycote]

The expected proceeds are around £20,000,000 for a package of sites that were generating lower than group average margin. Put all of that together and on the right hand side you can see the new program. We will be exiting around 30 sites, which is about 20% of our portfolio. These sites have revenues of around £80,000,000 and we aim to retain around 25% of these revenues. So the FILT program will now give us run rate benefits of at least £15,000,000 by mid-twenty twenty seven and the net costs are considerably lower at 10,000,000 to 15,000,000 For this year, we still expect profit benefits of £4,000,000 to £5,000,000 Moving on to Perform.

[Jim Fairbairn, CEO & Director at Bodycote]

Let me pull out an example of heat in action. This is a site in Minneapolis and I visited it as a part of my induction. This is a site in Minneapolis and I visited it as part of my induction program in early twenty twenty four. We have a very forward thinking General Manager who likes impact and his plan became part of our initial lean management pilot site program in the middle of last year. That initial program was about implementing daily management that's safety quality delivery and cost improvements daily.

[Jim Fairbairn, CEO & Director at Bodycote]

The site has implemented superior workplace organization or 5S in lean management terms for the Gurus as well as some other lean tools including visual management. And what you usually also find is that there are process deficiencies upstream of the core processes that you're trying to change and we found some here in order entry and in scheduling that the team fixed. With some additional selective small investments turnaround times have improved by over 20% and on time delivery in full has improved by 6%. This type of focus is also a huge sales differentiator. It helps us get more utilization through our asset base and it keeps our teams focused on what really matters for our customers.

[Jim Fairbairn, CEO & Director at Bodycote]

And we continue to progress and roll out HEAT as a multiyear program. Examples like this one show that the benefits are tangible and these sort of actions are applicable to most of our sites. Moving on to growth. I want to give you an example of where we say we are targeting high growth markets. What does that really mean?

[Jim Fairbairn, CEO & Director at Bodycote]

And here's an example in aerospace and defense, which as you know is around one third of our business. And here are some of the things that we're driving. Number one, we are improving the quality and structure of our sales teams and ensuring that the wider Bodycoat team on an inter divisional basis is always putting the best unified position forwards on all our services to the customer. So enhancing on sales capability on cross selling has already yielded results. And one of our key target areas is the Pratt and Whitney supply chain and we've just managed to secure a long term purchase agreement with our Tier one supplier there with this approach.

[Jim Fairbairn, CEO & Director at Bodycote]

In terms of organic investment, we're in the process of two major U. S. Upgrades, essentially creating two entirely new expanded aerospace and defense sites that will give us significantly extra capacity. We can see from our customers' order books that the demand picture is good and we are positioning ourselves for that. Thirdly, we think there is untapped opportunities around how we can combine our services for our aerospace customers.

[Jim Fairbairn, CEO & Director at Bodycote]

It's specifically beneficial for additive manufacturing in aerospace and for industrial gas turbines. And our customers have been inquiring about it for some time. So as you can see, we are laying the foundations for an acceleration in growth going forward for these target markets. It's really about very specific and targeted investment that will deliver for the customer. Moving on to confidence in the second half.

[Jim Fairbairn, CEO & Director at Bodycote]

As I said earlier, we see increased second half profit and that's for three key reasons. Firstly, in the market environment, whilst there is clearly uncertain macro outlook, we expect continued growth in aerospace and defense and industrial gas turbines. We saw some of that coming through already in May and June. Secondly, we see profit improvement in Specialist Technologies reflecting the recent order wins. The HIP business order book has benefited from a sizable win in U.

[Jim Fairbairn, CEO & Director at Bodycote]

S. Defense. And the team in surface treatment have been working hard to backfill with oil and gas projects from The Middle East. And lastly, because of the optimized program we are successfully delivering, we expect benefits to ramp up in the second half and we have enacted the majority of the overhead savings towards the end of the first half, which help underpin the full £4,000,000 to £5,000,000 full year benefit. Taking all of these elements together means our full year outlook is unchanged and we remain on track and in line with market expectations.

[Jim Fairbairn, CEO & Director at Bodycote]

We remain focused on operational delivery and also strict cost control. We will improve operating profit in the second half and we will continue to progress at pace on optimize, perform and grow. We remain focused on creating the higher quality, more resilient and faster growing Body Co. And remain confident in the delivery of our medium term targets. With that, we will open up to questions.

[Jim Fairbairn, CEO & Director at Bodycote]

And for those of you listening online, you can submit questions via the webcast service. Thank you. Can we get the mic here? Andy, do you want go first?

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Good morning, gents. Thank you for the presentation. I've got three questions. Do want me to do one at a time or do want

[Benjamin Fidler, CFO & Director at Bodycote]

take

[Jim Fairbairn, CEO & Director at Bodycote]

No. Go ahead Okay. Take them

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Let's crack on then with Optimize. Can you help us understand two things within Optimize? What exactly is it that's allowing you to execute ahead of plan from a cost side? I think you took £5,000,000 Is that conservative guidance? Or is it once you start you realize that actually there's more opportunity?

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Or what's driving that improvement? And secondly, the scope. You've increased the scope. Why is that? And is that all that you now need to do given the current market environment?

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Or is there scope for more scope? Second question is on capital allocation. Pounds 30,000,000 buyback, yes, very sensible. But you also talked about the pipeline and the M and A pipeline. I just really want to understand really how that's building and what is the aspiration here?

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Clearly, you've got a strong balance sheet. Can do lots with it. So I just want to make sure I understand kind of where we're at in your thought process. And then last one for Ben on cash no, not cash tax. On the second half guidance, clearly we've got Specialist Tech is a big chunk of that second half improvement.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Just want to understand the confidence maybe now compared to May or the confidence that some of that slippage we've seen into the second half doesn't go into 26%?

[Jim Fairbairn, CEO & Director at Bodycote]

Okay. Let me take the first two then Ben and pass to you. Sure. I think in terms of the Optimize program, I mean we're very happy with the progress. As you see Andy we're executing at lower cost.

[Jim Fairbairn, CEO & Director at Bodycote]

I think we're on track at being able to retain the revenues that was in the model. And that's obviously a key part of the improved profitability and margin. And I think what's two things. I think we've actually realized that if we move at pace in terms of the site and also in overhead then it just brings us more confidence about executing. And the other point about execution I mean execution is that we put in a very robust program management framework.

[Jim Fairbairn, CEO & Director at Bodycote]

This us more confidence about executing. And the other point about execution I mean execution is that we put in a very robust program management framework real time. And I think that has been kind of very important for us. I think we've always wanted to be proactive around the optimized program and be on the front foot. So therefore, we took a fresh as I said in my prepared remarks, we took a fresh look considering the underlying market base, especially in automotive and general industrial.

[Jim Fairbairn, CEO & Director at Bodycote]

And we saw the opportunity to because of the confidence we had in execution of expanding that program and we have expanded the program and we've also kind of divested. The upshot is that we will deliver more and it's going to cost less. That's this is the program. So unless there's material macro shifts, which none of us can predict then we expect that this will be a final part of the optimize program. Just on your M and A comment question sorry.

[Jim Fairbairn, CEO & Director at Bodycote]

I mean M and A is actually an important part of the growth story going forward. Ben and I both said that we're increasing the pipeline there. So we haven't got any deals imminent at all. The key thing about the pipeline is that it's targeted focused and also high quality. And it has to be aligned to the strategy and either has an element of structural growth quality or some kind of technical differentiation or a combination of both.

[Jim Fairbairn, CEO & Director at Bodycote]

And that's so building that pipeline, building the relationships, talking to people does actually take time. But we will make sure we take our time, but do it properly and be disciplined around the capital requirements can afford that. The Board continually reviews capital allocation, acquisition pipeline. We have very sensible robust and quite insightful discussions. And I'm really happy that we're all aligned on acquisitions going forward.

[Jim Fairbairn, CEO & Director at Bodycote]

The sweet spot for acquisitions for us is further Lake Cities and that's really what we're trying to build into the pipeline.

[Benjamin Fidler, CFO & Director at Bodycote]

Thanks. And I'll pick up on the question then about sort of second half guidance and our confidence levels around that and why. So essentially there's probably like three or four main buckets and drivers of that which we did lay out on the slides, but just to step through those and maybe lift the lid a little bit more. There's the optimize benefits. As you heard everything we're saying, we're executing well.

[Benjamin Fidler, CFO & Director at Bodycote]

It's on track. And for the full year, we're very confident in delivering around 4,000,000 to £5,000,000 profit benefit from that, of which you saw probably about £1,000,000 in the first half of the year. So quite a significant level of ramp up in the second half. That's kind of the first bucket. Secondly, there's the aerospace improvement, which again your question was well how did our confidence factor sort of compare to May?

[Benjamin Fidler, CFO & Director at Bodycote]

Much more confident about aerospace. It wasn't that we weren't confident in May because the fundamental demand is 100% there in the aerospace industry, supply chain having a few challenges of getting its acting gear. What we clearly saw in May and June was quite a material improvement in the aerospace end markets. So remember in the first four months aerospace was up just under 2%. It was up almost 6% in May and June.

[Benjamin Fidler, CFO & Director at Bodycote]

So that gives us incremental confidence that that momentum in aerospace can and will continue through the second half. And then the third piece that we've already touched on in the presentation a bit was really in Specialist Technologies. In hip product fabrication, which is probably our most backlog driven business, Jim referred to that $10,000,000 The presentation of it was really in Specialist Technologies. In hip product fabrication, which is probably our most backlog driven business, Jim referred to that $10,000,000 order for defense equipment for valve parts used in naval industry and things that might go spend more time under the sea than on top of it. And that was only secured in sort of midway through the first half.

[Benjamin Fidler, CFO & Director at Bodycote]

And more than half of that will trade this year, none of which traded in the first half as an example. So it gives us confidence things like that, as well as those oil and gas surface technology new contract wins ramping up to replace the contract that ended. So Specialist Technologies we've got good line of sight that will get improvement there. And then the final driver which is a slightly more arcane technical guidance y point, but it's just share based payments. If you look at what it was in the first half, you look at what we're guiding in the full year, it basically be about £1,000,000 lower in H2 than it was in

[Jim Fairbairn, CEO & Director at Bodycote]

H1.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Very clear.

[Jim Fairbairn, CEO & Director at Bodycote]

Thanks, Andrew. Thanks, Gus. Jonathan?

[Analyst]

Good morning, guys. This is Jonathan Fargas. I just have three questions as well please. Firstly, just in terms of those French sites, can you just give us a feel for the absolute profit number of those? And as we look to '26, obviously that's going to fall out. What kind of savings are we going to get from optimizing 2026? That was the first one. The second one was just about these contract wins at Specialist Technology.

[Analyst]

Obviously that's been good in H1. If we kind of look at the cadence of those contracts are we kind seeing sort of an uptick in terms of your win rate there? And can that continue going forward? And then thirdly was just in terms of auto obviously challenging end market down for you in the first half. Can you just sort of talk us through what's happening there?

[Analyst]

Are you managing to get market share? Are you managing to get into the battery electric vehicle sort of powertrain angle which you were looking at quite heavily in terms of the Investor Day? Just some color there please.

[Jim Fairbairn, CEO & Director at Bodycote]

Yes. I'll do the automotive Ben and then pass to you and for the other two. Automotive as a market is obviously remains challenging. We did actually see sequential progress, but I don't think that's any bellwether for recovery. It remains actually very difficult.

[Jim Fairbairn, CEO & Director at Bodycote]

We do have some bright spots in automotive. China and Mexico are our bright spots. In China last year, we deliberately changed the focus to a more domestic kind of targeted And we also made a local management change. So the new General Manager there is actually a local Chinese who is amazing. So I think that was actually very good and China's growing very nicely.

[Jim Fairbairn, CEO & Director at Bodycote]

The other market that is doing well is actually Mexico. Year on year we're up just over 10%. And that has been from some program wins local to Mexico. And we're not seeing any tariff issues there at all. And at some point, we're going to run out of capacity in our two kind of automotive sites.

[Jim Fairbairn, CEO & Director at Bodycote]

So the Board and I and Ben were debating a few weeks ago on how we can think about it. It's a good problem to have. Very different in The U. S. And Europe where light vehicle production is actually down low to mid single broadly reflecting performance.

[Jim Fairbairn, CEO & Director at Bodycote]

In fact, we're slightly worse in North America than we are in Europe, which maybe is a little bit of a surprise, both are down very, very similar numbers. So we thought we had actually hit the bottom the second half of last year. We must we think we must be around there, but we're certainly not calling any type of recovery. And certainly in terms of our agnostic work, very much okay we're holding share. We're winning share in some programs.

[Jim Fairbairn, CEO & Director at Bodycote]

The most important thing for me that I talk to the teams is that we're not losing share. That's like leakage we don't accept in the business and I'm confident that's actually true. Ben?

[Benjamin Fidler, CFO & Director at Bodycote]

Okay. Let me pick up on some of the others and there was also specialist technology contract win rates and so whether you want me to pick up on that or use But have a think while I'm answering the first So on the French side, can we give you an absolute profit number? Quite simple answer, no, because of commercial sensitivity. But let me give you some parameters that may help you figure something out there. So what was the exit multiple on the sale? Not surprisingly, it is a little below the group multiple that we trade on.

[Benjamin Fidler, CFO & Director at Bodycote]

And that sort of shouldn't surprise you in the context of these are lower margin sites, quite significantly lower margin than the group overall. They are auto and GI focused. And clearly they are France, Western Europe focused, so structurally probably lower growth. But the multiple wasn't I mean don't it was a lower than the group level of multiple, but we still think actually overall we were quite pleased with the multiple we achieved on those recognizing the genre of assets that was in there. And for us on the economics of the transaction recognizing that a number of those sites would have been closed as part of the Optimize program and would have been quite expensive to close as part of the Optimize program, so much more attractive economics.

[Benjamin Fidler, CFO & Director at Bodycote]

Your second question was around what savings we could expect from Optimize. We've tried to be unusually helpful actually. And on Slide 26 in the appendix is some more details optimizer. Think that gives you the numbers you probably want there, but let me just voice over the ones. So for this year, we're saying we expect 4,000,000 to £5,000,000 of optimised profit benefit.

[Benjamin Fidler, CFO & Director at Bodycote]

For next year, we're saying we expect around a £10,000,000 optimised benefit. And then that full run rate of at least £15,000,000 achieved by the 2027. You can also see there what we've tried to lay out how we expect the cash cost and the P and L cost to be phased. And the cash cost this year just worth unpicking that broadly neutral cash cost comment, 7,000,000 of cash costs in the first half in the cash flow statement. The same broadly neutral for the full year.

[Benjamin Fidler, CFO & Director at Bodycote]

Remember you will see that split between two line items of the cash flow for the accounting nerds, which is you'll see the restructuring cost and you'll see an M and A disposal proceed. And when we talk about broadly neutral, we're talking about the net of those two because that is the economics of the optimized program, but don't put zero in your restructuring line for your cash flow or you'll have the wrong numbers. Hopefully that's clear.

[Jim Fairbairn, CEO & Director at Bodycote]

Yes. And on the SpecTech, I mean clearly SpecTech had a from the numbers were a challenge in the first half compared to the first half of last year. We did have a bright spot and that's obviously aerospace, which is was up 7% in Specialist Technologies. A lot of that's coming from engine related and also finished parts in North America, which we're very, very pleased with. I think the other key thing is that from P4 trading statement, you saw that the SPECT TECH was down 11.5% and at the half year it was down just over 7%.

[Jim Fairbairn, CEO & Director at Bodycote]

We actually slightly grew in P5 and P6 in Spectre. So I think that gives us confidence again for the second half. Energy has been impacted the most. So obviously the new oil and gas wins is actually very important for the second half. Industrial and spec tech has been a mixed picture.

[Jim Fairbairn, CEO & Director at Bodycote]

Much more difficult in Europe. We do quite a lot of extrusion work in our main one of our main hip sites in Germany and that's been challenging. I think we're starting to see some potential green shoots there which is actually good. So I think all in the aerospace momentum and the phasing of the hip product fabrication order book gives us confidence. And just the kind of oil and gas order book, the teams have actually really worked hard especially in The U.

[Jim Fairbairn, CEO & Director at Bodycote]

K. We service this at Stonehouse which is near Cheltenham. I think the teams have actually really been working hard to backfill that. It gives us confidence we're going to grow in the second half in Spectek. Behind you Jonathan and then we'll move half in Spectek. Behind you Jonathan and then we'll move.

[Harry Philips, Industrials Analyst at Peel Hunt]

It's Harry Phillips, Peel Hunt again. Sorry three from myself. Just sorry laboring on a little bit on Specialist The if I remember earlier in the year the hope was that Specialist Tech would sort of be flat for the year maybe even a smaller. But just to sort of cut to the chase really all the aspects you've been highlighting is that still essentially sort of achievable? The second is just on pricing.

[Harry Philips, Industrials Analyst at Peel Hunt]

Pricing has become an issue more recently with some of your broader peers. So just a thought around that. And then just on to the balance sheet. I mean, I remember right, your target leverage is sort of one plus. And if we do the buyback and we have the French money in and you end debt, let's say with 1.1 pounds 1.15 that's 0.6 leverage, which sort of is a comfortable distance below one times.

[Harry Philips, Industrials Analyst at Peel Hunt]

And obviously suggests that pipeline is sort of getting pretty full and pretty actionable. Is that the right way to view it? And then maybe just around the context of M and A, obviously, there is some competition. You've got some more focused peers, etcetera, etcetera. Is the availability in surface technology is that an active part of the pipeline please?

[Jim Fairbairn, CEO & Director at Bodycote]

So I'll do the pricing and just the specifics on the pipeline and to Ben. I think in terms of pricing, the reality is we're there's never a moment where there's not pricing pressure. And I think the way that the teams work with our customers, the way that we've passed on surcharges, the way that we've actually looked at gross margin through there and the way that we've entered into agreements around price, it's an important part of actually what we do. So I think we're not seeing any more undue pressure on pricing. And I think that's important going forward.

[Jim Fairbairn, CEO & Director at Bodycote]

On M and A, I mean, obviously, we surface treatment or surface yield technologies is part of the 65% where we talk about high growth, high margin areas. So you can imagine that there are targets within the pipeline that are focused on surface technologies. And I've actually met a few of the companies that you may be referring to. I only go back to what we said at the beginning. There's nothing imminent.

[Jim Fairbairn, CEO & Director at Bodycote]

We're much focused on bolt ons that give us additionality, either structural growth and or technology. And that's really where our focus is in the pipeline and where we really want to grow our business through bolt ons.

[Benjamin Fidler, CFO & Director at Bodycote]

Should I pick up on a couple of elements Maybe your first one and then the other element on the leverage point. So for Specialist Technology your question was like we said in May, do we still expect it could be flat for the year? I presume you're talking in OCC terms. Yes, we think it will be back to growth in the second half Specialist Technologies and therefore it should be flattish for the year is what we have line of sight of at the moment.

[Benjamin Fidler, CFO & Director at Bodycote]

And the second one on leverage. The target range is actually 0.5% to 1.5%. So we are within the range, but point taken we're kind of very much at the bottom end of that range. Jim's said enough on the M and A pipeline and where we are sitting on that at the moment. At the same point, what we clearly have to do as we think about leverage and whether it is right to do more buybacks, spend more on organic investment to drive growth, spend on M and A.

[Benjamin Fidler, CFO & Director at Bodycote]

When we think about spend more on organic investment to drive growth spend on M and A, when we think about leverages, you've got to build capacity within your leverage to enable you to be ready for actionability rather than say, okay, you're always going to be right in the middle of that 0.5 to 1.5 range because then when something actionable comes along, you're like, oh gosh, I wish we were a little bit below that to give us capacity to do that. So that's the other dynamic that we're mindful of. Remember the range is 05% to 1.5 So, okay, we're at the bottom end of the range. We're fine to be at the bottom end of the range with everything that's going on in the world at the moment and what we see at the moment.

[Jim Fairbairn, CEO & Director at Bodycote]

Good. And Harry do you want to pass the mic over? You've got it sorry.

[Thomas Elgar, Vice President at Deutsche Numis]

Tom Alger, Deutsche Numis. Just really want to do a deeper dive really into into the A and D market. So is there any sort of additional color you can give really around the sort of splitting between the A and the D parts within the first half and perhaps for the And year as obviously, Jim you touched on the capacity expansions or the upgrades that you're doing. Where does that get you in terms of capacity maybe on a two year view kind of a utilization rate within your assumptions? And then lastly obviously tracking industry news for some pretty bullish sort of numbers coming out from some of your end OEM customers in terms of engines for example.

[Thomas Elgar, Vice President at Deutsche Numis]

Can you chat to sort of I guess how we should think about sort of the growth formula for your A and D business? And is there anything regarding inventory in the channel that we need to think about and perhaps some pretty strong numbers out there? So just any comments you can give about how to think about that business?

[Jim Fairbairn, CEO & Director at Bodycote]

Yes. I'll talk about the first two Ben and then if you want to talk about some of the numbers. So in terms of aerospace and defense, I mean both we've this year we'll see good growth in aerospace and defense and aerospace and also defense. I think that's actually key. I think defense is actually growing slightly faster than aerospace, a lot of the programs are all with similar customers and it's actually very much focused on that.

[Jim Fairbairn, CEO & Director at Bodycote]

We're particularly seeing good growth in the East Coast Of The U. S. Where a lot of the engine work and all of the finished parts are. They are well ahead of budget. And for example, a visit the President of Aerospace in our company asked me to visit one of the sites that was actually earmarked for closure.

[Jim Fairbairn, CEO & Director at Bodycote]

It's in I won't say where it was, but it's on the East Coast. And they've actually taken the decision to stop all the low margin stuff and they've just been nat cap accredited. And the local General Manager there is focused on the aerospace business. So that is another avenue for growth. It's slightly different in the West Coast Of America where we have we do more of the upstream work around castings and forging.

[Jim Fairbairn, CEO & Director at Bodycote]

There's still a little bit of congestion within the supply chain. So it's not all kind of rosy. But obviously some of you I think Paris Air Show recently, I was there as well. I think the I mean the bullish mood around the supply chain and the majors is just fabulous. This is structurally this is a great business to be in for us.

[Jim Fairbairn, CEO & Director at Bodycote]

And we've also added in quite a bit of talent into our aerospace structure in terms of management talent, new President, new Vice Presidents and they will make a massive impact. It's a third of our business. We want it more than that and actually really grow. In terms of the capacity sites that you talked about now and actually really grow. In terms of the capacity sites that you talked about, there's actually two of them.

[Jim Fairbairn, CEO & Director at Bodycote]

One in Cincinnati, where we're moving from it's like an old kind of school with wooden beams everywhere to a brand new custom built facility designed for like workflow. So we've probably trebled the capacity. I mean within Cincinnati GE is our biggest customer there. They are absolutely delighted. That says something.

[Jim Fairbairn, CEO & Director at Bodycote]

The other move we're making is a site in Los Angeles where previously the site wasn't really fit for purpose for what we're doing and we're upgrading. That's more some of our other upstream work. It kind of goes there as well. So we are actually aligned with our customers' order books and just we will grow as actually they grow and these are industry published numbers.

[Benjamin Fidler, CFO & Director at Bodycote]

So yes, there's a couple of others just to answer and pick up on a bit of the detail. So as Jim said, yes, Defence grew more quickly than Commercial Aerospace did. The first half of the year Commercial Aerospace was up around 2% and Defence was up around six to 7%. And Commercial Aerospace was the piece that accelerated particularly in May and June, which is a reflection on that supply chain constraint effects that started to ease. And we'd expect for the full year good growth in both with commercial aerospace ramping up as supply chains continue to ease through H2, but also defense growth remaining very robust actually together with some opportunities that we are still pursuing for capturing more defense value in Western Europe, particularly in countries like Germany.

[Benjamin Fidler, CFO & Director at Bodycote]

Now that's going to take a number of years to ramp up even though stock markets have sort of reflected that in some German defense contractors immediately. But there's some interesting opportunities that we are actively pursuing there as well. So we see good growth continuing in both. Your question about the growth formula for our sort of aerospace business. Remember the dynamics roughly half our aerospace business is kind of engine related roughly.

[Benjamin Fidler, CFO & Director at Bodycote]

And overall probably about 60% of our aerospace business is original equipment and around 40% is aftermarket. Though it's hard to be totally precise on that, because most of our customers it's the same part where we make great money on both rather than making terrible money on one and fabulous money on the other. We make great on both. And so as far as the growth formula is concerned, looking at delivery volumes for aircraft is at the moment like 100% misleading because it looks amazing because Boeing is delivering such a huge amount out of inventory, which is good because that is also freeing up underneath them some of the supply chain as they're bleeding through that inventory. But the actual level of production ramp up is clearly below the delivery output in particular for Boeing.

[Benjamin Fidler, CFO & Director at Bodycote]

Both Airbus and Boeing continue to increase their build rates. There are these pockets of tightness that we still see in the supply chain. And as Jim alluded to, if you look at the geographic difference of our aerospace business, castingsforging still a bit of a difficult spot. That was reflected in our business on the West Coast in the first half where more finished product engine related parts on the East Coast and quite a lot more aftermarket related parts and finished products for blades and stuff. That was very strong in the first half.

[Benjamin Fidler, CFO & Director at Bodycote]

So there's still, I would say, quite a bit of mismatch in the kind of speed between the different sort of four lanes of the motorway on aerospace supply chains. That will resolve. It will normalize because it has to. But I think it's going to take realistically another twelve months before that sort of settles down fully. But the fundamental demand still remains very strong.

[Benjamin Fidler, CFO & Director at Bodycote]

And Airbus Boeing the engine OEMs would love to be producing more stuff if the supply chains were able to support that. We certainly are. Jim talked about some of the capacity expansions that we're doing in The U. S. In our aerospace business and it's not just in The U.

[Benjamin Fidler, CFO & Director at Bodycote]

S. We're also doing some stuff in Europe as well now.

[Jim Fairbairn, CEO & Director at Bodycote]

To the hand. Thanks.

[Andrew Simms, Senior Equity Analyst at Berenberg]

Thanks. It's Andrew Sims from Berenberg. Just a few questions on Forte Aerospace again. Just on the Pratt partner agreement. Can you maybe just give a bit more color on that?

[Andrew Simms, Senior Equity Analyst at Berenberg]

When we can expect to see that impact? What sort of growth it's going to add? I suppose maybe the competitive position around that why you won and who against? And then just on the comp from last year in H2 for Aerospace, obviously, it was a tough time. Can you just remind us what sort of the shape of that was?

[Andrew Simms, Senior Equity Analyst at Berenberg]

That would be very useful. And then finally just on the HIP order in defense. Is that part of a program? Is there more to come from that? And given your position in that technology, is that something that we should be expecting to see more of? Thanks.

[Jim Fairbairn, CEO & Director at Bodycote]

Okay. Well, I'll do the HIP and if you can do the aerospace please Ben. HPF is a very interesting segment in our business. It's one of the true growth areas we have because the company business development is actually all about looking at potential applications can be done through castings and forgings or fabricated parts and stuff going in and see the customer and say look we can do this cheaper more integrity, more reliability. We can fabricate any material you want.

[Jim Fairbairn, CEO & Director at Bodycote]

We don't have any welds minimal machining. It's just so every month, quarter, six months the team are actually finding new applications and piloting and testing. So it is a true business development rather than winning share. It's like breaking new ground and all this stuff. So I think that is an important element of the growth story and we've actually recently dedicated resource to further expand in the number of applications within that.

[Jim Fairbairn, CEO & Director at Bodycote]

In fact, we did an external study about six or seven months ago that showed all the growth avenues to take this business and we've got dedicated teams. So I think that is an exciting avenue that we're going to really look at over the next twelve twenty four months. The specific one I think you talked about in U. S. That's not a new customer and that's it's just it's a sizable number.

[Jim Fairbairn, CEO & Director at Bodycote]

Ben talked about $10,000,000 approximately half of that revenue this year and the other half. And that's a continuing program that we do quite a lot of work with in defense and because of all the things that I mentioned high integrity, low failure rate, there's nothing really we put these units at the bottom of the sea. They just don't feel the same way that other kind of things actually can. So that's so I think it's a real growth story for us going forward.

[Benjamin Fidler, CFO & Director at Bodycote]

Yes.

[Benjamin Fidler, CFO & Director at Bodycote]

So there were two others. There was the Pratt and Whitney long term partnering agreement. It wasn't first point it was with a Tier one supplier to Pratt. It wasn't directly with Pratt. But still that's exactly what we want.

[Benjamin Fidler, CFO & Director at Bodycote]

At the end of the day it's exposure into Pratt and Whitney and we've also got a pipeline of other opportunities. We won it from another third party heat treat supplier who yes, we were pleased with that win. It's a name you may well be familiar with. We won it why do we win it? We won it primarily on service quality because that other supplier had been falling short on service quality and turn time in particular.

[Benjamin Fidler, CFO & Director at Bodycote]

And we had a much more compelling proposition. And there's a few others behind this that we're also hoping that we can execute on over the coming six months, twelve months or something. So hopefully this is not the start of it's not the end of our inroads into Pratt and Whitney and its supply chain. It's the start of that and there's other options there. As far as your other question about the first half, second half aerospace comp base.

[Benjamin Fidler, CFO & Director at Bodycote]

So last year first half aerospace, aerospace and defense was up 15%, 14.5%. Second half it was up just over 3%. And in particular it saw a very big tail off as you may remember in the fourth quarter of the year last year. First half of this year as you saw from these numbers it's up three on what was a more challenging comp base. So as we go through the second half, not only are we: a) carrying better momentum, witness those Q2 run rates in Aerospace and Defense, but also we're entering a period of significantly easier comps particularly for the fourth quarter of this year. Hopefully that gives you what you need.

[Jim Fairbairn, CEO & Director at Bodycote]

Q4 was

[Benjamin Fidler, CFO & Director at Bodycote]

Q4 was probably close to nil I think. I'd have to yes, I think it was nil. It might have been yes, I don't think it was mildly negative, but it was nil.

[Jim Fairbairn, CEO & Director at Bodycote]

Thank you. Any other questions? There's nothing from the web. So thanks for coming. Just in summary, I think the market backdrop remains tough.

[Jim Fairbairn, CEO & Director at Bodycote]

We have seen good momentum especially May and June and that gives us confidence for the second half in terms of profitability and also SpecTech. Full year outlook unchanged. I'm particularly pleased around the group progress strategy and also the improved economics around the Optimize program. And obviously, we've just announced the share buyback. So thanks for coming and we'll see you out there for a cup of tea. Thank you.

[Benjamin Fidler, CFO & Director at Bodycote]

Thanks.

Participants

Executives

• Jim Fairbairn, CEO & Director
• Benjamin Fidler, CFO & Director

Analysts

• Andrew Douglas, Managing Director at Jefferies Financial Group
• Analyst
• Harry Philips, Industrials Analyst at Peel Hunt
• Thomas Elgar, Vice President at Deutsche Numis
• Andrew Simms, Senior Equity Analyst at Berenberg