After an eventful and successful year, Bodycote produced record sales and headline operating profits building on five years of annual improvement. Sales increased 14.7% to £640.5m (2006: £558.6m) and operating profit was up 34.0% to £78.8m (2006: £58.8m). Despite the recent general and specific concerns of the stock market, I am confident that with the increased financial rigour and discipline we have demonstrated in recent years, coupled with the high level of entrepreneurial flair across the Group, Bodycote will continue to prosper and that financial markets will, in due course, reflect the value our customers and staff already recognise in the business.

The board is recommending a final dividend of 5.25p per share (2006: 4.5p), an increase of 16.7%, to be paid on 4 July 2008 to all shareholders on the register at the close of business on 6 June 2008. The total proposed dividend in respect of 2007 is therefore up by 14.3% to 8.0p per share (2006: 7.0p) of which 2.75p per share (2006: 2.5p) has already been paid as an interim dividend. The 2007 total dividend is covered 2.1 times (2006: 1.9 times) by basic earnings per share.

Thermal Processing, the major part of our business, has shown significant improvement in 2007 and we expect that it will continue to do so. Europe, accounting for approximately 70% of sales, performed particularly well in 2007 with good growth from all sectors and return on capital employed of 13.0%. We expect to see further improvement in 2008. In North America there have been areas of strength, primarily related to the aerospace, power generation and oil & gas sectors and areas of softness related to general engineering and automotive, but overall our business continues to grow. In the developing economies of Latin America Eastern Europe, the Middle East and Asia our footprint is expanding successfully. These long term initiatives are being financed with an inevitable impact on short term performance.

We have grown significantly our Testing businesses over the last three years increasing our range of services across a wider geographical network. This is an exciting and attractive area of our overall business but the results to date, although satisfactory, are below where we expect to be in future.

When I became Chairman in 2002, Bodycote was overstretched and market conditions underwent a severe downturn. Return on capital employed had fallen below the cost of capital. Under the leadership of Chief Executive John Hubbard and with the mantra of restoring our return on capital, we have spent the last six years reshaping and improving the business. We have come a long way in that time and now have a pre-tax return on capital of over 11% and a strategy and commitment to achieve much more. Bodycote today is a far stronger and more resilient business and we have a track record of successfully meeting the challenges that inevitably face any business.

We are committed to a long term approach which implies that we will be professional, ethical and rigorous in all that we do. Being disciplined without being bureaucratic, Bodycote will continue to foster the right entrepreneurial and safe working environment for all our staff. We continue to review all aspects of the business and strategy to ensure that we respond to and take advantage of opportunities as they arise.

In February 2007 Sulzer AG made a takeover approach for the Company but eventually withdrew when it was clear that a majority of shareholders and the Directors believed that the Company was worth more than Sulzer indicated.

Early trading results suggest that 2008 will be another record year for Bodycote. We continue to invest in the business, but we are vigilant in ensuring that Bodycote is in a position to respond to any significant change in economic conditions.

I have served Bodycote as a director since 1994 and am privileged to have been Chairman for the last six years. There have been significant changes and progress during this time with much more to come. The process of refreshing the Board has already commenced. John Biles has joined us as Chairman of the Audit Committee and the Chairman’s baton will pass on at the AGM to be held on 30 April 2008. I wish my successor Alan Thomson, who was appointed to the board in December 2007, and everyone at Bodycote continued success.

Finally, I would like to thank everyone at Bodycote for their commitment and dedication and for the support they have given me personally and to the Company.

James Wallace
26 February 2008