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Directors’ Report | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Directors are pleased to submit their report and the audited financial statements for the year ended 31 December 2007. The Chairman’s Statement, the Group Business Review, the Report of the Audit Committee, the Board Report on Remuneration and the details of the Board of Directors and Advisers together comprise the Directors’ Report for the year ended 31 December 2007. PRINCIPAL ACTIVITIES The Company is a holding company with subsidiaries carrying on business in the fields of thermal processing and testing services. The activities and locations of these undertakings are set out in the Principal Subsidiary Undertakings section. The Group Business Review contains a survey of the Group’s activities, significant acquisitions and disposals during the year together with an outline of future developments. GROUP BUSINESS REVIEW The enhanced business review for the Group, is provided in the Group Business Review section of this annual report. This is a review of the development of the businesses of the Group, including the financial performance during the year ended 31 December 2007, key performance indicators and a description of the principal risks and uncertainties facing the Group. The Group Business Review has been prepared solely to assist the shareholders in assessing the Group’s strategies and the potential of those strategies. It should not be relied on by any other party for any other purpose. Forward-looking statements have been made by the Directors in good faith using information available up to the date of this report and such statements should be regarded with caution because of the inherent uncertainties in economic trends and business risks. Since the end of the financial year no important events affecting the business of the Group have occurred. TRADING RESULTS The profit of the Group before taxation was £68.5m (2006: £46.6m). Profit attributable to shareholders amounted to £52.8m (2006: £43.1m) and, after providing for dividends of £23.4m (2006: £21.0m) and other items of recognised income and expense, the balance of £31.0m (2006: £20.0m) has been transferred to reserves. DIVIDENDS The Board is recommending a final dividend of 5.25p per share making a total relating to the year of 8.0p per share (2006: 7.0p). The final dividend, if approved, will be paid on 4 July 2008 to shareholders on the register at the close of business on 6 June 2008. CAPITAL STRUCTURE Details of the authorised and issued share capital are shown in note 24. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. There are no specific restrictions on the size of a holding nor on the transfer of shares, both of which are governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights. Details of employee share schemes are set out in note 28 and shares held by the Bodycote International Employee Benefit Trust abstain from voting and waive dividend. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid. The appointment and replacement of Directors is governed by the Company’s Articles of Association, the Combined Code, the Companies Act and related legislation and the Articles of Association may be amended by a special resolution of shareholders. The powers of the Directors are described later in this report. Under the Articles of Association the Company has authority to issue 107,831,930 ordinary shares. There are also a number of other agreements that take effect, alter, crystallise or terminate upon a change of control of the Company following a takeover bid such as commercial contracts, bank loan agreements, property lease agreements, employment contracts and employee share plans. None of these are considered to be significant in terms of their likely impact on the business of the Group as a whole, and the Directors are not aware of any agreements between the Company and themselves or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid. SHARE CAPITAL The Company’s issued share capital as at 31 December 2007 was £32.4m and during the year was increased by the issue of 1,505,161 shares of 10p each between 28 February and 16 November 2007 for a total consideration of £3,058,868 pursuant to options granted under the Company’s executive share option schemes. At the annual general meeting on 23 May 2007 the shareholders have authorised the Company to purchase up to 32,216,806 of its own shares, and the Company purchased 2,025,000 shares with a nominal value of £202,500 for a total consideration of £3,672,973 to be held in treasury. This authority expires at the conclusion of the forthcoming Annual General Meeting to be held on 30 April 2008, at which time a further authority will be sought from shareholders. DIRECTORS The current Directors are listed in the Board of Directors and Advisors section and, with the exception of Mr Biles who was appointed on 16 August 2007 and Mr Thomson who was appointed on 1 December 2007, all served throughout the year. Mr R.T. Scholes retired as a director on 16 August 2007 having served for 9 years as a non-executive director. Messrs J.D. Hubbard and J. Vogelsang are retiring by rotation and, in accordance with the articles of association and each being eligible, offer themselves for re-election at the forthcoming Annual General Meeting. Messrs A.M. Thomson and J.A. Biles, appointed as directors since the last annual general meeting, and both being eligible, offer themselves for election by shareholders at the forthcoming annual general meeting. As previously announced the chairman, Mr J.A.S. Wallace will step down as a director at the conclusion of that meeting. The service agreement for Mr Hubbard is terminable by one year’s notice. Messrs Thomson, Biles and Vogelsang do not have service agreements with the Company. DIRECTORS’ INTERESTS IN CONTRACTS & SHARES Details of the Executive Directors’ service contracts and details of the Directors’ interests in the Company’s shares, share option schemes and share incentive plans are shown in the Board Report on Remuneration. No Director has had any dealings in any shares or options in the Company since 31 December 2007. Qualifying third party indemnity provision (as defined by section 309C of the Companies Act 1985) has remained in force for the Directors for the year ended 31 December 2007 and, as the date of the report, remains in force for the benefit of the current Directors in relation to certain losses and liabilities which they may incur (or have incurred) to third parties in the course of their duties. Apart from these exceptions, none of the Directors had a material interest in any contract of significance in relation to the Company and its subsidiaries at any time during the financial year. CORPORATE GOVERNANCE The Group’s mission is:
The Group’s aim in terms of corporate governance is, therefore, to sustain and support these objectives over the longer term. Compliance with 2006 Combined Code Bodycote complies with the provisions of The Combined Code on Corporate Governance published by the UK Financial Reporting Council in June 2006 (‘the Code’), save in the following two areas where the reasons for the variance are noted:
Operation of the Code Taken together with the Audit Committee Report and the Board Report on Remuneration, this statement explains how Bodycote has applied the principles of good corporate governance set out in the Code. Leadership The Board of Directors comprises eight members, of whom four are independent Non-Executive Directors and three are Executive Directors led by the Company’s part-time Non-Executive Chairman, Mr J.A.S. Wallace, who also chairs the Nomination Committee. The Chief Executive is Mr J.D. Hubbard. The Deputy Chairman i Mr A.M. Thomson, who will become Chairman after the annual general meeting on 30 April 2008, and the Senior Independent Non-Executive Director is Mr J. Vogelsang, who also chairs the Remuneration Committee. The Audit Committee is chaired by Mr J.A. Biles. Brief biographical details of all Directors are given in the Board of Directors and Advisors section. The Board meets at least eight times a year and visits are made to UK and overseas facilities. Certain defined issues are reserved for the Board to decide, inter alia:
Where required, a Director may seek independent professional advice the cost of which is reimbursed by the Company, all Directors have access to the Company Secretary and they may also address specific issues to the Senior Independent Non-Executive Director. In accordance with the articles of association all newly appointed Directors and any who have not stood for re-election at the two previous Annual General Meetings, if eligible, must submit themselves for re-election. Non-Executive Directors, including the Chairman, are appointed for fixed terms not exceeding three years from the date of first election by shareholders, after which the appointment may be extended by mutual agreement. A statement of the Directors’ responsibilities is set out later in this report. The Board also operates three committees. These are the Nomination Committee, the Remuneration Committee and the Audit Committee. Independence of Non-Executive Directors The Board considers that Messrs A.M. Thomson, J.A. Biles, J. Vogelsang and L.P. Bermejo are all independent for the purposes of the Code. Commitment Attendance of Directors at regular scheduled meetings of the Board and its Committees is shown in the table below. In addition there were eight further unscheduled telephone conference meetings of the Board, and a number of ad hoc committee meetings to deal with nomination and bid response issues, which considerably added to the planned workload for Directors.
Performance Evaluation All Executive Directors were appraised internally during 2007. In February 2008 the Board carried out its own evaluation of the Board as a whole. The Remuneration and Nomination Committees reviewed their own performance in October 2007 and the Audit Committee reviewed its performance in November 2007. The Chairman assessed the performance of Messrs L.P. Bermejo and J. Vogelsang in October 2007 and Mr J. Vogelsang assessed the performance of Mr Wallace as Chairman in October 2007. Nomination Committee Mr J.A.S. Wallace chairs the Nomination Committee which also comprises Messrs A.M. Thomson (from 1 December 2007), J.A. Biles (from 16 August 2007), J. Vogelsang, L.P. Bermejo and J.D. Hubbard. The meetings in 2007 proposed the nominations for re-election at the 2007 Annual General Meeting, and discussed general succession planning and specific positions. During 2007 the Committee also recommended the appointments of Mr Thomson as Deputy Chairman to succeed Mr Wallace at the 2008 Annual General Meeting and Mr Biles as Audit Committee Chairman in each case following preparation of a job specification, the appointment of external search consultants, and interviews with candidates. Proposals for Re-election Mr Vogelsang has served as an independent non-executive director since 2003, Remuneration Committee Chairman since 2004 and Senior Independent Non-Executive Director since 2007. Following a performance evaluation carried out by the Chairman in October 2007 his performance was determined to be effective and that he has devoted time and commitment (having recorded 100% attendance at all regular scheduled Board and committee meetings since appointment in 2003). Following a performance evaluation by the Chairman in February 2008, the Board also proposes the re-election of Mr J.D. Hubbard as a Director. Internal Control The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has applied Principle C.2 of the Code by establishing a continuous process for identifying, evaluating and managing the Group’s significant risks, including risks arising out of Bodycote’s corporate and social engagement. The Board continuously and regularly reviews the process, which has been in place from the start of 2000 to the date of approval of this report and which is in accordance with Internal Control: Guidance for Directors on the Combined Code published in September 1999. The Board’s monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from management and from internal audit to consider whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The Audit Committee assists the Board in discharging these review responsibilities. During 2007, in compliance with provision C.2.1, the Board also performed a specific assessment for the purpose of this annual report. The assessment considered all significant aspects of internal control arising during the period covered by the report including the work of Internal Audit. In addition, the Managing Director of each of the Group’s Strategic Business Units reported on the existing internal control procedure and any failings or weaknesses. They identified and made an assessment of the risks affecting the businesses they control, in each case with the assistance of input from those reporting directly to them. Such risks were measured against their own stated objectives, and actions for any improvements were scheduled against a timetable for later verification by Internal Audit. No significant previously unidentified risks were uncovered as part of this process, and the necessary actions have been or are being taken to remedy any significant failings or weaknesses identified as part of the review. Investor relations The Chief Executive and Finance Director regularly talk with and meet institutional investors, both individually and collectively, and this has enabled institutional investors to increase their understanding of the Group’s strategy. The business of the Annual General Meeting now comprises a review of the Group’s operations for the benefit of shareholders attending. In addition, since 1998, internet users have been able to view up-to-date news on the Group and its share price via the Bodycote website at www.bodycote.com. Users of the website can also enrol free for a service that automatically notifies them of results announcements and recent significant Group events. Bodycote’s financial advisers, corporate brokers and financial public relations consultants provide Directors with opinion surveys from analysts and investing institutions following visits and meetings with the Chief Executive and Finance Director. Non-Executive Directors are themselves invited to attend analysts’ presentations at the time of the regular results announcements. As stated previously in this report the Chairman, Deputy Chairman and Senior Independent Non-Executive Director are available to discuss any issues not resolved by the Chief Executive and Finance Director. On specific issues, as with the introduction in 2003 of the share option scheme, in 2005 with the stock bonus plan, in 2006 with the introduction of long term incentive and share matching schemes, and in 2007 with the bid approach from Sulzer AG, the Company will seek the views of leading investors. EMPLOYMENT The Group recognises the value that can be added to its future profitability and strength by the efforts of employees. The commitment of employees to excel is key to the Group’s continued success. Through their attendance at, or participation in, production, safety and health meetings at site level, employees are kept up to date with the performance and progress of the Group, the contribution to the Group made by their site and are advised of safety and health issues. During 2007 the Group published, via the Group extranet, two ten language editions of ‘EveryBody Extra’ an electronic magazine for all staff detailing the Group’s activities, performance and some of its personalities. Approximately 2,500 Bodycote employees are connected to the Bodycote extranet, which will improve knowledge of Group activities, and assist greatly with technology exchange and co-ordination. The winter 2005 edition of ‘EveryBody Extra’ featured the Group’s open door policy under which employee concerns can be voiced on a confidential basis. It is the Group’s policy to give full and fair consideration to applications for employment from disabled persons, having regard to their particular aptitudes and abilities, and to encourage the training and career development of all personnel employed by the Group, including disabled persons. Should an employee become disabled the Group, where practicable, will seek to continue the employment and arrange appropriate training. An equal opportunities policy is in operation in the Group. RESEARCH AND DEVELOPMENT Product development and quality improvement at all Group companies is a continuous process. The Group has a policy of deploying the best technology available and actively seeking improvements. It also conducts research programmes with its customers. DONATIONS Charitable donations during the year net of income tax amounted to £10,650 (2006: £16,600). There were no political contributions. CREDITORS POLICY Group operating companies are responsible for agreeing the terms and conditions under which business transactions are conducted. It is Group policy that payments to suppliers are made in accordance with the terms agreed, provided that these suppliers have also complied with applicable terms and conditions. Creditor days at the year end for the Company were 45 days (2006: 45 days). SHAREHOLDERS An analysis of the Company’s shareholders and the shares in issue at 18 February 2008 and details of major shareholders’ interests appearing in the register maintained pursuant to Section 211 of the Companies Act 1985 are given in the Sharholder Analysis. AUDITORS In accordance with the provisions of section 384 of the Companies Act 1985, a resolution for the reappointment of Deloitte & Touche LLP as auditors is to be proposed at the forthcoming Annual General Meeting. Each Director of the Company states that, in accordance with and as defined by the Companies Act 1985:-
DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Annual Report, the Board Report on Remuneration and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. The Directors are required by the IAS Regulation to prepare the group financial statements under IFRSs as adopted by the European Union. The group financial statements are also required by law to be properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. International Accounting Standard 1 requires that IFRS financial statements present fairly for each financial year the Company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. However, Directors are also required to:
The Directors have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The parent company financial statements are required by law to give a true and fair view of the state of affairs of the company. In preparing these financial statements, the Directors are required to:
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. ANNUAL GENERAL MEETING The 2008 Annual General Meeting will be held on 30 April 2008 in accordance with the notice being sent to Shareholders. By order of the Board.
J.R. Grime Hulley Road |
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