From Mexico to China – how Bodycote showed its exporting mettle

This article is reprinted with permission and first appeared in the October 2013 edition of Global Trader Magazine.

Eric Jackson meets the boss of a firm that ‘stops planes falling out of the sky’, among many other things, and which is thriving in the world’s emerging markets.

As someone who, while pursuing his favourite sport of skiing in Austria, avoided an avalanche by the skin of his teeth, Bodycote chief executive Stephen Harris is a man who is used to facing disasters.

But nothing could prepare him for the disaster that was the financial crash of 2008.

Having spent an extended sabbatical on the ski slopes of America, Europe and Japan following his tenure as a divisional boss of specialist instruments company Spectris, 55-year-old Stephen – who has an engineering degree from Cambridge and an MBA from Chicago University – was tempted back into the industrial milieu by a headhunter who would not take no for an answer.

What could possibly go wrong, especially at a company that was thriving?

“I signed my contract two weeks before the Lehman Brothers crash – imagine that! So when I turned up for work, the whole world had fallen apart.

“There was me thinking I was coming in to do this and that, but was told to get the bilge pumps out because the company was sinking,” laughs Stephen, from his HQ office which overlooks the rolling foothills of the Pennines on the edge of Macclesfield in Cheshire.

Despite pumping those bilges like billy-o, Bodycote lost 30% of its turnover in the first six months following the Lehman crash, but the curse turned into a blessing as the metal thermal processing company rethought its whole strategy.

Now Bodycote, whose heat treatments stop ‘planes falling from the sky’ and are essential in the production of most metal products, has expanded to nearly 200 sites in 26 countries and is the largest company of its kind in the world.

Greatest

And its greatest growth has been in the high-growth and emerging markets of the world, such as China, Brazil and Mexico, and eastern European countries Poland and the Czech Republic, resulting in increasing pre-tax profit of £48.5m and revenues of £316m (up 5%) for the six months ended 30 June 2013.

Such success means Stephen – who was born and raised in Africa but came to England in his teens with this metallurgist father and mother, and now lives with his American wife Valerie close to London – can look back to those dark days of 2008 without having to take a sedative rather than his preferred herbal tea.

“At that time we used to be what was known as a ‘swing’ producer, meaning dealing with companies who did most of the heat treatments themselves, but who at full capacity would give us the overflow. So we would swing up and down, taking scraps off the table,” he says.

“But when demand fell completely with the crash, they brought all of that work in-house, leaving us high and dry.”

So once some equilibrium was achieved, Bodycote, which has its origins in the north west textiles industry, decided that partnerships abroad were the future, when it came to building facilities costing a ‘handful of millions.’

And Stephen – who was sponsored through university by Courtaulds and oversaw the management buyout of ports and industrial giant Powell Duffryn in 2000 – uses the analogy of a popular film to describe the strategy.

“Remember that movie, Field of Dreams, with the slogan ‘if we build it, they will come.’ Well with thermal processing that doesn’t work – you have to get the customers first. So what we do is partner with western companies who want to go to those markets.

“Typically, last year we did one with ZF, a German company that is the world’s top specialist in truck steering and who were wanted by the Chinese to make vehicles more robust as local gear isn’t the right standard.

“They moved in and so did we. Now they are our anchor customer, but it means we can also service other local customers.”

Aspirations

That kind of approach is totally at odds with some of the slash and burn attitudes prevalent among other companies with emerging market aspirations.

“If you want to go to China to build cheap stuff and send it back home, then we just don’t want to know. It’s no cheaper for us to be in China than the West,” says Stephen, referring to the high-cost of heat processing, whether home or abroad.

“What we do is like very expensive dry cleaning with very expensive kit,” he laughs. “We basically take the parts from companies, put them through one of three kinds of processes and hand them back.

“We change the crystal structures of metals through pressure and temperature. What we do is atomic scale stuff, like fusing carbon into the surface of steel to make it incredibly hard, like the highest tech cooking.

“Everybody, absolutely everybody, has to have heat treatment. There isn’t one piece of metal you’ve seen that hasn’t been treated in some way.”

Bodycote’s bread and butter business involves thermal processing, but the really impressive stuff happens with its hot isostatic pressing, or HIP, which as well as heat uses incredible pressures equivalent to those found at the bottom of the Mariana Trench in the Pacific.

The third strand of the business involved surface treatments for ceramics, but this remains a small portion of its trade.

However, rather than technologies, it’s the separation of sectors which is defining the new look of Bodycote, with its focus on aerospace, defence and energy as one division and automotive and general industrial as the other.

And it’s the latter that is geared towards the emerging markets.

“We decided that the emerging markets were where the growth could be found, and we are the one company in the world with the right scale to build the facilities where the western and local producers need them,” says Stephen.

“The question for us is which emerging markets? India wasn’t right – if fact we scaled down there – because in India you really have to focus all your attention on it. We will grow there again at some point.”

Bodycote’s growth has been both organic and through acquisitions.

“In China it’s organic because there’s no one to buy there. Most thermal processing is done in house because they daren’t sub-contract to local firms because the quality is so poor.

“If you buy Chinese goods, it’s amazing how they rust so quickly, mainly due to the standard of the thermal processing.”

“We are building on a number of green field sites each year in emerging markets, with Mexico going very well, where we are about to open some more.”

Fashion

Despite its economic rise, China has fallen out of favour with some people in the City and beyond, as its growth has slowed, but Stephen baulks at giving up on the country.

“All of a sudden growth has gone down to 5% or 6%, but it’s still 5% or 6% cent more than us, so it’s not fashionable right now, but we’re not followers of fashion. We are building one new facility there every year, some years more,” he says.

On the other side of the world, Bodycote’s main American acquisition was the country’s largest player, Curtis Wright , a prestige brand through its connection with the Wright brothers, the first people to fly a plane.

“We have bought others in the States, so there’s no one else to rival us there,” says Stephen, who adds that the only barrier to greater expansion is the precious commodity of people.

“If we could have more people who could do this kind of stuff we could grow much faster. We need people with general business skills, an understanding of the technology and a desire to be international.

“But country expansion in not what we are about. It’s about increasing our presence in the markets we are currently in,” he concludes about the unrivalled Bodycote brand.