Bodycote (LON:BOY) reported first-half core organic revenue growth of 9.6%, supported by strong demand in aerospace and defense, industrial gas turbines (IGT), medical and semiconductor-related markets, while continued automotive weakness weighed on performance.
Chief Executive Officer Jim Fairbairn said the company was “on track and on plan” and reaffirmed its full-year expectations. Core operating profit increased 11% organically to £60.4 million, while core operating margin rose 30 basis points to 16.2%.
Growth led by aerospace, IGT and medical
Aerospace and defense revenue grew nearly 25% across the group, driven by demand in original equipment and aftermarket activity, particularly commercial-engine surface treatment. In the Specialist Technologies division, aerospace and defense revenue rose 37%, making up 50% of divisional revenue.
Fairbairn said the company had strengthened its aerospace and defense commercial organization and resolved prior service-level issues. It also renewed two long-term customer agreements with sizable U.S. Tier 1 customers. Chief Financial Officer Ben Fidler said aerospace growth was predominantly volume-led, with pricing at low-to-mid-single-digit levels. He cited strong activity from GE, including more than 50% growth in LEAP and GEnx blade volumes.
Energy revenue increased 4.7%, with IGT revenue up more than 10%. While oil and gas activity stabilized following contract wins in 2024, Specialist Technologies experienced a 15% revenue decline in oil and gas that Fidler said was easing against difficult prior-year comparisons.
Medical, consumer and other revenue grew 14.8%, reflecting semiconductor demand and a return to growth in medical. Medical revenue in Specialist Technologies increased 15%. Fidler said semiconductor-related revenue grew about 25% in the first half, though the business remains relatively small at about 2% of group revenue. The company has exposure to chip-manufacturing equipment supply chains through several technologies and sees selective bolt-on acquisitions as a potential way to expand its presence.
Industrial markets grew modestly but remained fragile. Automotive revenue declined 4.4%, with weakness across most of the portfolio and particularly in Western Europe. Fairbairn said automotive was the principal structurally challenged market under consideration for additional restructuring actions. North America, Eastern Europe and Turkey posted modest automotive growth, but Western Europe declined at a high-single-digit rate, while China also declined.
Margins and Optimise program
Fidler said core margins were affected by two approximately 100-basis-point headwinds in the first half: normalized variable pay following an unusually low level in 2025, and ramp-up costs associated with new programs and sites. These include a Mexico facility, an S3P greenfield operation in South Korea, aerospace and defense site expansions and replacements in the U.S., and additional hot isostatic pressing capacity in the U.S. and Europe.
He said the investment-related margin impact should remain at about the same level in the second half before beginning to abate through 2027 and 2028. Variable pay has returned to what Fidler described as its normal base level and is not expected to unwind in 2027.
The company’s Optimise restructuring and portfolio rationalization program generated approximately £2 million of further first-half profit improvement. Bodycote expects to complete 29 of 31 planned site actions by year-end and reiterated a target of at least £15 million in annualized benefits by mid-2027. Net cash costs are expected to be £10 million to £15 million following the sale of French sites.
The group reduced labor costs by 1% despite revenue growth, with headcount down 4%. Utility costs declined 2%, while energy intensity improved by more than 10%.
Management is evaluating a possible further phase of Optimise, focused largely on structurally challenged automotive operations. Fairbairn said the next stage would be more difficult because “low-hanging fruit” had already been addressed. Fidler said any additional program could have a cash-cost-to-benefit ratio closer to two to three times, compared with the initial program, although management has not finalized its scope or execution method.
Cash flow, capital allocation and acquisitions
Operating cash flow increased to £41.6 million from the prior year, while operating cash conversion was stable at 68%. Free cash flow was £14.5 million, down about £3.5 million, reflecting higher restructuring spending of £9.5 million and a £5 million increase in cash tax.
Net debt ended the period at £135.2 million, representing leverage of 0.7 times. During the half, Bodycote spent £33.5 million on capital expenditure, nearly £28 million on dividends and nearly £18 million on share repurchases, including more than £12 million under its £80 million buyback launched in March.
The company completed the £5.5 million acquisition of Spectrum Thermal Processing, which Fidler described as an addition to its U.S. aerospace footprint and capability. Fairbairn said Spectrum and the previously acquired Lake City business were outperforming and that Bodycote continued to develop an acquisition pipeline, particularly through relationships with family-owned businesses.
Outlook remains unchanged
Bodycote expects full-year core organic revenue growth to be led by aerospace and defense, IGT and medical. Management said growth should moderate in the second half because prior-year comparisons become more demanding, particularly in aerospace.
The company expects group operating margin improvement for the full year, supported by further Optimise benefits and volume leverage, despite variable-pay and investment ramp-up costs. Full-year capital expenditure is now expected to be at or toward the lower end of previous guidance of £80 million to £90 million. Finance costs are expected to be about £10 million, while the tax rate is expected to remain near the first-half level of 23.5%.
Fairbairn said the company remains confident in its medium-term financial targets as it continues to shift its portfolio toward aerospace and defense, IGT, medical and electronics, which now account for 48% of group revenue, compared with 35% two years earlier.
About Bodycote (LON:BOY)
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 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.
