Components operating in the harsh environments of the oil & gas industry must withstand extreme material demands and resist attack from a variety of aggressive mediums. Corrosion and wear can lead to expensive downtime in exploration, where equipment is in continual use. The application of thermally sprayed coatings and the use of powder metal HIPed Near Net Shape (PM - NNS) components offer optimised material solutions allowing these components to operate reliably for extended periods of time, reducing cost and downtime.
Revenues for the Aerospace, Defence & Energy (ADE) business were £260.4m in 2012 compared to £233.5m in 2011, an increase of 11.5% (12.6% in constant currencies made up of 8.4% organic growth and 4.2% from acquisitions). Organic revenue growth in the year reflects further strong demand from aerospace customers in all geographies and market share gains, particularly for subsea oil & gas requirements. Revenues for onshore oil & gas began the year strongly but slowed in the second half, as gas fracking requirements fell.
Headline operating profit1 for ADE was £69.6m (2011: £51.1m). The headline operating profit margin improved from 21.9% to 26.7% as a result of improved mix of business and higher capacity utilisation.
In 2012, the Group has added capacity in a number of aerospace focused facilities, notably in California to ensure customer demand is met. The acquisition of three aerospace facilities in Wichita, Kansas at the end of the first quarter also added capacity to the Group's network. In the coming year it is expected that capital expenditure will again be slightly above depreciation as further capacity and capability are added to support continuing growth in aerospace demand.
Net capital expenditure in 2012 was £21.1m (2011: £15.2m) which represents 1.1 times depreciation (2011: 0.8 times).
Capital employed in ADE in 2012 was £233.6m (2011: £219.2m). The small increase is primarily due to investment in new capacity to meet continued sales growth in the aerospace markets. Return on capital employed in 2012 was 29.8% (2011: 23.3%).
Achievements in 2012
ADE made considerable progress during the year in gaining new agreements with a range of customers and for a variety of end uses. In heat treatment this included additional business with aero engine OEMs both for new build and repair and with the supply chain for aircraft structural components. The Group's unrivalled capabilities across heat treatment, metal joining and hot isostatic pressing are a key selling point. Bodycote's new presence in the Wichita, Kansas market has seen Bodycote gain new business with several customers there, while the greenfield site in Empalme, Mexico has entered into a number of new contracts. In HIP, new customers, who are key suppliers to the oil majors in the subsea oil & gas market, have been serviced for the first time in 2012.
Organisation and people
Overall full time equivalent headcount at 31 December 2012 was 2,123 (2011: 1,983), an increase of 7% compared to revenue growth in ADE of 11.5%. At 31 December 2012 the headcount included 132 full time equivalents from the acquisition completed in 2012.
Order books for commercial aerospace OEMs remain strong, although the increase in aircraft build rates in the higher volume platforms is now slowing and there is some short term softness in oil & gas demand. Notwithstanding the slower pace of market growth that is anticipated in the near term, Bodycote expects to be able to capitalise on its world leading position and once again outperform the market.
ADE revenue by geography
ADE revenue by market sector
- Headline operating profit is reconciled to operating profit in note 2 to the consolidated financial statements.