Bodycote's 2024 Earnings: A Missed EPS and a Strategic Pivot

Bodycote plc, a leading provider of heat treatment and thermal processing services, recently released its full-year 2024 earnings, revealing a significant miss in earnings per share (EPS). The company's statutory operating profit plummeted by 68.2% to £37.9 million, a stark contrast to the previous year's £119.2 million. This dramatic drop was largely due to charges related to the Optimisation programme, ERP-related impairment, and goodwill impairment, totaling £78.3 million. These charges highlight the operational inefficiencies and strategic challenges Bodycote has been grappling with, impacting its profitability and shareholder returns.



The EPS miss in Bodycote's 2024 earnings reflects on the company's operational efficiency and strategic decisions in several ways. The statutory operating profit for 2024 was £37.9 million, which is a significant decrease of 68.2% compared to the previous year's £119.2 million. This drop is largely due to charges related to the Optimisation programme, ERP-related impairment, and goodwill impairment, totaling £78.3 million. These charges indicate that the company has been facing operational inefficiencies and strategic challenges that have impacted its profitability.

The company's adjusted operating margin for 2024 was 17.0%, which is an improvement of 110 basis points from the previous year. However, the statutory operating margin was only 5.0%, reflecting the significant impact of the charges. This discrepancy highlights the need for the company to address its operational inefficiencies and strategic decisions to improve its overall profitability.

To address these issues, Bodycote has implemented a strategic plan with three key levers: Optimise, Perform, and Grow. The Optimise lever involves plant closures and other cost-cutting measures to improve operational efficiency. The Perform lever involves the HEAT programme, which aims to improve operational performance. The Grow lever involves identifying attractive investment options in high-margin areas to drive growth.

The company has already begun to see early benefits from these strategic initiatives. For example, the first plant closures under the Optimise programme have commenced, and the HEAT programme has been rolled out to pilot sites. These actions are expected to deliver additional profit benefits as the company moves into the second half of 2025.



The challenging conditions in Bodycote's end markets, particularly in Automotive and Industrial, are attributed to several key factors. Firstly, the Automotive and Industrial markets have been experiencing difficult trading conditions, which have impacted Bodycote's performance. Secondly, there is a temporary impact from industry-wide supply chain disruptions, which has affected the Aerospace & Defense sector as well. These factors have led to a mixed outlook for Bodycote's end markets, with structural demand in Aerospace & Defense remaining strong despite the disruptions.

To navigate these challenges, Bodycote has implemented several strategic adaptations. The company has commenced its Optimisation programme, which involves plant closures and is expected to deliver additional profit benefits as it moves into the second half of 2025. This programme aims to create an efficient, high-performing Bodycote by optimizing its plant footprint. Additionally, Bodycote has rolled out the HEAT programme to improve operational performance at pilot sites, further enhancing its cost control and operational efficiency. The company has also identified attractive investment options in high-margin areas as part of its Grow strategy, which aims to accelerate growth and capitalize on market recovery when conditions improve. These strategic actions are supported by a new reporting structure and a set of comprehensive financial targets, which include a medium-term target of achieving an adjusted operating margin of over 20% by 2028.

Bodycote's new strategic approach, which includes the Optimise, Perform, and Grow levers, is designed to enhance the quality of the business, improve operational performance, and accelerate growth, all supported by sustainability. This approach aligns with the company's medium-term financial targets, which were laid out at the Capital Markets Event in December. The strategic levers are as follows:

1. Optimise: This lever focuses on streamlining operations and reducing costs. Early benefits from this initiative include the commencement of plant closures, which are expected to deliver a profit benefit of £12m-14m at full run-rate by the end of 2026. This aligns with the company's target to improve operational efficiency and reduce costs, thereby enhancing profitability.

2. Perform: The Perform lever aims to improve operational performance through initiatives like the HEAT programme, which has been rolled out to pilot sites. This programme is designed to enhance operational efficiency and drive margin improvement. The Specialist Technologies division, for example, saw a margin improvement of +300bps to 29.0%, demonstrating the early benefits of this lever.

3. Grow: The Grow lever focuses on identifying and investing in high-margin areas to drive growth. The company has already identified attractive investment options in these areas, aligning with the target to accelerate growth and increase market share.

The early benefits observed from these initiatives include a significant improvement in the adjusted operating margin, progressing towards the >20% target by 2028. The adjusted operating margin for the core business improved to 17.9% in 2024, up from 16.7% in 2023. Additionally, the company returned close to £100m to shareholders in 2024, including £40m in dividends and £60m in buybacks, with a further £30m buyback underway. This demonstrates the company's commitment to delivering shareholder value and aligns with its medium-term financial targets.

In summary, the EPS miss in Bodycote's 2024 earnings reflects operational inefficiencies and strategic challenges that have impacted the company's profitability. However, the company is taking proactive steps to address these issues through its strategic plan, which includes cost-cutting measures, operational improvements, and growth initiatives. The new strategic approach, supported by the Optimise, Perform, and Grow levers, is designed to enhance the quality of the business, improve operational performance, and accelerate growth, all supported by sustainability. This approach aligns with the company's medium-term financial targets and demonstrates its commitment to delivering shareholder value.