Moulds and dies
During the injection process, the mould must not only form the part, but also dissipate the heat at the surface and allow for easy ejection of the finished component. Moulding tools often employ vacuum brazing techniques with integrated heat treatment. Forming and extrusion dies used in supply chains' mass production lines must resist wear and fracture so as to avoid costly unplanned shutdown of the process line. In addition, maintaining the surface finish is important. Parts may be vacuum hardened and then be given a gas or plasma nitriding treatment.
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Whilst the Automotive & General Industrial (AGI) marketplace has many multinational customers which tend to operate on a regionally-focused basis, it also has numerous medium-sized and smaller businesses, all of whom are very important to Bodycote. Generally, there are more competitors to Bodycote in AGI and much of the business is locally oriented, meaning that proximity to the customer is very important. Bodycote's uniquely large network of 118 AGI facilities enables the business to offer the widest range of technical capability and security of supply, while continuing to increase the proportion of technically differentiated services that it offers. Bodycote has a long and successful history of serving this wide-ranging customer base.
AGI business revenues were £323.7m in 2015, compared to £346.1m in 2014, a decrease of 6.5% (1.1% decrease at constant exchange rates).
In 2015, overall sales from the automotive sector increased by 3.6%, at constant exchange rates. Sales into car and light truck have again been good in all geographies, with the increase reflecting both new contract wins and strong OEM production rates. Revenues to heavy truck declined overall, with strong North American growth being more than offset by weak demand in Europe. General industrial markets have been weak in all territories.
Headline operating profit1 in AGI was £53.4m compared to £54.1m in 2014. Headline operating margin increased to 16.5% (2014: 15.6%) reflecting a further improvement in mix towards higher value work along with strong cost control. Revenues from the Group's Specialist Technologies grew well at high margins.
Net capital expenditure in 2015 was £39.8m (2014: £31.1m), which represents 1.3 times depreciation (2014: 0.9 times). Notable projects included the opening of a new facility for S3P in France, for LPC in Mexico and, in Classical Heat Treatment, new facilities were opened in Poland and China.
In 2016 we expect that capital expenditure will be approximately 1.2 times depreciation as we continue to expand our Specialist Technologies and operations in the rapid growth countries. Return on capital employed in 2015 was maintained at 16.0% (2014: 16.0%). This reflects the continued focus on improving capital returns by continuing to target higher added-value work. On average, capital employed in 2015 was £304.1m (2014: £301.8m).
Achievements in 2015
The Group continued to win business across all geographies. In both North America and Europe our ability to support automotive manufacturers, as they move to newer technologies in pursuit of better fuel efficiency and enhanced corrosion performance, continues to provide Bodycote with market share gains. A number of new contract wins in each of our AGI focused Specialist Technologies of S3P, Low Pressure Carburising and Corr-I-Dur® continues to be a key driver of improved profitability in the AGI business.
The AGI business continued to see the benefits of mix improvement and market focus. Together with an emphasis on improved efficiency these factors have been crucial in the achievement of ongoing margin enhancements in this business.
Organisation and people
At 31 December 2015, the number of full-time equivalent employees in AGI was 3,331 compared to 3,616 at the end of 2014 and 1,913 less than its peak in July 2008.
The AGI businesses will continue to build on the success of enhancing margins through capturing high-value work. The focus on improving customer service helps drive this effort while the prioritisation of existing capacity in favour of higher value work and investing in Specialist Technologies provides additional momentum. In addition the Group will continue with its strategy of adding to its existing footprint in the rapid growth countries.
- Headline operating profit is reconciled to operating profit in note 2 to the financial statements. Bodycote plants do not exclusively supply services to customers of a given market sector (see note 2 to the financial statements).
AGI revenue by geography
AGI revenue by market sector