annual report 2004
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2004
80267_56pp  3/15/05  10:53 AM  Page 1 Bodycote Heat Treatments…
…providing a vital link in the manufacturing process for the automotive, aerospace, construction, power generation,
electronics, consumer products and general engineering industries. Operating 153 plants in 20 countries; an
unrivalled strategically located network, experienced in supporting large multi-national customers and their supply
chains, as well as local niche specialists. Expanding in Poland and Italy and developing the Bodycote Kolsterising
®
technology in France and the USA and low pressure carburising in Europe and the USA.
Bodycote Materials Testing…
…assessing and certifying the quality and reliability of materials and products for many clients in the ﬁelds
of civil engineering, environmental protection, food and household goods, microbiology, pharmaceuticals,
pipeline polymers, and transport. Offering a fully accredited group of 53 testing laboratories in 12 countries,
serving international customers. Expanding in the Czech Republic and the Middle East, providing a beneﬁcial
outsource option for advancing businesses.
Bodycote Hot Isostatic Pressing…
…applying the unique product enhancement and novel material production beneﬁts of this advanced technology
to an increasing number of customers in precision foundry, power generation, aerospace, automotive, medical,
precision tooling, and electronic engineering. Managing the western world’s largest HIP capacity at 11 locations
across 6 countries. Developing new materials and manufacturing techniques by collaborative projects with
market-leading OEMs.
Bodycote Surface Engineering…
…improving the performance, durability and appearance of components and tools by the application of functional
and decorative coatings utilising, sherardizing, mechanical plating, plasma spray, organic, anodising and specialist
ceramic coatings processes. Operating 10 environmentally friendly coatings centres in 6 countries and establishing
CoatAlloy
®
, the unique new Bodycote coating service for the petrochemical industry.
Bodycote Electroplating…
…enhancing the corrosion resistance of constructional components and consumer products by the application of
electroplating and mechanical plating processes. Operating 4 environmentally friendly coatings centres in 2 countries.
Bodycote PVD Coatings, IonBond strategic alliance…
...expanding the international provision of PVD coatings services by delivering product enhancing PVD coatings
for tooling, tribological and decorative applications, from 30 PVD coatings centres in 12 countries.
At a glance
2004 Sales
£457.2m
2003 Sales
£448.4m
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80267_56pp  3/15/05  10:53 AM  Page 2 Bodycote annual report 2004 1
CONTENTS
1 Financial Highlights
2 Chairman’s Statement
3 Chief Executive’s Review
6 Finance Director’s Report
9 Directors’ Report and 
Corporate Governance
13 Report of the Audit Committee
14 Board Report on Remuneration
18 Board of Directors and Advisers
19 Directors’ Responsibilities
19 Independent Auditors’ Report
20 Consolidated Proﬁt and 
Loss Account
21 Balance Sheets
22 Consolidated Cash Flow Statement
23 Consolidated Statement of Total
Recognised Gains and Losses
23 Reconciliation of Movements
in Group Shareholders’ Funds
24 Accounting Policies
26 Notes to the Financial Statements
47 Five Year Summary
48 Principal Subsidiary Undertakings
51 Notice of Annual General Meeting 
53 Financial Calendar and
Supplementary Information
2004 2003
Turnover £457.2m £448.4m
Headline Operating Proﬁt
1
£52.1m £41.7m
Operating Proﬁt £43.6m £25.1m
Headline Proﬁt Before Taxation
1
£44.2m £32.0m
Proﬁt/(Loss) Before Taxation £24.5m (£11.1m)
Headline Earnings Per Share
1,2,3
11.3p 9.1p
Basic Earnings/(Loss) Per Share
3
6.1p (6.3p)
Dividend Per Share
3
6.1p 5.7p
1
Headline Operating Proﬁt and Proﬁt Before Taxation are stated before exceptional items (2004: £11.2m; 2003: £34.0m)
and amortisation of goodwill (2004: £8.5m; 2003: £9.1m). Free Cash Flow is stated after interest, taxation and capital
expenditure.
2
A reconciliation of headline EPS is given on page 30.
3
Adjusted for the bonus element of 2004 rights issue.
371.1
479.4
440.1
448.4
457.2
00 01 02 03 04
Turnover
£ Million
26.4
9.8
22.0
30.3
57.1
00 01 02 03 04
Free Cash Flow
1
Pence
5.6 5.7 5.7 5.7
6.1
00 01 02 03 04
Dividend Per Share
3
Pence
21.1
17.0
9.9
9.1
11.3
00 01 02 03 04
Headline Earnings
Per Share
3
Pence
80267_56pp  3/15/05  10:53 AM  Page 1 INTRODUCTION
It has been an encouraging year There has
been a good recovery in our overall trading
performance with consequent improvement
in our proﬁtability. The pressure on pricing and
cost increases continued and the extent of the
underlying operating improvement has been
masked by the impact of currency movements,
particularly in respect of the US dollar.
TRADING
Turnover in the year improved by 2.0% to
£457.2m (2003: £448.4m) and operating proﬁt
increased by 73.7% to £43.6m (2003: £25.1m).
Our proﬁt before taxation, goodwill and
exceptional items was £44.2m compared to
£32.0m in 2003. Goodwill amortisation was
£8.5m (2003: £9.1m) and exceptional items
were £11.2m (2003: £34.0m). 
All our Strategic Business Units (SBUs)
experienced an increase in sales and in the
main this translated into improved proﬁtability.
Of the £8.8m sales growth, all but £1.8m of
our growth in sales has been organic as the
acquisitions that we have made occurred late
in the year. 
The disposal of electroplating has largely been
completed and all the loss making plants have
either been sold or closed. The increasing
proﬁtability of the anodising and organics
businesses in Scandinavia and Germany
supports the decision to retain them in the
Group. Under the current accounting rules we
are not able to treat the electroplating activities
as discontinued until the process is completed,
which we anticipate will be in the current year. 
We made four modest acquisitions in the year
at a cost of £4.7m. In addition, in November,
we transferred our PVD businesses into a
strategic alliance with IonBond, creating an
operation with strong technical skills and wide
geographic scope which will be expanded
by acquisition and leveraging its advanced
coating technologies.
Our ongoing tight control of capital expenditure
brought about a further reduction in the year
to £34.0m (2003: £38.3m).
The £62.0m net proceeds from the rights issue
in March greatly improved the strength of
our balance sheet and gave us the ﬁnancial
ﬂexibility to further develop the business.
We have also generated free cash ﬂow of
£57.1m from trading and this has been
complemented by £20.8m from our disposal
programme. Consequently there has been
a signiﬁcant reduction in our net borrowings
which have fallen from £210.3m to £88.5m. 
OPERATING EXCEPTIONALS
AND EXCEPTIONAL CHARGES
Exceptional costs of £7.4m were incurred
in 2004 in connection with the electroplating
disposals. There was also an £3.8m exceptional
charge in respect of transferring our PVD
business into the IonBond strategic alliance.
DIVIDEND
A ﬁnal dividend of 3.85p per share is being
recommended by the Directors, which together
with the interim dividend, will make a total
payment of 6.1p per share which is an increase
of 7% (2003: 5.7p after adjustment for bonus
element of the rights issue). The dividend
will be paid on 6 July 2005 to all shareholders
on the register at the close of business on
10 June 2005. 
GOVERNANCE
Apart from some minor areas which are
explained in the Directors’ Report, Bodycote
is in compliance with the 2003 FRC Combined
Code. This mirrors the high level of compliance
achieved by Bodycote in relation to the 1998
Code in the period 1999 to 2003. Plans are
in place for reporting future results under
International Financial Reporting Standards
starting with our Interim Report in August 2005.
EMPLOYEES
We have in the past emphasised the dedication
and professionalism of our staff and it is
pleasing that this year we can show very
positive ﬁnancial beneﬁts from their efforts
which complement the additional investment
that was made by our shareholders.
CURRENT TRADING AND PROSPECTS
We are pleased with the current trading at
the start of 2005, which is in line with our
expectations. We look forward to the rest
of 2005 with a degree of conﬁdence that we
can further improve our trading performance.
As well as continuing to gain new outsourcing
contracts we also expect to expand the Group
with carefully chosen bolt-on acquisitions
which will strengthen our existing businesses
and extend their geographic spread. 
We have the essential ingredients of a strong
balance sheet, capable people, productive
facilities and systems to ensure the delivery
of exceptional quality and service which should
enable us to give a good account of ourselves
in the changing market place. The strategy
of the Group remains directed towards
consistently delivering a pre-tax return
on capital employed in the mid teens. 
James Wallace
1 March 2005
Chairman’s Statement
2 Bodycote annual report 2004
80267_56pp  3/15/05  10:53 AM  Page 2 I am pleased to report a welcome improvement
in performance during 2004. We have divested
the loss making electroplating operations and
poor performing facilities have been sold,
transferred or closed. Our PVD businesses
have been consolidated into a strategic alliance
to provide critical mass in this growing market.
We have sharpened our Key Performance
Indicator (KPI) metrics, standardised our
reporting and improved benchmarking across
the Group. All of these actions are helping to
rebuild ROCE. Meanwhile, our successful
rights issue strengthened the balance sheet.
We have closed or sold 42 facilities in the past
3 years (13 in 2004) and acquired 10 new
businesses (4 in 2004). We now have 261
facilities operating in 26 countries.
Sales at £457.2m were 2.0% ahead of 2003.
Excluding the disposed electroplating and PVD
sales and using constant currency exchange
rates, sales grew 8.5% compared to 2003,
of which 8.0% points were an organic increase.
With stable automotive markets, improved
demand from general manufacturers, a strong
rebound from the Industrial Gas Turbines
(IGT) sector, new outsourcing business and
increased market share, we were more able
to offset cost pressures which resulted from
normal wage and beneﬁt increases and volatile
energy costs. Operating proﬁt (before goodwill
amortisation and exceptional items) grew
25.0% to £52.1m compared with £41.7m
a year ago. Without our self help programme
and improved sales effort we would not
have been able to post such an improvement
in performance. I thank all the people in
Bodycote who have helped deliver these
improving results.
STRATEGY
Our strategy is based on disciplined
investments in technologies with a good future,
along with continued support of outsourced
business from strong manufacturers focusing
on their core competencies. Rapidly growing
manufacturing demand in Eastern Europe and
Asia will support the continued geographic
expansion of the Group over the medium
term. In addition, our Materials Testing Group
is positioned to accelerate its growth by
technology transfer, new outsourced
programmes and acquisitions.
OPERATIONAL REVIEW
Securing major outsourcing opportunities
remains a strategic focus to support our top
line growth and margin enhancement.
Bodycote’s outsourcing initiative offers
manufacturers lower total cost, equal or better
quality and quick turnaround. The key is our
technical expertise in niche technologies which
are not core to most manufacturers and our
highly productive model where we operate at
optimum efﬁciency. As predicted, the trend to
outsourcing and closure of in-house facilities,
which is well established in Europe, is
accelerating in North America, particularly in
automotive. Outsourced work from Strategic
Partnerships (SP) and Long Term Agreements
(LTA) accounted for 17% of Group turnover
as compared to 13% in 2003.
Technology transfer initiatives continue to
be successful, with niche capabilities being
transferred geographically to existing facilities.
These high value added services enhance
customer satisfaction and lead to additional
revenue. 
The cross selling and bundling of multiple
services creates a unique offering which
appeals to those manufacturers that wish
to optimise their performance by focusing
on core competencies. Our geographic and
market spread reduces the risk associated
with any one account. Our top ten customers
accounted for approximately 10% of total
turnover, compared to 9% in 2003.
Heat Treatment
At constant currency rates, Group wide
sales grew 6.7% and operating proﬁt
improved 12.0%.
North America
At constant currency rates, sales increased
7.0% and operating proﬁt was up 13.0%.
Aerospace, IGT, and oil and gas all saw
improved demand from a combination
of market pickup and new outsourcing.
The locations which are heavily automotive
related saw a decline in the second half which,
based on industry forecasts, will continue
into 2005. The combination of price pressure
and increases in energy and employee beneﬁt
costs continues to squeeze margins. We are
now able to offer several high value added
services (Low Pressure Carburising, Electron
Beam Welding and Kolsterising of stainless
steel) to complement existing heat treating and
brazing services thus helping to improve margins
in the oversupplied North American market.
Central European Group (CEG)
At constant currency rates, sales grew 8.1%
and operating proﬁt was ahead 17.2%.
Although a difﬁcult environment for the
manufacturing sector of the economies
served by this SBU our strategies of pursuing
outsourcing work, transferring technology and
optimising operational efﬁciencies paid off.
The targeted capital investment in equipment
and people has allowed us to gain market share
while improving the mix of work processed.
All automotive focused facilities are now
certiﬁed to the stringent TS 16959 while most
facilities will achieve ISO 14001 environmental
certiﬁcation by the end of 2005. This positions
us in line with quality and responsibility
expectations of world class manufacturers.
Our network of East European facilities
was expanded at the start of 2005 by the
commissioning of a facility in Poland which
targets the high end aerospace and tooling
markets. We today announced the acquisition
of four well-resourced plants in Poland.
We anticipate continued growth in our
Eastern European operations during 2005
both organically and by acquisition.
France, Belgium, Italy (FBI)
At constant currency rates, sales improved
by 1.2% but operating proﬁt was ﬂat.
The challenges we face in France in particular
are market migration, price pressures, mix
change and cost creep. All facilities in France
are now ISO 9000-2000 certiﬁed. In addition
we now have several plants qualiﬁed to
the aerospace mandated quality program
ACMA-PRO which will be incorporated into
the North American originated equivalent
Nadcap in 2005. Belgium delivered modest
sales growth and moved into proﬁt after
rationalisation of 3 facilities into 2.
Nordic, UK (NUK)
At constant currency rates, NUK sales
increased 11.7% and operating proﬁt grew
36.0%. The sales growth was driven by
recovery of the IGT market and an increase
in outsourced work. All UK facilities are now
registered to the ISO 14001 environmental
standard. We now have 9 facilities Nadcap UK
accredited to meet mandates from several key
customers such as Rolls-Royce and Boeing.
Chief Executive’s Review
Bodycote annual report 2004 3
80267_56pp  3/15/05  10:53 AM  Page 3 Materials Testing
At constant currency rates, sales grew 11.2%
and operating proﬁt grew 13.3%.
By concentrating on the high value added
services, cross border selling and an industry
speciﬁc approach we have been able to gain
market share at most of our laboratories.
Sales increased in all geographies and margins
were maintained or improved, with progress
in Canada being notable. 
The USA saw an improvement in demand for
aerospace, high end automotive and oil & gas
testing but the gains were eroded by increased
people costs and price pressures. We have
won several signiﬁcant outsourcing contracts.
In the Middle East we successfully integrated
the laboratories acquired from Carillion plc in
2003 resulting in a 45.0% sales growth year
on year. Operating margin in the region was
somewhat reduced from last year as 2004 had
the tail end beneﬁts of a major construction
project that had run beyond the contractors
completion date. All facilities are now ISO
17025 accredited; such standards are unique
in the Gulf region and give us a competitive
advantage as blue chip clients are increasingly
insisting on these high standards to protect
their major investments in construction
projects such as the Dubai airport expansion.
The Canadian Group won signiﬁcant
outsourced contracts from major aerospace,
automotive prime and ﬁrst tier suppliers while
managing their costs well. In support of
stringent new emission controls stipulated
by the Environmental Protection Agency
regulations due to come in force in 2007,
we have invested in two advanced Heavy
Duty Transient Cells for testing emission
compliance in the heavy diesel engine market.
This investment will start to generate revenue
near the end of 2005.
UK and Europe had good sales growth based
on IGT, oil and gas, Health Sciences, and
Environmental markets.
HIP
At constant currency rates, sales increased
23.9% and operating proﬁt was up 113.4%. 
The sales growth was driven by an
unexpectedly large increase in IGT demand
for new and replacement parts. Aerospace
demand picked up slightly in the second
half of the year and is expected to maintain
this trend throughout 2005. The very high
operational gearing, evident in HIP during
the downturn in 2002 and 2003, rebounded
in our favour. Although margins recovered
from 13.0% to 22.5% we still have work
to do because the high investment in a HIP
facility require yet higher margins in order
to achieve an acceptable return on capital
employed. We continue to work on innovative
new applications in the powder consolidation
sector. The ALON ceramic project saw sales
increase 100% in 2004 but well behind
original expectations. Demand for Densal
®
treatment of aluminium castings showed
excellent progress in the European automotive
sector. Two large HIP units which were out of
service for a large part of the year will return
to service in the ﬁrst half of 2005. A used
HIP unit, previously acquired at low cost,
will be brought into service by the ﬁrst part of
2006 in anticipation of continued increasing
demand for IGT and recovering aerospace.
Surface Engineering
At constant currency rates and excluding PVD
and discontinued electroplating, sales grew
7.5% and operating proﬁt improved 49.6%.
Anodising and Organics
We are focused on developing this business
by transferring know-how and processes
between facilities and approaching customers
in a more organised manner to gain market
share based on technical capability.
Diffusion Bonding
Our K-Tech coatings continue to ﬁnd more
applications in the oil and gas, textile and
steel rolling sectors. Being an engineered
solutions business, we invest heavily in
developing and proving application beneﬁts.
The CoatAlloy
®
process, which dramatically
improves the performance and life of furnace
tubes in ethylene production plants, started up
in the second half of 2004. We experienced the
usual teething problems associated with new
processes. Technical issues are now resolved
with deliveries expected to commence in the
ﬁrst half of 2005.
Our two Sherardizing facilities were
consolidated into Wolverhampton, UK and
is now fully functional. This will improve
capacity utilisation, technical support and
proﬁtability. We have several opportunities
under development with customers in other
geographies of our network which could see
us install our ﬁrst Sherardizing process
capabilities outside the UK. To enhance our
market coverage we are installing for start
up in the ﬁrst half of 2005 the Distek process,
a modiﬁcation to Sherardizing, which allows
a thicker yet ductile layer to be diffused onto
the substrate. This process will offer
customers an environmentally friendly
alternative to galvanising.
We invested in expanded plasma spray
capacity in France to satisfy contracts with
suppliers to Airbus for plasma spray of
titanium honeycomb parts and expect sales
to start next year. We are planning to transfer
this technology to our UK facilities in 2005.
ACQUISITIONS, STRATEGIC
ALLIANCES AND DIVESTITURES
Several modest acquisitions were made
during the year, at a cost of £4.7m, with
the emphasis being to expand our Materials
Testing operations. Two oil and gas laboratories
were acquired in Canada with Hoogensen
Metallurgical Engineering Limited and an
environmental laboratory was added with
Clyde Analytical Limited of Greenock, Scotland.
After the year end, four UK environmental
and occupational hygiene sites were acquired
with Ensecon Laboratories Limited, expanding
our health science operations. A controlling
interest was also taken in a civil engineering
test laboratory in Qatar.
Chief Executive’s Review
4 Bodycote annual report 2004
80267_56pp  3/15/05  10:53 AM  Page 4 Haustrup Haerderi A/S heat treating in
Denmark strengthened our existing market
position and enabled us to rationalise our
facilities and provide access into the Northern
German market. 
Bird Electron Beam Corporation in Connecticut,
USA adds expanded know-how to our North
American Group in a technology that has proven
to be of value to key customers in Europe.
In addition, a signiﬁcant strategic event was
the formation of the second largest global
Physical Vapour Deposition (PVD) Group
resulting from the sale of our 10 PVD
operations to IonBond for £25.1m net of
costs, with Bodycote taking an initial 15%
equity position in the enlarged Group, which
was increased to 20% in early 2005 at a total
cost of £7.3m. This move is in line with our
strategy of growing high value niche
businesses whilst managing the risk.
The combined Group will trade under the
IonBond name (capital ‘B’ in IonBond being
the red centred Bodycote ‘B’ trademark) and
has pro forma sales in 2004 of £53.2m and
operates from 30 locations in 12 countries
with more than 600 employees. A long-term
cross selling agreement has been put in place
under which Bodycote will continue to offer
IonBond’s PVD services to our extensive
multinational client base and IonBond will
market Bodycote’s heat treatment, materials
testing and hot isostatic pressing services.
The strategic alliance establishes the technical
skills and geographic scope to provide global
blue-chip manufacturers with critical solutions.
PVD is used in manufacturing to improve
mechanical, tribological and decorative
properties of components beyond those
achievable by traditional methods and in an
environmentally safe manner. Market and
customer synergies between PVD and heat
treating will be enhanced through the additional
coverage offered by this focused strategic
alliance, which has made an encouraging start.
The divestiture of electroplating has almost
been completed with the major loss making
facilities divested in the ﬁrst half and the
remainder sold in the second half. Sales and
losses before goodwill amortisation and
exceptional items were £19.4m and £3.0m
respectively compared to £26.0m and £6.8m
in 2003. A total £37.4m exceptional write
down has been taken of which £7.4m has
been charged in the 2004 accounts, the
balance of £30.0m having been provided in
2003. During 2004 disposal proceeds net of
costs were £1.9m. We have retained the 5
highly successful anodising and organic coating
businesses located in Sweden, Finland and
Germany and will continue to develop this
small specialised coatings group. We believe
anodising has signiﬁcant growth potential
due to the highly fragmented market and
increased use of aluminium in manufacturing.
SAFETY, HEALTH AND
ENVIRONMENTAL (SHE)
SHE has always been of major importance
in our business and in 2004 we initiated an
enhanced Group wide measurement and
benchmarking system to help us better
understand the reasons and root cause of
accidents occurring within the Group, improve
awareness among the employees, change
behaviour and drive our accident rate towards
our ultimate goal: zero. The unfortunate loss
of life by two of our key team members at
the Hereford HIP operation underlines the
necessity of constant vigilance on the part
of all of us. Just as in every other area of our
business, we work on continuously improving
our understanding and consistent application
of safety procedures throughout the Group.
We are funding a research project with the
University of Southern California to advance
safety procedures.
CURRENT TRADING AND PROSPECTS
The New Year has started as expected.
With IGT markets having recovered strongly
in 2004 we anticipate this sector will show
more modest growth in 2005. Aerospace
showed a slight increase in 2004 and we
anticipate the pace of growth will remain
steady throughout 2005. Automotive, which
has been forecast to turn down for some
time, saw a slowdown in North America,
in particular in the second half of 2004,
and we anticipate demand in 2005 will remain
soft for that market. The Tooling market has
continued to decline due to manufacturing
of tools and dies being transferred to areas
of lower cost where Bodycote does not
currently have a signiﬁcant presence.
People are our number one resource.
We will continue to focus our management
efforts on improving the productivity and
effectiveness of our human resources.
Energy, our number two cost, is anticipated
to remain relatively high but we expect to
continue to pass most of these costs on to
our customers. 
Overall we expect to continue our performance
recovery through our continuous self help
programmes, improving market demand and
disciplined investments in capital and value
enhancing acquisitions.
John D. Hubbard
1 March 2005
Bodycote annual report 2004 5
80267_56pp  3/15/05  10:53 AM  Page 5 SALES AND OPERATING PROFIT
The Group recorded sales of £457.2m,
compared to £448.4m in 2003. Trading
conditions improved in most of the Group’s
markets and although the headline turnover
increased by only 2%, the improvement was
6.3%, at constant exchange rates. Excluding
the discontinuing electroplating and transferred
PVD businesses, local currency sales were
ahead 8.6%. Existing operations accounted
for £455.4m, whilst acquisitions added £1.8m.
As the year progressed, demand for the
Group’s services increased, following more
than two years of difﬁcult conditions.
The improvement has been gradual and
although less difﬁcult than in recent years,
the pricing environment remained
challenging. Labour rates have been
contained at a rate below inﬂation and the
impact has been mitigated by improved
productivity. Energy costs have been stable
in continental Europe, but have increased
during the autumn in the US and the UK by up
to 20%. A majority of the additional cost has
been recovered in selling prices. The beneﬁts
of our restructuring plans are being seen
across the Group, but particularly with the
exit from the electroplating businesses,
which is essentially complete. Operating
losses* in electroplating of £6.8m in 2003
were reduced to £3.0m in 2004, of which
only £0.3m was incurred in the second half.
£7.4m was charged as an exceptional item
in respect of closure and divestment costs
bringing the total to £37.4m in 2003 and
2004. Overall Group operating proﬁt*
increased from £41.7m to £52.1m.
Following an approach from SSCP Coating
S.à.r.l, Bodycote transferred its PVD business
and assets to IonBond, realising £25.1m net
of costs. An exceptional charge in 2004 of
£3.8m, including the transaction costs, was
required in connection with the transaction.
As part of the agreement, the Group has also
reinvested £5.2m for a 15% stake in the
combined business and a further 5% was
acquired in early 2005 at a cost of £2.1m.
Heat Treatment
The UK heat treatment business saw sales
increase 9.7% with operating proﬁts up
18.4%, as demand improved in both the
power generation and construction sectors.
The Nordic region produced a signiﬁcant
improvement, with local currency organic
sales up 8.5% and the Haustrups acquisition
adding a further 5.3%. New outsourced work
has been gained in automotive and general
engineering and, with improved cost control
and the beneﬁt of the new plant in Denmark,
operating proﬁt was ahead by 81.9%.
The Central European Group delivered another
excellent set of results as outsourcing gains,
particularly in automotive, more than made up
for any underlying macro economic weakness.
Sales and operating proﬁt (at constant exchange
rates) advanced 8.1% and 17.2% respectively.
The France/Belgium/Italy business unit
suffered the weakest level of demand in
the Group with the twelve-month moving
average of sales only beginning to pick up
in quarter four. Consequently sales were ahead
marginally and operating proﬁts (expressed
in local currency) were ﬂat year on year.
North America saw sales improve by 7.0%,
as demand across most sectors and regions
moved up. However, pricing pressure remains
stronger than in Europe due to continuing
over capacity in the market place and, coupled
with higher energy costs, margin improvement
was modest.
Materials Testing
The Materials Testing business continues to
meet our growth expectations and, at constant
exchange rates, sales increased by 11.2%
and net margins were maintained at 19.0%.
Sales were ahead in all regions and with the
exception of a ﬂat performance in the Middle
East so was operating proﬁt. In the UK,
our well established metallurgical laboratories
saw a relatively weak performance against
a background of soft general engineering
demand. However, this was more than offset
by strong IGT demand for radiography and
growth in health sciences. The European
laboratories again performed strongly as
a result of increased activity in oil and gas
exploration. The business moved ahead in the
Middle East following the acquisition in 2003
of the laboratories from Carillion plc and the
continuing strength in both the construction
and oil and gas sectors and consequently
sales were up 44.9%. 
Finance Director’s Report
6 Bodycote annual report 2004
Sales Operating Proﬁt* Margin
2004 2003 2004 2003 2004 2003
£m £m £m £m % %
Heat Treatment 309.0 302.5 34.2 31.5 11.1 10.4
Materials Testing 65.6 61.2 12.4 11.4 18.9 18.6
Hot Isostatic Pressing 32.1 27.6 7.0 3.6 21.8 13.0
Surface Engineering 19.4 18.4 3.3 2.3 17.0 12.5
Electroplating (discontinuing) 19.4 26.0 (3.0) (6.8) (15.5) (26.2)
Head Ofﬁce – – (2.7) (1.6)
Continuing operations 445.5 435.7 51.2 40.4 11.5 9.3
PVD (discontinued) 11.7 12.7 0.9 1.3 7.7 10.2
457.2 448.4 52.1 41.7 11.4 9.3
* before amortisation of goodwill of £8.5m (2003: £9.1m) and exceptional items of £11.2m (2003: £34.0m)
00 01 02 03 04
Sales
£ Million
* Operating Proﬁt
£ Million
500
450
400
350
300
250
200
150
100
50
0
100
90
80
70
60
50
40
30
20
10
0
<
80267_56pp  3/15/05  10:53 AM  Page 6 Canada made a major step forward based on
notable outsourcing contracts in aerospace
and automotive engines testing. The USA
also had a good performance helped by a
much stronger level of activity in oil and gas
and some improvement in aerospace demand.
Hot Isostatic Pressing
Overall, HIP sales in local currency were up
23.9% and proﬁts a pleasing 113.4% higher.
Consequently margins improved to 22.5%.
The UK and particularly the US saw a notable
increase in demand from precision casting
customers who serve the IGT market. The USA
had its best ever HIP sales. The European
plants were more mixed as IGT constitutes
a small part of their business which is more
focused on powder consolidation and
production of near net shapes but all showed
improvement compared to 2003. Densal
®
sales continue to increase, particularly for
automotive and it is likely that additional
capacity will be needed in 2005.
Surface Engineering
Following the decision to exit the
electroplating business, the Group is now
focused on nurturing a portfolio of niche
coatings businesses which offer proprietary
technology or specialist know-how and which
complement our core heat treatment business.
Sales in local currencies increased by 7.5%
and operating proﬁt by 49.6% driven by the
specialist anodising plants in Sweden, which
offer services principally to automotive and
telecoms customers. We also continued to
expand the use of K-Tech
®
ceramic coatings
and established the ﬁrst production location
for CoatAlloy
®
metallic coatings.
PVD
In the ten months prior to transferring the
PVD business into IonBond sales were up
13.8% at constant exchange rates, as demand
from automotive customers for tribological
coatings continued to increase. However,
proﬁts were ﬂat due to increased marketing
and development costs. Since the transfer,
given the Group’s signiﬁcant inﬂuence on
IonBond, proﬁts will be included in the Group’s
results on an equity accounting basis. With
a 15% shareholding, the Group’s share of
operating proﬁts in November and December
were immaterial.
Electroplating
The major loss making facilities were sold or
closed in the ﬁrst half of 2004, which enabled
us to operate at close to breakeven (loss £0.3m)
in the second half. We expect the divestiture
programme to be completed in early 2005.
PROFIT BEFORE TAX,
GOODWILL AMORTISATION
AND EXCEPTIONAL ITEMS
Proﬁt before tax, goodwill amortisation and
exceptional items was £44.2m compared to
£32.0m last year. In 2004, the Group recorded
exceptional charges of £11.2m relating to the
costs of the disposal of the electroplating
business (£7.4m) and the merger of PVD
assets with IonBond (£3.8m). Operating proﬁt
before goodwill amortisation and exceptional
items increased from 2003 to 2004 by £10.4m.
Foreign exchange movements during the year
resulted in a net reduction to operating proﬁt
of £2.5m. The effect of applying current
exchange rates to the 2004 results would
be an adverse impact on operating proﬁt of
approximately £0.2m, although this would
be entirely offset by interest savings on dollar
borrowings. The Group’s interest charge was
reduced from £9.7m to £7.9m reﬂecting lower
borrowings and the beneﬁt of a weaker US
dollar. Goodwill amortisation reduced by £0.6m
to £8.5m as a result of the electroplating and
PVD disposals.
TAXATION
The effective tax rate in 2004, before the
amortisation of goodwill (which is not generally
allowable for tax) was 17% (2003: 69%).
The ﬁgure is distorted by the exceptional
charges related to the disposal of wet coatings
and the merger of the PVD business with
IonBond. Before exceptional charges and
goodwill amortisation, the effective tax rate is
21.4% (2003: 22.3%), reﬂecting the mix of
taxable proﬁts and losses and the jurisdictions
in which the Group operates.
EARNINGS PER SHARE
Headline earnings per share were 11.3p
(2003: 9.1p as restated), with basic diluted
earnings per share being 6.1p (2003: loss
per share 6.3p restated). The Board is
recommending a ﬁnal dividend of 3.85p
(2003: 3.6p after adjusting for the Rights
Issue) per share. The dividend is covered 1.9
(2003: 1.6) times by headline earnings. Interest
was covered 6.6 (2003: 4.3) times by operating
proﬁt before goodwill and exceptional items.
CAPITAL EXPENDITURE
Net capital expenditure for the year was
£34.0m compared to £38.3m in 2003.
The multiple of depreciation (net capital
expenditure divided by depreciation)
has remained at 0.8 times as the Group
continues to maximise the beneﬁt from
previous investments. Major projects
undertaken during the year included an
additional fully automated sealed quench
furnace line in Vasteras, Sweden,
re-location and expansion of our Materials
Testing laboratories in Houston, USA (to be
completed in 2005), completion of a new
facility specialising in low pressure carburising
in Livonia, USA and the start-up of an installation
of a Kolsterising line in London, USA.
CASH FLOW AND BORROWINGS
After allowing for capital expenditure, interest
and tax the Group generated free cash ﬂow of
£57.1m compared to £30.3m in 2003 and cash
ﬂow from operations increased to £104.3m
from £83.9m in 2003. There has been continued
focus on cash collection, which has seen debtor
days maintained at 65. Acquisitions, along with
the investment in IonBond, resulted in net cash
payments of £9.9m. In March 2004 the Group
successfully completed a 1 for 4 Rights
Issue which raised £62.0m net of expenses.
Net borrowings ended the year at £88.5m,
a reduction in the year of £121.8m; gearing
was reduced from 56.7% to 20.3%.
Bodycote annual report 2004 7
00 01 02 03 04
Capital Expenditure
£ Million
Depreciation
£ Million
80
70
60
50
40
30
20
10
0
80
70
60
50
40
30
20
10
0
<
80267_56pp  3/15/05  10:53 AM  Page 7 TREASURY
Treasury is managed centrally covering
borrowings and its components. The objective
is to minimise risk through a balanced approach.
Funds are obtained via privately placed bonds
and from banks. The Group aims to have
a range of maturities, both committed and
uncommitted, currently ranging from 364 day
facilities to the ﬁve years remaining on the
private placement senior notes. The Group
also aims to have a mix of ﬁxed and ﬂoating
rate debt to achieve the desired proﬁle and to
manage interest rate volatility. During 2004 the
balance has been weighted towards ﬂoating
allowing the Group to beneﬁt from continued
low rates. Funding of overseas activities is
generally via local currency borrowings so as
to provide a partial hedge against the impact
of exchange rate volatility on asset values as
translated into Sterling on consolidation. 
PENSIONS
The Group has elected to adopt the transitional
provisions of FRS 17 (Retirement Beneﬁts)
and consequently there is no impact on the
2004 ﬁgures. If FRS 17 had been fully adopted
in 2004, the Group would have recorded an
additional liability, net of deferred tax, in its
balance sheet of £15.4m (2003: £10.0m)
relating to deﬁned beneﬁt schemes in the UK,
France and USA of which the UK plan
accounted for £14.5m (2003: £8.7m).
The US plans were inherited with the
acquisition of Lindberg. Three of these plans
have been closed and no further beneﬁts are
accruing. A further two remain open under the
terms of union agreement. The actuaries to the
UK scheme have advised that contributions
to that plan be increased by £0.4m in 2005.
INTERNATIONAL FINANCIAL
REPORTING STANDARDS
Following the EU’s adoption of Regulation
No. 1606/2002 on the use of International
Financial Reporting Standards (IFRS) by
EU-listed companies, the Group is
implementing IFRS from 1 January 2005.
The ﬁrst ﬁnancial information to be reported
by the Group in accordance with IFRS will
be for the six months ending 30 June 2005
but the requirement to present comparative
information means that a balance sheet as at
31 December 2003 and primary statements for
2004 prepared in accordance with IFRS will
also be required. The Group has continued to
report its consolidated accounts in accordance
with UK GAAP for 2004.
The Group plans to provide a separate
reconciliation of the UK GAAP 2004 results
and the balance sheet at 31 December 2003
to IFRS during the second quarter of 2005.
At that time a full explanation of the known
impacts of IFRS will be given as well as details
of the accounting policies that are expected to
be adopted under IFRS as from 1 January 2005.
This analysis of the impact of IFRS is being
prepared by the Directors using their best
knowledge of the expected standards and
interpretations expected to be effective,
and the accounting policies expected to
be adopted, when the Directors prepare the
company’s ﬁrst complete set of IFRS ﬁnancial
statements as at 31 December 2005.
Therefore, as these interpretations develop,
there is a possibility that the analysis may
evolve further before constituting the ﬁnal
IFRS balance sheet as at 31 December 2005
when the Company prepares its ﬁrst complete
set of IFRS ﬁnancial statements.
Our work to date has identiﬁed that the
following areas will impact the Group’s accounts:
Retirement Beneﬁts 
Under UK GAAP , the Group currently accounts
for deﬁned beneﬁt pension schemes in
accordance with SSAP 24 Accounting for
Pension Costs (SSAP 24). The Group also
reports the transitional disclosures required in
accordance with FRS 17 Retirement Beneﬁts
(FRS 17), including the adjustment from the
ﬁgures reported under SSAP 24 which would
be required if FRS 17 was adopted in the
ﬁnancial statements.
The methodology and assumptions used
to calculate the value of pension assets
and liabilities under FRS 17 are substantially
consistent with the requirements of IAS 19
Employee Beneﬁts (IAS 19). 
Proposed Dividends
Under SSAP 17 Post Balance Sheet Events,
proposed dividends are accrued for as an
adjusting post balance sheet event in the
accounting period to which they relate. Under
IAS 10 Events after the Balance Sheet Date,
dividends are recognised in the accounting
period in which they are declared. Accordingly,
the Group will reverse the accrual for its ﬁnal
dividend and report it in the consolidated IFRS
accounts for the following period.
Intangible Assets - goodwill
Under UK GAAP, the Group’s policy is to
capitalise goodwill in respect of businesses
acquired and amortise it on a straight line
basis over its estimated useful economic
life, which has been assessed as 20 years
for all acquisitions to date.
On transition to IFRS, IFRS 1 requires the
Group to review the carrying value of
capitalised goodwill at 31 December 2003
for potential impairments. 
In accordance with IFRS 3 Business
Combinations, no amortisation of goodwill
will be charged in the Group’s consolidated
IFRS accounts from 1 January 2004. Instead,
annual reviews of the goodwill will be
performed to test for potential impairments.
Share-based Payments
Under UK GAAP , the cost of share options is
based on the intrinsic value in the option at
the date of grant, meaning that options
granted to employees at market price or
allowable discount do not generate an expense.
Under IFRS 2 Share-based Payments, the
Group is required to measure the cost of all
share options granted since November 2002
using fair value models. As a result, additional
expense will be recognised in the IFRS proﬁt
and loss account in respect of options issued
in September 2003.
Deferred Tax
Under IAS 12 Income Taxes, deferred tax
liabilities may not be discounted to present
value, whereas FRS19 allows this. The Group
currently uses the discounting method and
accordingly the Group will restate its deferred
tax liability under IFRS.
David Landless
1 March 2005
8 Bodycote annual report 2004
Finance Director’s Report
80267_56pp  3/15/05  10:53 AM  Page 8 Bodycote annual report 2004 9
Directors’ Report
The Directors are pleased to submit their report and the audited
ﬁnancial statements for the year ended 31 December 2004.
PRINCIPAL ACTIVITIES
The Company is a holding company with subsidiaries carrying on
business in the ﬁelds of materials technology and metal processing.
The activities and locations of the principal subsidiary undertakings are
set out on pages 48 to 50. The Chief Executive’s Review contains a
survey of the Group’s activities during the year together with an outline
of future developments.
TRADING RESULTS
The proﬁt of the Group before taxation was £24.5m (2003: £11.1m loss),
after exceptional charges of £11.2m (2003: £34.0m). Proﬁt attributable
to shareholders amounted to £18.7m (2003: £17.4m loss) and, after
providing for dividends of £19.6m (2003: £15.6m) the sum of £0.9m
(2003: £33.0m) has been set off against reserves.
DIVIDENDS
The Board is recommending a ﬁnal dividend of 3.85p per share making
a total for the year of 6.1p per share (2003: 5.7p as adjusted). The ﬁnal
dividend, if approved, will be paid on 6 July 2005 to shareholders on the
register at the close of business on 10 June 2005. The 2003 dividend
has been adjusted to take into account the bonus element of the 1 for 4
rights issue completed on 31 March 2004.
SHARE CAPITAL
The Company’s issued share capital as at 31 December 2004 was
£32.1m and during the year was increased by the issue of
(a) 64,157,581 shares of 10p each issued for a total consideration
of £64.2m pursuant to the 1 for 4 rights issue completed on
31 March 2004, and
(b) 180,859 shares of 10p each between 8 November and 2 December
2004 for a total consideration of £179,654 pursuant to options
granted under the Company’s executive share option schemes. 
The shareholders have authorised the Company to purchase up to
32,078,790 of its own shares, although no purchases have been made.
This authority expires at the conclusion of the forthcoming Annual
General Meeting to be held on 25 May 2005, at which time a further
authority will be sought from shareholders.
ACQUISITIONS and DISPOSALS
During 2004 the Group made four acquisitions at a net cost of £4.7m:
On 31 May 2004 Bodycote Värmebehandling A/S acquired the entire
issued share capital of Haustrups Haerderiet A/S based at Ejby in Denmark.
This acquisition enabled Bodycote to strengthen and broaden its provision
of heat treatment services in Western Denmark and Northern Germany.
On 1 August 2004 Bodycote Materials Testing Canada, Inc acquired the
entire issued share capital of Hoogensen Metallurgical Engineering
Limited. Hoogensen provides engineering, metallurgical and chemical
testing and consulting services to the oil and gas sector in Calgary
and Edmonton, Alberta.
On 1 December 2004 Bodycote Thermal Processing Inc. acquired the
entire issued share capital of Bird Electron Beam Corporation of Sufﬁeld
Connecticut. Bird operates a NADCAP approved electron beam welding
facility for aerospace, medical and industrial gas turbine customers in
the Eastern United States.
On 2 December 2004 Bodycote Materials Testing Group Limited purchased
the entire issued share capital of Clyde Analytical Limited of Greenock,
Scotland. Clyde offers environmental testing services to industry.
The Group also made the following disposals:
On March 9, 2004 the Group announced a programme to dispose of its
wet coatings businesses. As a result the Group disposed of or closed
its wet coatings facilities at Anderstorp, Solna, Gothenburg, Linkoping
(Sweden), Vaasa and Alajarvi (Finland), St Dizier, Auterive, Pau, (France),
and Rochdale, Darlington, Poole, and Liverpool in the United Kingdom.
As from 1 November 2004 the Group disposed of its physical vapour
deposition facilities in the United Kingdom, Netherlands, France, Italy,
Mexico and the United States to SSCP Coating S.à.r.l., the private equity
owners of IonBond S.à.r.l. of Luxembourg. At the same time Bodycote
International plc secured a 15% shareholding in SSCP Coating S.à.r.l.
Note 23 on page 39 provides the necessary ﬁnancial disclosures.
DIRECTORS
The current Directors are listed on page 18 and all served throughout
the year. Messrs J.D. Hubbard and J. Vogelsang are retiring by rotation
and, in accordance with the articles of association and each being eligible,
offer themselves for re-election at the forthcoming Annual General
Meeting. The service agreements for Mr Hubbard are terminable by
one year’s notice. Mr Vogelsang does not have a service contract with
the Company and his appointment is terminable by six months’ notice.
DIRECTORS’ INTERESTS
The interests of the Directors in the shares of the Company at
31 December 2004 and 31 December 2003 are set out below:
Beneﬁcial 2004 2003
J.A.S. Wallace 57,287 45,830
J.D. Hubbard 949,103 900,000
D.R. Sleight 87,500 70,000
R.T. Scholes 18,750 15,000
D.F. Landless 6,875 5,500
J. Vogelsang – –
L.P. Bermejo – –
Each Executive Director was also technically interested as a potential
beneﬁciary, pursuant to the terms of the Bodycote International
Employee Beneﬁt Trust, in 421,823 shares (2003: 400,000) held as
trustee by Hill Samuel Offshore Trust Company Limited. No Director
has had any dealings in any shares or options in the Company since
31 December 2004. An analysis of Directors’ share options is given in
the Board Report on Remuneration on page 16. None of the Directors
had a material interest in any contract of signiﬁcance in relation to the
Company and its subsidiaries at any time during the ﬁnancial year.
80267_56pp  3/15/05  10:53 AM  Page 9 Directors’ Report
10 Bodycote annual report 2004
CORPORATE GOVERNANCE
The Group’s mission is:
• To provide world class companies with metallurgical and testing
services that make a positive contribution to the success of 
their businesses.
• To earn sustainable proﬁts which attract shareholder interest.
• To engage, develop and retain competent people, harness their
enthusiasm and inspire them to excel.
• To act as a good corporate citizen.
The Group’s aim in terms of corporate governance is, therefore,
to sustain and support these objectives over the longer term.
Compliance with 2003 FRC Combined Code
The Bodycote Board has overseen substantial changes in its board and
committee membership in the last four years. All these changes are
appropriate to the Company, in accordance with the principles of good
corporate governance, and comply with the provisions of The Combined
Code on Corporate Governance published by the UK Financial Reporting
Council in July 2003 (‘the 2003 Code’), save in three areas where the
reasons for the variance are:
(i) Performance evaluation (code provision A.6)
The Board believes a rolling programme of assessments is the
most practical and effective method of evaluating Bodycote’s
control structures. Informal evaluation of Bodycote’s actions,
control structures and personnel also takes place regularly as
part of a continuous momentum for improvement. During 2004
all Executive Directors, the Board, the Audit, Remuneration and
Nomination Committees and Messrs Vogelsang and Bermejo all
underwent formal internal assessment with the assistance, in the
case of the Audit Committee, of the auditors. In 2005 there will be
an evaluation of the Board and the Audit Committee as well as the
annual appraisal of the Executive Directors. Bodycote aims to carry
out and report on assessments of all relevant personnel, committees
and the Board itself within a three-year cycle notwithstanding that
the 2003 Code lays down a greater frequency.
(ii) Investor Relations (code provision D.1.1)
Bodycote believes that generally it is the responsibility of the
Chief Executive and the Finance Director to manage relationships
with institutional investors. The Chairman is available to meet
and has met institutional investors to discuss overall strategy,
governance and any concerns that shareholders may have.
Only where these more usual channels of communication have
failed would the Company expect the Senior Independent or other
Non-Executive Directors to become involved notwithstanding that
the 2003 Code speciﬁes attendance of the Senior Independent
Non-Executive Director at meetings with major shareholders.
Regular feedback by the Company’s advisers on investor meetings
and results presentations are circulated to all Directors.
Non-Executive Directors are also encouraged to attend one of the
results presentations each year. On speciﬁc issues the Chairman
will seek the views of Bodycote’s leading investors.
(iii) Committee Membership (code provision B.2.1/C.3.1)
On 22 November 2004 following a recommendation of the
Nomination Committee the company announced changes in the
membership of the Audit and Remuneration Committees. Until that
date the position of the Company Chairman on those committees
was at variance with the 2003 Code.
Apart from these distinct areas, Bodycote was in compliance with
the provisions of the 2003 Code throughout 2004.
Operation of the 2003 Code
Taken together with the Audit Committee Report and the Board Report
on Remuneration presented on pages 13 to 17, this statement explains
how Bodycote has applied the principles of good corporate governance
set out in the 2003 Code.
Leadership
The Board of Directors comprises seven members, of whom three
are independent Non-Executive Directors and three are Executive
Directors led by the Company’s part-time Non-Executive Chairman,
Mr J.A.S. Wallace, who also chairs the Nomination Committee.
The Chief Executive is Mr J.D. Hubbard and the Senior Independent
Non-Executive Director is Mr R.T. Scholes, who also chairs the Audit
Committee. The Remuneration Committee is chaired by Mr J. Vogelsang.
Brief biographical details of all Directors are given on page 18. The Board
meets at least nine times a year and visits are made to UK and overseas
facilities. Certain deﬁned issues are reserved for the Board to decide,
inter alia:
• Approval of ﬁnancial statements & circulars
• Capital projects, acquisitions and disposals
• Annual budgets
• Strategy
• Directors’ appointments, service agreements & remuneration
• Policies for ﬁnancial statements, treasury, safety, health and
environment, donations
• Committees’ terms of reference
• Board and committee membership
• Investments
• Equity & bank ﬁnancing
• Internal control & risk management
• Corporate governance
• Key external & internal appointments
• Pensions & employee incentives
In advance of board meetings Directors are supplied with up-to-date
information about the trading performance of each operating location,
the Group’s overall ﬁnancial position and its achievement against prior
year budgets and forecasts. They are also supplied with the latest
available information on safety, health and risk management issues.
Where required, a Director may seek independent professional advice
at the expense of the Company, all Directors have access to the
Company Secretary and they may also address speciﬁc issues to
the Senior Independent Non-Executive Director.
80267_56pp  3/15/05  10:53 AM  Page 10 Bodycote annual report 2004 11
Directors’ Report
In accordance with the articles of association all newly appointed
Directors and any who have not stood for re-election at the two
previous Annual General Meetings, if eligible, must submit themselves
for re-election. Non-Executive Directors, including the Chairman,
are appointed for ﬁxed terms not exceeding three years, after which
the appointment may be extended by mutual agreement. A statement
of the Directors’ responsibilities is set out on page 19. The Board also
operates three committees. These are the Nomination Committee,
the Remuneration Committee and the Audit Committee. 
Independence of Non-Executive Directors
The Board considers that Messrs R.T. Scholes, J. Vogelsang and
L.P . Bermejo are all independent for the purposes of the 2003 Code.
Commitment
Save for one meeting absence recorded by Mr L.P . Bermejo all Directors
recorded 100% attendance at the ten Board meetings held in the year,
including visits to facilities in The Czech Republic and the UK. 100%
attendance was recorded for all meetings of the Audit, Remuneration
and Nomination Committees.
Performance Evaluation
Performance evaluation of the Chairman and the Senior Independent
Non-Executive Director was carried out internally during 2003.
All Executive Directors were appraised internally during 2004 and a
performance evaluation of the Chief Executive took place in February
2005. In February 2004 the Board carried out its own evaluation of the
Board as a whole. The Remuneration and Nomination Committees
reviewed their own performance in November 2004. The Audit
Committee assessed its own performance in December 2004 with input
from the external auditors, the Chief Executive and the Finance Director.
The Chairman assessed the performance of Messrs J. Vogelsang and
L.P. Bermejo in December 2004.
Nomination Committee
Mr J.A.S. Wallace chairs the Nomination Committee which also
comprises Messrs R.T. Scholes, J. Vogelsang, L.P. Bermejo and
J.D.Hubbard. All members attended both 2004 committee meetings,
when it determined the policy on external appointments, proposed
the nominations for re-election at the 2004 and 2005 Annual General
Meetings, agreed the reappointment of the Chairman, discussed
general succession planning and carried out a self-assessment.
Proposals for Re-election
Following the performance evaluation carried out by the Chairman in
December 2004 in respect of Mr Vogelsang’s service as Independent
Non-Executive Director, the Board proposes his re-election as Director.
His performance was determined to be effective and he has devoted the
necessary time and commitment (achieving 100% Board and Committee
meeting attendance since appointment in 2003). Following a performance
appraisal by the Chairman in February 2005, the Board also proposes
the re-election of Mr J.D. Hubbard as a Director.
Internal Control
The Board is responsible for the Group’s system of internal control and
for reviewing its effectiveness. Such a system is designed to manage
rather than eliminate the risk of failure to achieve business objectives,
and can only provide reasonable and not absolute assurance against
material misstatement or loss. The Board has applied Principle C.2
of the 2003 Code by establishing a continuous process for identifying,
evaluating and managing the Group’s signiﬁcant risks, including risks
arising out of Bodycote’s corporate and social engagement.
The Board continuously and regularly reviews the process, which has
been in place from the start of 2000 to the date of approval of this report
and which is in accordance with Internal Control: Guidance for Directors
on the Combined Code published in September 1999.
The Board’s monitoring covers all controls, including ﬁnancial, operational
and compliance controls and risk management. It is based principally on
reviewing reports from management and from internal audit to consider
whether any signiﬁcant weaknesses are promptly remedied and indicate
a need for more extensive monitoring. The Audit Committee assists
the Board in discharging these review responsibilities. During 2004,
in compliance with provision C.2.1, the Board also performed a speciﬁc
assessment for the purpose of this annual report.
The assessment considered all signiﬁcant aspects of internal control
arising during the period covered by the report including the work of
Internal Audit. In addition, the Managing Director of each of the Group’s
Strategic Business Units reported on the existing internal control
procedure and any failings or weaknesses. They identiﬁed and made
an assessment of the risks affecting the businesses they control, in
each case with the assistance of input from those reporting directly to
them. Such risks were measured against their own stated objectives.
Following the risk management review by each participant at Strategic
Business Unit level, a Group level review was prepared for the Directors
to assess. No signiﬁcant previously unidentiﬁed risks were uncovered
as part of this process.
Prospects
The Board’s view on the Group’s position and prospects is given by the
Chairman, Chief Executive and Finance Director in their respective
statements on pages 2 to 8 of this report. Following a review of the
Group’s results for 2004 and its budgets for 2005, the Directors consider
that the Company and the Group have adequate resources to ﬁnance
their activities for the foreseeable future, and therefore it is appropriate
to adopt the going concern basis in preparing the ﬁnancial statements.
Investor relations
The Chief Executive and Finance Director regularly talk with and meet
institutional investors, both individually and collectively, and this has
enabled institutional investors to increase their understanding of the
Group’s strategy. The business of the Annual General Meeting now
comprises a review of the Group’s operations for the beneﬁt of
shareholders attending. In addition, since 1998, internet users have
been able to view up-to-date news on the Group and its share price
via the Bodycote website at www.bodycote.com. Users of the website
can also enrol free for a service that automatically notiﬁes them of
results announcements and recent signiﬁcant Group events.
Signiﬁcant enhancements for the beneﬁt of shareholders took place
during 2004. Bodycote’s ﬁnancial advisers, corporate brokers and
ﬁnancial public relations consultants provide Directors with opinion
surveys from analysts and investing institutions following visits and
meetings with the Chief Executive and Finance Director. Non-Executive
Directors are themselves invited to attend analysts’ presentations at the
time of the regular results announcements. As stated on page 10 the
Chairman and Senior Independent Non-Executive Director are available
to discuss any issues not resolved by the Chief Executive and Finance
Director. On speciﬁc issues, as with the introduction in 2003 of the
share option scheme and in 2005 with the proposed stock bonus plan,
the Company will seek the views of leading investors.
80267_56pp  3/15/05  10:53 AM  Page 11 Directors’ Report
12 Bodycote annual report 2004
CORPORATE SOCIAL RESPONSIBILITY
As part of the general programme of risk management and review
of internal controls, Bodycote regularly keeps under review the risks
associated with its corporate and social engagement. Bodycote has
already developed appropriate policies and procedures for each Strategic
Business Unit. In areas where Bodycote does not perceive either
shareholder value and or business risk, the aim is to develop and
implement appropriate policies over time. The areas of signiﬁcance
are safety, health and the environment and the Group’s employees.
SAFETY, HEALTH AND THE ENVIRONMENT
The Group has a positive approach to safety, health and environmental
matters and is committed to the achievement of the highest practicable
standards of safety and health at work for all employees and to the
minimisation of adverse effects on the environment. Appropriate safety
and health policies and procedures are in force at all strategic business
units, each of which has a dedicated safety and health team tasked to
reduce accidents at work. During 2003 the Group began collating further
data in order better to benchmark performance in subsequent years.
From 1 January 2004 the Group commenced reporting its performance
in terms of lost time, frequency and severity of accidents in a uniform
manner. As a result each Strategic Business Unit is now able to
benchmark its health and safety performance and formulate criteria
for improvements. The Group’s target of a 10% reduction in lost time
accidents, frequency and severity, compared to 2003, was met in 2004
and a further 10% reduction has been targeted for 2005. Bonus payments
to Directors and senior executives are in part dependent on achievement
of these targets. Notwithstanding these very positive steps two employees
died in an accident at the Group’s Hereford HIP facility in June 2004.
The cause is still under investigation by the UK Health & Safety Executive.
Where appropriate the Group will develop and implement environmental
management systems consistent with international standards. In 2001
the Group began an assessment of the steps required to improve
its environmental performance and started seeking environmental
accreditation. In 2004 all Strategic Business Units were mandated to
obtain ISO14001 or equivalent accreditation by the end of 2006 for all
appropriate sites. By the end of 2004 one site in North America, four
sites in Sweden, three sites in Central Europe and a further sixteen sites
in the UK had been accredited to ISO14001. Two UK sites are in the
course of seeking approval. All 53 of the Group’s materials testing sites,
which have a low environmental proﬁle, operate to the ISO17025
standard which incorporates environmental management requirements.
EMPLOYMENT
The Group recognises the value that can be added to its future
proﬁtability and strength by the efforts of employees. The involvement
of employees at all levels is key to the Group’s continued success.
Through their attendance at, or participation in, production, safety and
health meetings at site level, employees are kept up to date with the
performance and progress of the Group, the contribution to the Group
made by their site and are advised of safety and health issues.
During 2004 the Group published, via the Group extranet, two ten-
language editions of ‘EveryBody Extra’ an electronic magazine for all staff
detailing the Group’s activities, performance and some of its personalities.
Approximately 1,320 Bodycote employees are connected to the Bodycote
extranet, which will improve knowledge of Group activities, and assist
greatly with technology exchange and co-ordination. The latest edition
of ‘EveryBody Extra’ featured the Group’s open door policy under which
employee concerns can be voiced on a conﬁdential basis.
It is the Group’s policy to give full and fair consideration to applications
for employment from disabled persons, having regard to their particular
aptitudes and abilities, and to encourage the training and career
development of all personnel employed by the Group, including disabled
persons. Should an employee become disabled the Group, where
practicable, will seek to continue the employment and arrange appropriate
training. An equal opportunities policy is in operation in the Group.
RESEARCH AND DEVELOPMENT
Product development and quality improvement at all Group companies
is a continuous process. The Group has a policy of deploying the best
technology available and actively seeking improvements. It also conducts
research programmes with its customers. Costs of research and
development are written off in the year in which they are incurred.
DONATIONS
Charitable donations during the year net of income tax amounted
to £12,000 (2003: £12,000). There were no political contributions.
CREDITORS POLICY
Group operating companies are responsible for agreeing the terms
and conditions under which business transactions are conducted.
It is Group policy that payments to suppliers are made in accordance
with the terms agreed, provided that these suppliers have also complied
with applicable terms and conditions. Creditor days at the year end
for the Company were 45 days (2003: 45 days).
SHAREHOLDERS
An analysis of the Company’s shareholders and the shares in issue at
20 February 2005 and details of major shareholders’ interests appearing
in the register maintained pursuant to Section 211 of the Companies
Act 1985 are given on page 53.
AUDITORS
In accordance with the provisions of section 384 of the Companies
Act 1985, a resolution for the reappointment of Deloitte & Touche LLP
as auditors is to be proposed at the forthcoming Annual General Meeting.
ANNUAL GENERAL MEETING
The 2005 Annual General Meeting will be held on 25 May 2005 in
accordance with the notice set out on pages 51 and 52.
By order of the Board
Hulley Road
Hurdsﬁeld
J.R. Grime Macclesﬁeld
Secretary Cheshire
1 March 2005 SK10 2SG
80267_56pp  3/15/05  10:53 AM  Page 12 Bodycote annual report 2004 13
Report of the Audit Committee
The members of the Audit Committee during 2004 were Messrs
R.T. Scholes (appointed 1998; Chairman from 2002), J.A.S. Wallace
(Committee Chairman 1994 to 2001 and a member from 2002 until
retirement from the committee in November 2004), J. Vogelsang (2003)
and L.P. Bermejo (2003). Appointments to the Committee are made
by the Board at the same time as appointment to the main Board of
Bodycote. In the cases of Messrs Vogelsang and Bermejo, appointments
were made following a recommendation of the Nomination Committee.
All current members of the Committee are independent for the purposes
of the 2003 Code.
Mr Scholes is considered to have recent and relevant ﬁnancial experience
having been an investment banker, and also as a chartered accountant.
Greater detail on the qualiﬁcations and experience of all Directors is given
on page 18 and their remuneration on pages 16 and 17. The Committee
Chairman’s additional responsibilities are reﬂected by fees of £5,000
per annum for that role. 
The Committee met four times during 2004 and has the assistance
of the Company Secretary, who serves as committee secretary.100%
attendance at committee meetings was achieved by all committee
members who served in the year. The Committee held meetings with
both the external and internal auditors without management in attendance
on 2 occasions. The Head of Internal Audit has a direct reporting line
to the Chairman of the Audit Committee. Those attending meetings
typically include the Finance Director and Head of Internal Audit.
In reporting ﬁnancial results to shareholders, the Committee depends
on the skill, objectivity and independence of the auditors. In the year
ended 31 December 2004 the Committee obtained conﬁrmation of the
auditor’s independence. It is the policy of the Company not to use the
auditor for non-audit services, save for tax compliance, matters where
the fee is unlikely to exceed £5,000, or with the prior approval of the
Audit Committee. Details of amounts paid to the external auditors, and
other ﬁrms of auditors, for audit and non-audit services in 2004 are
analysed in note 2 on page 27.
The Committee’s areas of activity during 2004 included.
• Assessment of independence of auditors
• Approval of auditor’s re-appointment and fees
• Approval of scope of internal and external audits
• Approval of accounting policies and resources and plan for
(and review of impact of) implementation in 2005 of International
Financial Reporting Standards
• Approval of management representations and internal representations
• Review of ﬁnancial statements and results announcements
• Recommendation on policy on use of auditors for non-audit work
• Review of management improvement letters and audit process
• Review of arrangements for reporting and investigation
of employee concerns
• Review of internal audit ﬁndings & monitoring of effectiveness
of internal audit
• Review of effectiveness of Board’s internal controls and risk
management process
• Assessment of internal and external audit effectiveness
• Assessment of Committee’s own effectiveness
• Recommendation of new terms of reference for committee
and internal audit function
Having reviewed and expressed satisfaction with the level of fees,
objectivity, independence, expertise, resources and general effectiveness
of Deloitte & Touche LLP , the Committee recommends (and the Board
agrees to propose) their re-appointment as auditors of the Company in
accordance with resolution 6 of the notice of meeting given on page 51.
Approved by the Board.
R.T. Scholes
Audit Committee Chairman
1 March 2005
80267_56pp  3/15/05  10:53 AM  Page 13 14 Bodycote annual report 2004
Board Report on Remuneration
The members of the Remuneration Committee during 2004 were
J. Vogelsang (Chairman from November 2004), J.A.S. Wallace (Chairman
until November 2004 when he stepped down from the committee),
R.T. Scholes, and L.P Bermejo. All current members are independent
Non-Executive Directors of the Company and have no personal ﬁnancial
interest, other than as shareholders, in the matters to be decided,
no potential conﬂicts of interest arising from cross directorships and
no day to day involvement in running the business.
The Committee met ﬁve times during 2004. 100% attendance was
recorded at meetings. The Committee operates under terms of reference
approved by the Board. These terms, which are available to view on the
Group website, were revised in November 2004 following an evaluation
of the Committee’s performance. This Board Report on Remuneration
for the year ended 31 December 2004 and the recommendations of the
Remuneration Committee have been approved in full by the Board for
submission to shareholders. In accordance with the requirements of the
Companies Act, an ordinary resolution seeking shareholders’ approval
for the report will be proposed at the Annual General Meeting. The tables
attached to this report disclosing Directors’ emoluments, pensions and
share options on pages 16 and 17 have been audited, together with the
performance criteria and share price information.
POLICY FOR EXECUTIVE DIRECTORS
The Committee makes recommendations to the Board concerning the
policy on remuneration for senior executives and the remuneration
package for each Executive Director. In determining the remuneration
policy the Committee has given full consideration to the provisions on
the design of remuneration policies contained in the 2003 Code and
received input from the Chief Executive. New Bridge Street Consultants
provided independent market information and remuneration advice during
2002 and 2003. In 2005, the Committee appointed Inbucon Consulting
to give advice and prepare documentation for the operation of the group’s
new stock bonus plan. In addition, during 2004 the Company received
actuarial and other pensions advice from JLT Beneﬁt Consultants Limited
(who were appointed by the Company in 1995) in relation to the pension
scheme, of which currently two Executive Directors are members. None
of these organisations provides any other services to, or has any other
connection with, the Company.
The Committee aims to provide a remuneration policy consistent with the
Group’s overall objectives and thereby attract and retain high calibre senior
executives, align executive rewards with the creation of shareholder value
and motivate executives to achieve and maintain challenging levels of
Company and individual performance.
The Committee has used the remuneration practices of UK engineering
businesses and other FTSE 250 companies, as well as North American
and European companies in similar trades, as comparables. In order to
ensure that a substantial proportion of the overall remuneration package
can be linked to performance, there are annual bonus schemes and an
executive share option scheme. Only basic salaries are pensionable.
SALARY AND BENEFITS
The basic salary of each Executive Director and senior executive
is reviewed annually and is determined by taking into account the
responsibilities and performance of the individual, having regard to
current market practice. Since 2002 the committee has decided to
place more emphasis on the variable elements of Directors’ and senior
executives’ pay although market and inﬂationary adjustments have
been made to basic salaries after benchmarking.
This resulted in increases in basic salary for Directors both in 2004
and 2005. The basic salaries of the Executive Directors were
increased on 1 January 2005 to the following amounts:
£
Mr J.D. Hubbard 325,000
Mr D.F. Landless 215,000
Mr D.R. Sleight 161,000
Beneﬁts in kind, which comprise the provision of a company car,
private medical insurance for the Executive Director and family and
long-term disability insurance, are consistent with industry standards.
An analysis of Directors’ emoluments is given on page 17. 
ANNUAL BONUSES 
A performance related annual cash bonus is payable to all Executive
Directors and senior executives, based on the Group’s earnings before
interest and tax (EBIT), the Group’s return on capital employed (ROCE) and
other qualitative measurements, including health and safety. For those
senior executives with Strategic Business Unit responsibilities, part
of the performance-related bonus is based on their relevant sphere of
responsibility. Targets for 2004 maximum bonus required increases in
EBIT, ROCE, organic sales growth and quantitative improvements in health
and safety. The bonuses paid to Executive Directors are shown on page 17.
In 2003 the Committee recommended an increase in the total potential
bonus to 60% of basic salary if all targets are met and assuming that
one-third of the bonus (i.e. up to 20% of salary) is paid in the form of
shares in the Company. The shares will be held in trust for three years
and will normally be forfeited if executives leave for another employer
or are dismissed. Executives could request that their entire annual bonus
is paid in cash, in which case the maximum bonus would be 50% of
salary. This scheme applied to 2003 and 2004 only.
In 2005 the Committee, with the beneﬁt of advice from Inbucon Consulting,
decided to alter the annual bonus arrangements affecting Executive
Directors and senior executives from and including 2005 so that: -
(1) Total maximum bonus would increase to 100% of basic salary
comprising two elements:-
(a) A maximum cash bonus of 50% of basic salary earned by references
to challenging increases in EBIT, ROCE, organic sales growth and
quantitative improvements in health and safety.
(b) An additional bonus of up to 50% of basic salary, received as
restricted shares in the Company, if the Group’s total shareholder
return (TSR) for the year is in the upper quartile of TSR achieved
by companies within the FTSE 350 Engineering & Machinery Index
and certain international comparator companies. The comparator
group consists of 17 companies, including Bodycote. Median TSR
performance would attract a stock bonus of 12.5% of basic salary.
The Remuneration Committee reserves the right to take into account
the underlying ﬁnancial performance of the Company before stock
bonuses can be paid.
(2) The stock bonus element will be serviced using shares bought in
the market. The shares will be held by the trustees of the Company’s
employee share ownership trust for three years after which they
would vest, but each participant would be expected to retain the stock
awarded (save for amounts necessary to pay tax) until the total value
of shares held equalled the executive’s basic salary. At the end of the
holding period, the awards will be enhanced by an amount reﬂecting
dividends paid on the award shares over the three-year period.
80267_56pp  3/15/05  10:53 AM  Page 14 Bodycote annual report 2004 15
Board Report on Remuneration
The committee has recommended this plan because it encourages
challenging performance, increases the variable element of pay and
aligns executives’ interests with those of shareholders. Performance
will be measured over one year in order to maintain a balance between
annual bonus arrangements and long-term incentives.
This further illustrates the increasing importance attached by the
committee to the variable elements of remuneration and encouraging
long-term shareholding by executives. 
The committee also recommended payment of a special bonus of
£35,000 to the Corporate Development Director to recognise his
success in the disposal of the wet coatings businesses and the
transfer of Bodycote’s PVD interests to IonBond.
No bonuses were paid to Executive Directors in respect of 2002
and 2003 as targets were not met. 
SHARE INCENTIVES
The Group believes that participation in share incentive schemes by
Executive Directors and other executives of the Group strengthens the
link between executives’ personal interests and shareholders’ interests.
Bodycote’s Board will encourage Directors and Executives to build up a
reasonable shareholding in the Company over a period of time, but it
will not be prescriptive since the Directors’ ability to do so will depend
on a number of factors, not least being their own personal commitments.
SHARE OPTION SCHEMES
The Remuneration Committee governs the granting of share incentives
to Directors and senior executives. An analysis of all Directors’ share
options is given on page 16.
Following a review and advice in 2003 from New Bridge Street
Consultants, shareholders approved the establishment of the 2003
Executive share option scheme to replace the 1994 and 1996 schemes,
under which no further options will be granted. Under the 2003 Scheme,
the value of shares over which options may be granted to an executive
in any year may not normally exceed 1.5 times basic salary. The extent
to which options may be exercised will depend on the Company’s growth
in pre-tax earnings per share (EPS) exceeding the growth in the retail
price index (RPI) over the three or ﬁve year period following grant.
(The committee have decided that for any options granted after September
2003 performance would be measured only over a single three-year
period.) Options over shares worth up to 0.5 times basic salary may be
exercised if the growth in EPS exceeds the growth in RPI by 3% per
year, options over shares worth up to 1.5 times basic salary may be
exercised if the growth in EPS exceeds the growth in RPI by 10% per
year, with intermediate levels of vesting between these two points.
The Committee believes that the use of growth in pre-tax earnings
per share is the most appropriate measure of the Company’s ﬁnancial
performance, is transparent (because the performance test relies on
publicly available data) and is consistent with market practice. The chairman
of the Remuneration Committee will verify that the tests have been met. 
Share options granted under the 1994 and 1996 share option schemes
are only exercisable if, over any rolling period of three years from the
date of the award, the growth in the Group’s earnings per share exceeds
United Kingdom retail inﬂation by 6% (10% in respect of those options
granted in September 2002). Operation of the 1994 and 1996 schemes
was extended by using the employee share ownership trust.
Directors made no gains on the exercise of share options during 2003
or 2004. The market price of Bodycote’s ordinary shares at 31 December
2004 was 163.5p, the range during 2004 was 125.88p to 165.5p and
the average was 144.68p. The performance conditions for options
granted since 1998 have yet to be achieved. The performance conditions
attached to the options granted before 1999 and still outstanding at
31 December 2004 have been achieved. No options have been granted
since September 2003.
Following the implementation of International Financial Reporting
Standards from 1 January 2005, the Committee will be reviewing
its policy on long-term incentives generally.
SERVICE CONTRACTS
It is the Company’s policy that Executive Directors have service contracts
with a one-year notice period. All the Executive Directors have service
agreements which are terminable by one year’s notice by either party
at any time, and by one year’s remuneration in lieu of notice by the
employer, and by one year’s remuneration in the event of a change
in control of the Company. Legally appropriate factors would be taken
into account to mitigate any compensation payment, covering basic
salary, annual and long term incentives and beneﬁts, which may arise
on the termination of employment of any Executive Director, other than
payments made on a change in control or for payments in lieu of notice.
Mr Hubbard’s contracts are dated 5 February 2002 and those for Messrs
Landless and Sleight are each dated 26 September 2001.
PENSIONS
Pensions for current UK domiciled Executive Directors are, as far as
practicable, provided for under the Group’s UK contributory ﬁnal salary
pension scheme which has a normal retirement age of 65 and is closed
to new members. 
The main features, in respect of Executive Directors, are:
(a) Pensions from age 65 of 1/60th highest average salary of any
consecutive three years out of last ten years prior to retirement
(restricted to the earnings cap where it applies) for each year of
pensionable service, and with increases in pensionable salary after
31 December 2003 restricted to 4.5% per annum (‘the Salary Limit’);
(b) A cash death-in-service beneﬁt of four times basic salary at date of death;
(c) Spouse or dependent’s pension on member’s death equal to half
member’s prospective retirement pension (restricted as before)
at 65 or death in service, or half member’s pension entitlement
on death in retirement;
(d) Members’ contributions are 6% (7% from April 2005) of basic salary.
(e) For Executive Directors with basic salaries above the Salary Limit
or the earnings cap the Group will contribute 14% of the excess
over the Salary Limit to a deﬁned contribution arrangement.
Arrangements for Mr Hubbard are for a contribution to a deﬁned beneﬁt
arrangement of 14% of his basic salary (including any payments being
made by the Group into the Group’s US 401k retirement plan) from
January 2004 onwards.
An analysis of accrued pension entitlements for the two Directors with
accruing beneﬁts under the scheme during 2004 is given on page 17.
Mr Hubbard, the Chief Executive, is a member of the Group’s US 401K
retirement plan to which the Group contributed £14,163 (2003: £3,660).
Pension contributions for Mr Landless’ salary above the earnings cap
amounted to £22,606 (2003: £6,684).
80267_56pp  3/15/05  10:53 AM  Page 15 Board Report on Remuneration
16 Bodycote annual report 2004
EXTERNAL APPOINTMENTS
The Company believes that there are beneﬁts to the individual and the
Company for Executive Directors to hold one appropriate non-executive
directorship in other organisations, as long as it does not conﬂict with the
Company’s interests and that the individual may retain the fees earned
in connection with such appointment.
NON-EXECUTIVE DIRECTORS
The remuneration of Non-Executive Directors is determined by the
Chairman and the Executive Directors. Remuneration for the Chairman
is determined by the whole Board (excluding the Chairman). Remuneration
for the Chairman and Non-Executive Directors takes into account the
time commitments and duties and responsibilities involved. The Chairman
and each Non-Executive Director hold letters of appointment for terms
of three years. Each is terminable under the Company’s articles of
association or the Companies Act 1985, by the director’s resignation
or otherwise on six months’ notice (twelve months in the case of the
Chairman) if termination occurs before expiry of the term. The Chairman
and Non-Executive Directors are not entitled to any pension or other
employment beneﬁts or to participate in any incentive scheme. Payment
in respect of Mr Vogelsang’s service is made to a company owned by him.
TSR PERFORMANCE
The graph on page 17 illustrates the Company’s Total Shareholder Return
(TSR) performance since 1999 in accordance with paragraph 4 of the
Directors’ Remuneration Report Regulations 2002, relative to the FTSE
Engineering & Machinery Index, of which the Company is a component
part. Accordingly this sector is considered to be the most appropriate
comparator group for this purpose.
Approved by the Board
J. Vogelsang
Chairman of the Remuneration Committee
1 March 2005
Directors’ share options
Dates from Expiry
1 January Option 31 December Option price* which (lapse)
Director 2004 lapses 2004* (pence) exercisable dates
J. D. Hubbard 41,307 – 44,178 315.43 03/12/2000 03/12/2007
37,500 – 40,107 370.26 26/04/2002 26/04/2009
25,000 – 26,738 292.19 14/12/2002 14/12/2002
12,000 – 12,834 231.42 02/05/2003 02/05/2010
15,000 – 16,042 203.37 24/04/2004 24/04/2011
60,000 – 64,170 125.76 16/09/2005 16/09/2012
79,365 – 84,882 147.26 15/09/2006 15/09/2013
D. R. Sleight 55,075 (58,903) – 241.92 20/05/2000 (20/05/2004)
37,500 – 40,106 370.26 26/04/2002 26/04/2002
30,000 – 32,085 292.19 14/12/2002 14/12/2006
15,000 – 16,042 231.42 02/05/2003 02/05/2007
20,000 – 21,390 203.37 24/04/2004 24/04/2008
40,000 – 42,780 125.76 16/09/2005 16/09/2009
47,619 – 50,929 147.27 15/09/2006 15/09/2013
D. F . Landless 50,000 – 53,475 370.26 26/04/2002 26/04/2009
50,000 – 53,476 292.19 14/12/2002 14/12/2006
15,000 – 16,042 231.42 02/05/2003 02/05/2007
20,000 – 21,390 203.47 24/04/2004 24/04/2008
40,000 – 42,780 125.76 16/09/2005 16/09/2009
53,968 – 57,719 147.27 15/09/2006 15/09/2013
* The number of option and the exercise cost per option has been adjusted to reﬂect the bonus element of the 1 for 4 rights issue
completed in March 2004.
80267_56pp  3/15/05  10:53 AM  Page 16 Bodycote annual report 2004 17
Board Report on Remuneration
Directors’ emoluments
2004 2003
Salary Annual
and fees Beneﬁts Bonus* Total Total
£000 £000 £000 £000 £000
Executive
J. D. Hubbard 300 18 150 468 265
D. F. Landless 200 14 100 314 184
D. R. Sleight 155 11 112 278 163
655 43 362 1,060 612
Non-Executive
J. A. S. Wallace 100 – – 100 80
R. T. Scholes 33 – – 33 28
J. Vogelsang 28 – – 28 25
L. P. Bermejo 28 – – 28 25
844 43 362 1,249 770
* Executive Directors can elect to receive up to a ﬁfth of their cash bonus in restricted stock in which case the Company would match the
number of shares received (see page 14, under Annual Bonuses).
Directors’ pensions
TSR Performance Graph
8 422 –2936 10 55
48 403 3 1 4 29 20 9 52 515
Accrued
annual
pension at
01/01/04
£000
Transfer
value at
1 January
01/01/04
£000
Real increase
in accrued
annual
pension
£000
Inﬂation
£000
Increase in
accrued
annual
pension
£000
Transfer
value of real
increase in
accrued
annual
pension (less
members’
contributions)
£000
Real
increase 
in transfer
value less
members’
contributions
£000
Members’
contributions
£000
Accrued
annual
pension at
31/12/04
£000
Transfer
value at
31/12/04
£000 Director
D.F. Landless
D.R. Sleight
Source: Datastream
0
20
40
60
80
100
140
120
31-Dec-99 31-Dec-00 31-Dec-01 31-Dec-02 31-Dec-03 31-Dec-04
This graph looks at the value, by 31/12/04, of £100 invested in Bodycote International plc on 31/12/99 compared with that of £100
invested in the FTSE Engineering & Machinery Index. The other points plotted are the values at financial year-ends.
Value
(£)
Bodycote International plc FTSE Engineering & Machinery Index
80267_56pp  3/15/05  10:53 AM  Page 17 18 Bodycote annual report 2004 18 Bodycote annual report 2004 18 Bodycote annual report 2004
Board of Directors
EXECUTIVE DIRECTORS
J. D. Hubbard Chief Executive (57) United States
Appointed Chief Executive in January 2002; joined the Board in 2001. Previously served as President of Bodycote’s North American Heat
Treatment operations from 1996 to 2001. A licensed professional Metallurgical Engineer.
D. F. Landless Finance Director (45)
Appointed Finance Director and joined the Group in 1999. From 1989 to 1997 served as Finance Director in UK and US divisions of Courtaulds Plc.
Finance Director of Courtaulds Coatings (Holdings) Limited from 1997 to 1999. A Chartered Management Accountant.
D. R. Sleight Corporate Development Director (55)
Appointed Corporate Development Director in 2002 having joined the Board in 1996, and served previously as Finance Director (1990 to 1995) and
Joint Managing Director (1995 to 2001) of Bodycote’s Materials Testing operations. A Chartered Accountant.
NON-EXECUTIVE DIRECTORS
J. A. S. Wallace Chairman (61)
Appointed a Director in 1994. Non-Executive Chairman of The Lowry Centre Limited (2002) and Non-Executive Director of Holidaybreak Plc (2002)
and NCC Group PLC (2004). Deputy Chairman of Pifco Holdings plc from 1994 to 2001. Chairman of the Nomination Committee. A Chartered Accountant.
R. T. Scholes Senior Independent Non-Executive Director (59)
Appointed in 1998. Non-Executive Director of Keller Group PLC (2002) Chaucer Holdings PLC, Crest Nicholson Plc and Marshalls PLC (2003)
and of British Vita plc (1993 to 2003). Investment banker with Dresdner Kleinwort Wasserstein (1986 to 2001). Chairman of the Audit Committee
and member of the Remuneration and Nomination Committees. A Chartered Accountant.
J. Vogelsang (62) Netherlands
Appointed in 2003. President of Technology at Basell Polyoleﬁns (2001 to 2002), President of Montell Polyoleﬁns Europe (1999 to 2001),
Vice-President Shell Chemical Europe and Africa (1994 to 1999) and Chief Executive of the Shell Companies in Sweden (1992 to 1994).
Chairman of the Remuneration Committee and member of the Audit and Nomination Committees. A Chemical Engineer.
L.P . Bermejo (45) France 
Appointed in 2003. Director for Northern Europe at Dalkia International from 1 January 2005, Chief Executive Dalkia Plc (UK and Ireland subsidiary of
Veolia Environment) 1999 to 2004, Chief Executive of Dalkia in the Czech and Slovak Republics (1995 to 1999) and DEKRA-Veritas Automobile
(1993 to 1995), Member of the Audit, Remuneration and Nomination Committees. A Structural Engineer.
SECRETARY AND REGISTERED OFFICE
J. R. Grime
Hulley Road, Hurdsﬁeld, Macclesﬁeld, Cheshire SK10 2SG. Tel: 01625 505300 Fax: 01625 505313. Registered Number 519057 England and Wales.
Advisers 
AUDITORS Deloitte & Touche LLP
PRINCIPAL BANKERS HSBC Bank plc, Barclays Bank PLC, The Royal Bank of Scotland plc, Svenska Handelsbanken AB, 
Bank of Scotland and Lloyds TSB Bank plc
FINANCIAL ADVISERS Dresdner Kleinwort Wasserstein Limited
SOLICITORS Eversheds LLP
BROKERS Dresdner Kleinwort Wasserstein Securities Limited
REGISTRARS Capita Registrars Limited, Huddersﬁeld
80267_56pp  3/15/05  10:53 AM  Page 18 Bodycote annual report 2004 19 Bodycote annual report 2004 19
We have audited the ﬁnancial statements of Bodycote International plc
for the year ended 31 December 2004, which comprise the consolidated
proﬁt and loss account, the balance sheets, the consolidated cash ﬂow
statement, the consolidated statement of total recognised gains and
losses and the related notes 1 to 26 together with the reconciliation of
net cash ﬂow to movement in net debt, the reconciliation of movements
in Group shareholders’ funds and the accounting policies. These ﬁnancial
statements have been prepared under the accounting policies set out
therein. We have also audited the information in the part of the Board
Report on Remuneration that is described as having been audited.
This report is made solely to the Company’s members, as a body,
in accordance with section 235 of the Companies Act 1985. Our audit
work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditors’
report and for no other purpose.To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed. 
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described in the statement of Directors’ responsibilities, the Company’s
Directors are responsible for the preparation of the ﬁnancial statements
in accordance with applicable United Kingdom law and accounting
standards. They are also responsible for the preparation of the other
information contained in the annual report including the Board Report
on Remuneration. Our responsibility is to audit the ﬁnancial statements
and the part of the Board Report on Remuneration described as having
been audited in accordance with relevant United Kingdom legal and
regulatory requirements and auditing standards.
We report to you our opinion as to whether the ﬁnancial statements
give a true and fair view and whether the ﬁnancial statements and the
part of the Board Report on Remuneration described as having been
audited have been properly prepared in accordance with the Companies
Act 1985. We also report to you if, in our opinion, the Directors’ Report
is not consistent with the ﬁnancial statements, if the Company has
not kept proper accounting records, if we have not received all the
information and explanations we require for our audit, or if information
speciﬁed by law regarding Directors’ remuneration and transactions
with the Company and other members of the Group is not disclosed.
We review whether the corporate governance statement reﬂects the
Company’s compliance with the nine provisions of the July 2003 FRC
Combined Code speciﬁed for our review by the Listing Rules of the
Financial Services Authority, and we report if it does not. We are not
required to consider whether the Board’s statements on internal control
cover all risks and controls, or form an opinion on the effectiveness of the
Group’s corporate governance procedures or its risk and control procedures.
We read the Directors’ Report and the other information contained in
the annual report for the above year as described in the contents section,
including the unaudited part of the Board Report on Remuneration, and
consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the ﬁnancial statements.
BASIS OF AUDIT OPINION
We conducted our audit in accordance with United Kingdom auditing
standards issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the ﬁnancial statements and the part of the Board Report
on Remuneration described as having been audited. It also includes an
assessment of the signiﬁcant estimates and judgements made by the
Directors in the preparation of the ﬁnancial statements and of whether
the accounting policies are appropriate to the circumstances of the
Company and the Group, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide
us with sufﬁcient evidence to give reasonable assurance that the
ﬁnancial statements and the part of the Board Report on Remuneration
described as having been audited are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our
opinion, we also evaluated the overall adequacy of the presentation
of information in the ﬁnancial statements and the part of the Board
Report on Remuneration described as having been audited.
OPINION
In our opinion: 
• the ﬁnancial statements give a true and fair view of the state of affairs
of the Company and the Group as at 31 December 2004 and of the
proﬁt of the Group for the year then ended; and
• the ﬁnancial statements and part of the Board Report on Remuneration
described as having been audited have been properly prepared in
accordance with the Companies Act 1985.
Deloitte & Touche LLP
Chartered Accountants and Manchester
Registered Auditors 1 March 2005
Directors’ Responsibilities
Independent Auditors’ Report 
to the Members of Bodycote International Plc
The Directors are required by company law to prepare ﬁnancial statements
for each ﬁnancial year which give a true and fair view of the state of affairs
of the Company and the Group and of the proﬁt or loss of the Group for
that year. In preparing the ﬁnancial statements the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
ﬁnancial statements; and
• prepare the ﬁnancial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping proper accounting records
which disclose, with reasonable accuracy at any time, the ﬁnancial
position of the Company and enable them to ensure that the ﬁnancial
statements comply with the Companies Act 1985. They have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and Group and to prevent and
detect fraud and other irregularities.
80267_56pp  3/15/05  10:53 AM  Page 19 20 Bodycote annual report 2004
Consolidated Proﬁt and Loss Account
for the year ended 31 December 2004 
2004 2003 Note
£m £m
Turnover 1
Existing operations 443.7 435.7
Acquisitions 1.8 –
Continuing operations 445.5 435.7
Discontinued operations 11.7 12.7
457.2 448.4
Operating proﬁt 2
Existing operations 42.5 23.8
Acquisitions 0.2 –
Continuing operations 42.7 23.8
Discontinued operations 0.9 1.3
Total operations:
Trading 52.1 41.7
Operating exceptional item arising from restructuring and asset write downs – (7.5) 2
Goodwill amortisation (8.5) (9.1)
Operating proﬁt 43.6 25.1
Exceptional items 3
(Loss)/proﬁt on disposal of discontinued operations (3.8) 3.5
Loss on termination of operations (7.4) (30.0)
Proﬁt/(loss) on ordinary activities before interest and taxation 32.4 (1.4)
Net interest payable (7.9) (9.7) 4
Proﬁt/(loss) on ordinary activities before taxation 24.5 (11.1) 1
Tax on proﬁt/(loss) on ordinary activities (5.6) (6.2) 6
Proﬁt/(loss) on ordinary activities after taxation 18.9 (17.3)
Minority interests - equity (0.2) (0.1) 18
Proﬁt/(loss) for the ﬁnancial year 18.7 (17.4)
Dividends - paid and proposed (19.6) (15.6) 8
Retained loss for the ﬁnancial year (0.9) (33.0) 17
Earnings/(loss) per share Restated 9
Headline 11.3p 9.1p
Headline - diluted 11.3p 9.1p
Basic 6.1p (6.3p)
Basic - diluted 6.1p (6.3p)
The accompanying notes and statement of accounting policies are an integral part of these ﬁnancial statements.
80267_56pp  3/15/05  10:53 AM  Page 20 Bodycote annual report 2004 21
Balance Sheets 
as at 31 December 2004 
Group Company Note
2004 2003 2004 2003
£m £m £m £m
Fixed assets
Intangible assets - goodwill 131.4 137.5 – –10
Tangible assets 428.7 478.7 2.7 0.2 11
Investments 6.2 0.9 853.6 831.6 12
566.3 617.1 856.3 831.8
Current assets
Stocks 13.4 18.2 – –13
Debtors 108.4 102.7 11.9 11.4 14
Cash at bank and in hand 142.1 35.2 74.9 3.2
263.9 156.1 86.8 14.6
Creditors
Amounts falling due within one year (117.2) (119.1) (60.0) (32.4) 15
Net current assets/(liabilities) 146.7 37.0 26.8 (17.8)
Total assets less current liabilities 713.0 654.1 883.1 814.0
Creditors
Amounts falling due after more than one year (234.2) (239.5) (518.0) (493.2) 15
Provisions for liabilities and charges (42.9) (42.8) (0.1) –16
Net assets 435.9 371.8 365.0 320.8 1
Capital and reserves 17
Called-up share capital 32.1 25.7 32.1 25.7
Share premium account 300.0 244.4 300.0 244.4
Currency and other reserves 17.1 14.2 0.6 0.7
Proﬁt and loss account 85.7 86.6 32.3 50.0
Shareholders’ funds - equity 434.9 370.9 365.0 320.8
Minority interests - equity 1.0 0.9 – –18
435.9 371.8 365.0 320.8
Approved by the Board of Directors on 1 March 2005 and signed on its behalf by:
J. D. Hubbard   
}
Directors
D. F. Landless
The accompanying notes and statement of accounting policies are an integral part of these ﬁnancial statements.
80267_56pp  3/15/05  10:53 AM  Page 21 22 Bodycote annual report 2004
2004 2003 Note
£m £m
Net cash inﬂow from operating activities 104.3 83.9 20
Returns on investments and servicing of ﬁnance (7.8) (10.3) 21
Taxation (5.4) (4.9)
Capital expenditure and ﬁnancial investment (34.0) (38.3) 21
Acquisitions and disposals 10.5 1.3 21
Equity dividends paid (15.6) (15.6)
Cash inﬂow before management of liquid resources and ﬁnancing 52.0 16.1
Management of liquid resources (70.9) 5.9 21
Financing 56.3 (23.5) 21
Increase/(decrease) in cash in the year 37.4 (1.5)
Reconciliation of net cash ﬂow to movement in net debt 
Increase/(decrease) in cash in the year 37.4 (1.5)
Cash outﬂow from decrease in debt and lease ﬁnancing 5.7 23.7
Cash outﬂow/(inﬂow) from movement in liquid resources 70.9 (5.9)
Change in net debt resulting from cash ﬂows 114.0 16.3
Debt acquired with subsidiaries (1.7) –
Debt disposed of with subsidiaries 1.0 –
Currency adjustments 8.5 7.6
Movement in net debt in the year 121.8 23.9
Net debt at 1 January (210.3) (234.2)
Net debt at 31 December (88.5) (210.3) 22
The accompanying notes and statement of accounting policies are an integral part of these ﬁnancial statements.
Consolidated Cash Flow Statement
for the year ended 31 December 2004 
80267_56pp  3/15/05  10:53 AM  Page 22 Bodycote annual report 2004 23
Consolidated Statement of Total Recognised Gains and Losses
for the year ended 31 December 2004 
2004 2003
£m £m
Proﬁt/(loss) for the ﬁnancial year 18.7 (17.4)
Dividends paid and proposed (19.6) (15.6)
Retained loss for the ﬁnancial year (0.9) (33.0)
Currency adjustments 2.9 14.4
New shares issued 62.0 0.3
Net movement in shareholders’ funds 64.0 (18.3)
Shareholders’ funds at 1 January 370.9 389.2
Shareholders’ funds at 31 December 434.9 370.9
The accompanying notes and statement of accounting policies are an integral part of these ﬁnancial statements.
Reconciliation of Movements in Group Shareholders’ Funds
for the year ended 31 December 2004
2004 2003
£m £m
Proﬁt/(loss) for the ﬁnancial year 18.7 (17.4)
Currency adjustments 2.9 14.4
Total recognised gains and losses relating to the year 21.6 (3.0)
80267_56pp  3/15/05  10:53 AM  Page 23 ACCOUNTING CONVENTION
The ﬁnancial statements have been prepared under the historical
cost convention and in accordance with applicable United Kingdom
accounting standards.
The accounting policies have been applied consistently throughout the
year and the preceding year in dealing with items that are considered
material in relation to the Group’s ﬁnancial statements.
BASIS OF CONSOLIDATION
The Group ﬁnancial statements consolidate the accounts of the Company
and its subsidiary undertakings, all of which are drawn up to 31 December
each year. The acquisition method of accounting has been adopted.
The results of subsidiaries acquired or sold during the year are
consolidated from or to the date on which control passed.
In accordance with Section 230 of the Companies Act 1985 a separate
proﬁt and loss account dealing with the results of the Company has
not been presented.
GOODWILL
Purchased goodwill arising on the acquisitions of subsidiary undertakings
before 1 January 1998, when FRS 10 Goodwill and Intangible Assets
was adopted, was written off to reserves in the year of acquisition and,
as allowed by this Standard, has not been reinstated in the balance sheet.
On disposal or closure of a previously acquired business, the attributable
amount of goodwill previously written off to reserves is included in
determining the proﬁt or loss on disposal.
Purchased goodwill arising on acquisitions since 31 December 1997
has been capitalised and is being amortised in equal instalments over
its estimated useful life of twenty years. Provision is made for any
impairment.
TURNOVER
Turnover represents amounts receivable for goods and services sold
to outside customers, excluding value added tax.
INVESTMENTS
Investments are held at cost less provision for impairment.
ASSOCIATES
In the Group ﬁnancial statements investments in associates are accounted
for using the equity method. Where material the consolidated proﬁt and
loss account includes the Group’s share of associates’ proﬁts less losses
while the Group’s share of the net assets of the associates is shown in
the consolidated balance sheet. Goodwill arising on the acquisition of
associates is accounted for in accordance with the policy set out above.
Any unamortised balance of goodwill is included in the carrying value of
the investment in associates. There were no material associates in 2004.
STOCK
Stock is valued at the lower of cost and net realisable value. In the case
of manufactured products, cost includes the attributable proportion
of manufacturing overhead costs. Net realisable value comprises the
estimated selling price less all further costs to completion and all costs
to be incurred in selling and distribution.
PENSION COSTS
For deﬁned beneﬁt schemes the amount charged to the proﬁt and loss
account in respect of pension costs is the estimated regular cost of
providing the beneﬁts accrued in the year, adjusted to reﬂect variations
from that cost. For deﬁned contribution schemes the amounts charged
are the contributions payable in the year.
LEASES
Assets held under ﬁnance leases and other similar contracts, which confer
rights and obligations similar to those attached to owned assets, are
capitalised as tangible ﬁxed assets and are depreciated over the shorter
of the lease terms and their useful lives. The capital elements of future
lease obligations are recorded as liabilities, while the interest elements
are charged to the proﬁt and loss account over the period of the lease to
produce a constant rate of charge on the balance of capital repayments
outstanding. Hire purchase transactions are dealt with similarly, except
that assets are depreciated over their useful lives.
Rental costs under operating leases are charged to the proﬁt and loss
account over the period of the lease.
TANGIBLE FIXED ASSETS
Tangible ﬁxed assets are stated at cost or valuation. Depreciation is
provided on a straight line basis, to reduce the carrying value to the
estimated residual value at the point of sale, at the following annual rates:
Land nil
Fixtures and ﬁttings 10% to 20%
Plant and machinery 5% to 20%
Leasehold property over the period of the lease
Buildings 2%
Motor vehicles 20% to 33%
Residual value is calculated on prices prevailing at the date of acquisition.
Accounting Policies
24 Bodycote annual report 2004
80267_56pp  3/15/05  10:53 AM  Page 24 Bodycote annual report 2004 25
TAXATION
Current UK corporation tax and foreign tax, is provided at amounts
expected to be paid (or recovered) using the tax rates and laws that
have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions
or events that result in an obligation to pay more tax in the future or a
right to pay less tax in the future have occurred at the balance sheet
date. Timing differences are differences between the Group’s taxable
proﬁts and its results as stated in the ﬁnancial statements that arise from
the inclusion of gains and losses in tax assessments in periods different
from those in which they are recognised in the ﬁnancial statements.
A net deferred tax asset is regarded as recoverable and therefore
recognised only when, on the basis of all available evidence, it can be
regarded as more likely than not that there will be suitable taxable proﬁts
from which the future reversal of the underlying timing differences can
be deducted.
Deferred tax is recognised in respect of the retained earnings of overseas
subsidiaries only to the extent that, at the balance sheet date, dividends
have been accrued as receivable or a binding agreement to distribute
past earnings in future has been entered into by the subsidiary.
Deferred tax is measured at the average tax rates that are expected
to apply in the periods in which the timing differences are expected
to reverse, based on tax rates and laws that have been enacted or
substantively enacted by the balance sheet date. Deferred tax is measured
on a discounted basis to reﬂect the time value of money over the period
between the balance sheet date and the dates on which it is estimated
that the underlying timing differences will reverse. The discount rates
used reﬂect the post-tax yields to maturity that can be obtained on
government bonds with similar maturity dates and currencies to
those of the deferred tax assets or liabilities.
FOREIGN CURRENCIES
The results of overseas subsidiaries are translated into Sterling using
average rates of exchange during the year. Assets and liabilities of
overseas subsidiaries are translated at the rates of exchange ruling at
the balance sheet date. Exchange differences arising from the translation
of investments in subsidiary undertakings at closing rates are taken to
reserves, together with exchange differences on foreign currency
borrowings which ﬁnance a proportion of foreign currency investments.
GOVERNMENT GRANTS
Capital based government grants are included within accruals and
deferred income in the balance sheet and credited to the proﬁt and loss
account over the estimated useful economic lives of the assets to
which they relate. Revenue based government grants are credited to
the proﬁt and loss account in the period in which they are receivable.
DEBT
Debt is initially stated at the amount of the net proceeds after deduction
of issue costs. The carrying amount is increased by the ﬁnance cost
in respect of the accounting period and reduced by payments made
in the period. Finance costs of debt are recognised in the proﬁt and
loss account over the term of such instruments at a constant rate on
the carrying amount.
DERIVATIVES AND FINANCIAL INSTRUMENTS
The Group uses derivatives and ﬁnancial instruments to reduce
exposure to foreign exchange risk. The Group does not hold or issue
derivatives or ﬁnancial instruments for speculative purposes.
For a forward foreign exchange contract to be treated as a hedge, the
instrument must be related to actual foreign currency assets or liabilities
or to a probable commitment. It must involve the same currency or
similar currencies as the hedged item and must also reduce the risk
of foreign currency exchange movements on the Group’s operations.
Gains and losses arising on these contracts are deferred and recognised
in the proﬁt and loss account, or as adjustments to the carrying amount
of ﬁxed assets, only when the hedged transaction has itself been
reﬂected in the Group’s accounts.
80267_56pp  3/15/05  10:53 AM  Page 25 26 Bodycote annual report 2004
Notes to the Financial Statements
31 December 2004 
1. Segmental analysis
By activity Turnover Proﬁt before Proﬁt after Net assets*
goodwill amortisation goodwill amortisation
2004 2003 2004 2003 2004 2003 2004 2003
Restated Restated Restated Restated 
£m £m £m £m £m £m £m £m
Heat treatment 309.0 302.5 34.2 31.5 26.7 24.1 297.7 200.2
Materials testing 65.6 61.2 12.4 11.4 11.7 10.7 42.4 37.2
Hot isostatic pressing 32.1 27.6 7.0 3.6 7.0 3.6 56.6 64.6
Surface engineering 19.4 18.4 3.3 2.3 3.0 1.9 18.8 16.4
Electroplating - discontinuing 19.4 26.0 (3.0) (6.8) (3.0) (7.4) 7.7 24.1
445.5 435.7 53.9 42.0 45.4 32.9 423.2 342.5
PVD - discontinued 11.7 12.7 0.9 1.3 0.9 1.3 12.7 29.3
457.2 448.4 54.8 43.3 46.3 34.2 435.9 371.8
Head ofﬁce expenses (2.7) (1.6) (2.7) (1.6)
Operating proﬁt before exceptional items 52.1 41.7 43.6 32.6
Net interest payable (7.9) (9.7) (7.9) (9.7)
Proﬁt on ordinary activities before amortisation
of goodwill and exceptional items 44.2 32.0
Amortisation of goodwill (8.5) (9.1)
Proﬁt on ordinary activities before exceptional items 35.7 22.9 35.7 22.9
Operating exceptional item arising from restructuring
and asset write downs – (7.5)
Exceptional items (note 3) (11.2) (26.5)
Proﬁt/(loss) on ordinary activities before taxation 24.5 (11.1)
By geographical origin Turnover Proﬁt before tax Net assets*
2004 2003 2004 2003 2004 2003
£m £m £m £m £m £m
United Kingdom 62.5 60.6 2.0 (0.9) 57.8 2.7
Mainland Europe 234.2 229.0 17.8 (5.5) 343.9 340.1
North America 155.4 154.9 11.2 4.2 27.9 23.7
Rest of World 5.1 3.9 1.4 0.8 6.3 5.3
457.2 448.4 32.4 (1.4) 435.9 371.8
Net interest payable (7.9) (9.7)
Proﬁt/(loss) on ordinary activities before taxation 24.5 (11.1)
By geographical destination Turnover
2004 2003
£m £m
United Kingdom 60.8 58.8
Mainland Europe 233.7 224.9
North America 155.2 154.9
Rest of World 7.5 9.8
457.2 448.4
*Net assets for Heat treatment and the United Kingdom include Head ofﬁce net assets.
80267_56pp  3/15/05  10:53 AM  Page 26 Bodycote annual report 2004 27
1. Segmental analysis continued
The segmental disclosure by activity for 2003 has been restated to reﬂect the transfer of certain businesses from Heat treatment to the PVD
division and from Electroplating (formerly Wet Coatings) to Surface engineering (formerly Specialty coatings). The former Specialty coatings
division has been divided into Surface engineering and PVD.
2. Operating proﬁt
2004 2004 2004 2004 2003 2003 2003
Existing Acquisitions Discontinued Total Continuing Discontinued Total
Operations Operations Operations Operations
£m £m £m £m £m £m £m
Turnover 443.7 1.8 11.7 457.2 435.7 12.7 448.4
Cost of sales (302.1) (1.1) (7.8) (311.0) (307.0) (8.4) (315.4)
Gross proﬁt 141.6 0.7 3.9 146.2 128.7 4.3 133.0
Distribution costs (14.2) (0.1) (0.8) (15.1) (15.5) (0.8) (16.3)
Administrative expenses
- Other (76.5) (0.3) (2.2) (79.0) (72.8) (2.2) (75.0)
- Goodwill amortisation (8.4) (0.1) – (8.5) (9.1) – (9.1)
- Operating exceptional items arising from
restructuring and asset write downs –– – – (7.5) – (7.5)
Operating proﬁt 42.5 0.2 0.9 43.6 23.8 1.3 25.1
2004 2003
£m £m
Operating proﬁt is stated after charging/(crediting):
Depreciation 43.7 45.7
Amortisation of goodwill 8.5 9.1
Operating lease rentals, plant and machinery 2.8 3.2
Operating lease rentals, other 5.4 5.7
Auditors’ remuneration for audit services 0.4 0.4
Government grants receivable (0.2) (0.2)
Rents receivable (0.7) (0.7)
Operating exceptional item (see page 28) – 7.5
Amounts payable to Deloitte & Touche LLP and their associates by the Group in respect of non-audit services were £0.5m (2003: £0.4m).
Amounts paid to other audit ﬁrms in respect of non-audit services totalled £0.6m (2003: £0.2m). Projects by other audit ﬁrms included
due diligence, sales consultancy, tax and secondment of temporary staff.
A more detailed analysis of the auditors’ remuneration on a worldwide basis is provided below:
2004 2003
£m % £m %
Audit services
Statutory audit 0.4 45 0.4 50
Tax services
Compliance services 0.2 22 0.1 13
Advisory services 0.2 22 0.2 25
0.4 44 0.3 38
Other services
Other services not covered above 0.1 11 0.1 12
0.9 100 0.8 100
80267_56pp  3/15/05  10:53 AM  Page 27 Notes to the Financial Statements
28 Bodycote annual report 2004
2. Operating proﬁt continued
In addition to the amounts shown on the previous page, the auditors received fees of £7,000 (2003: £7,000) for the audit of the Group’s
UK pension schemes. A description of the work of the Audit Committee is set out in the Report of the Audit Committee on page 13 and
includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.
Operating exceptional item:
In the year ended 31 December 2003 a restructuring charge of £7.5m was recognised to cover the costs of plant closures, asset write
offs and reorganisation of continuing operations. £1.5m (2003: £2.1m) remains as a provision at 31 December 2004 (see note 16). 
2004 2003
Total Total
£m £m
Heat treatment – 5.4
Hot isostatic pressing – 0.1
Materials testing – 0.5
Electroplating 0.9
PVD – 0.6
Total – 7.5
3. Exceptional items reported after operating proﬁt
2004 2003
£m £m
Loss on disposal of PVD operations (3.8) –
Loss on termination of discontinuing operations (see below) (7.4) (30.0)
Receipt of fully provided deferred consideration relating to prior years’ disposal – 3.5
(11.2) (26.5)
2004 2003
£m £m
The loss on termination of discontinuing operations comprises
Closure costs 7.4 –
Goodwill impairment losses – 11.1
Tangible ﬁxed assets impairment losses – 18.9
7.4 30.0
4. Net interest payable
2004 2003
£m £m
Interest payable and similar charges - bank loans and overdrafts (12.3) (12.9)
Finance lease and hire purchase contract charges (0.3) (0.3)
Bank interest receivable 4.7 3.5
(7.9) (9.7)
5. Employees
Year end Average Year end Average
monthly monthly
2004 2004 2003 2003
Number Number Number Number
The number of persons employed by the Group
(including Executive Directors) was:
Heat treatment 4,905 4,703 4,629 4,787
Materials testing 1,439 1,413 1,334 1,281
Hot isostatic pressing 293 282 269 265
Surface engineering 352 352 365 365
Electroplating 165 468 586 583
PVD – 234 226 217
7,154 7,452 7,409 7,498
80267_56pp  3/15/05  10:53 AM  Page 28 Bodycote annual report 2004 29
5. Employees continued
2004 2003
£m £m
Total employee costs (including Executive Directors) were:
Wages and salaries 166.6 166.9
Social security costs 27.1 30.4
Other pension costs (see note 24) 7.5 4.9
201.2 202.2
Details of Directors’ emoluments are given on page 17.
6. Tax on proﬁt/(loss) on ordinary activities
2004 2003
£m £m
The charge for tax comprises:
Current tax:
UK corporation tax 0.5 1.4
Overseas tax 6.4 5.0
Adjustments in respect of prior years:
- UK corporation tax (0.8) 0.4
- Overseas tax (1.9) (1.0)
Total current tax 4.2 5.8
Deferred tax:
Origination and reversal of timing differences 0.1 2.1
Decrease/(increase) in discount 1.3 (1.7)
Total deferred tax (see note 16) 1.4 0.4
Total tax on proﬁt/(loss) on ordinary activities 5.6 6.2
The tax effect of exceptional items comprises:
Proﬁt on disposal of discontinued operations - overseas (3.9) 1.8
Operating exceptional restructuring charges – (2.7)
(3.9) (0.9)
The loss on termination of operations in 2003 (note 3) has no tax effect.
The difference between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation 
tax to the proﬁt before tax is as follows:
2004 2003
£m £m
Group proﬁt/(loss) on ordinary activities before tax 24.5 (11.1)
Tax on Group proﬁt/(loss) on ordinary activities at standard UK corporation tax rate of 30% (2003 - 30%) 7.4 (3.3)
Effects of:
Goodwill amortisation not deductible for tax purposes 2.5 2.7
Other expenses not deductible for tax purposes 0.1 0.1
Recognition of tax losses previously not recognised (2.4) –
Overseas earnings taxed at different rates (0.6) –
Exceptional provision for asset write downs not considered recoverable – 9.0
Adjustments to tax charge in respect of previous periods (2.7) (0.6)
Origination and reversal of timing differences (0.1) (2.1)
Group current tax charge for the year 4.2 5.8
A deferred tax asset amounting to £11.8m (2003: £14.2m) for trading losses has not been recognised because in the opinion of the
directors there will be no suitable taxable income available in the forseeable future.
80267_56pp  3/15/05  10:53 AM  Page 29 Notes to the Financial Statements
30 Bodycote annual report 2004
7. Proﬁt/(loss) for the ﬁnancial year
The proﬁt for the ﬁnancial year dealt with in the ﬁnancial statements of the parent company amounted to £1.9m (2003: £4.2m loss).
8. Dividends - paid and proposed
2004 2003
£m £m
Interim - 2.25p per share (2003: 2.25p) on 320,968,766 (2003: 256,630,326) shares
paid 7 January 2005 (2003: 6 January 2004) 7.3 5.8
Final - 3.85p per share (2003: 3.85p) proposed on 320,968,766 (2003: 256,630,326) shares 12.3 9.8
19.6 15.6
A total dividend of 6.1p per share for the year ended 31 December 2003 has been restated in the Directors’ Report as 5.7p per share to
reﬂect the bonus element of the rights issue completed in March 2004.
9. Earnings/(loss) per share
2004 2003
£m £m
Proﬁt/(loss) for the ﬁnancial year 18.7 (17.4)
Goodwill amortisation charge 8.5 9.1
Exceptional items after tax 7.3 33.1
Headline earnings 34.5 24.8
Number Number
Restated
Weighted average number of ordinary shares in issue - basic 304,605,680 273,921,081
Adjustment in respect of share options 124,007 –
Weighted average number of ordinary shares in issue - diluted 304,729,687 273,921,081
Restated
Headline 11.3p 9.1p
Headline - diluted 11.3p 9.1p
Basic 6.1p (6.3p)
Basic - diluted 6.1p (6.3p)
The Directors consider that the headline earnings per share ﬁgures more accurately reﬂect the underlying performance of the Group.
The ﬁgures for basic and diluted weighted average share capital exclude 421,823 shares (2003: 400,000) in respect of which dividend
entitlement has been waived on behalf of the Bodycote International Employee Beneﬁt Trust.
The comparative ﬁgures for earnings per share and share capital above have been restated to take into account the bonus element
of the 1 for 4 rights issue completed on 31 March 2004.
80267_56pp  3/15/05  10:53 AM  Page 30 Bodycote annual report 2004 31
10. Intangible ﬁxed assets - Goodwill
Group
Cost £m
1 January 2004 182.8
Additions (note 23) 3.1
Disposals (note 23) (5.9)
31 December 2004 180.0
Amortisation
1 January 2004 45.3
Charge for the year 8.5
Disposals (note 23) (5.2)
31 December 2004 48.6
Net book value
31 December 2004 131.4
31 December 2003 137.5
11. Tangible ﬁxed assets
Land and buildings Plant Fixtures
Long Short and and
Freehold leasehold leasehold machinery ﬁttings Total
£m £m £m £m £m £m
Group
Cost
1 January 2004 167.6 13.4 6.4 555.0 42.3 784.7
Currency adjustments (1.7) – (0.1) (5.8) (0.1) (7.7)
Businesses acquired 1.7 – – 3.0 0.1 4.8
Businesses sold (11.9) (1.5) (0.2) (61.8) (3.2) (78.6)
Additions 2.7 0.2 0.2 32.1 2.6 37.8
Disposals (1.7) (0.1) – (23.9) (2.8) (28.5)
31 December 2004 156.7 12.0 6.3 498.6 38.9 712.5
Depreciation
1 January 2004 27.1 7.0 1.8 237.5 32.6 306.0
Currency adjustments (0.1) 0.1 0.1 (0.6) – (0.5)
Businesses acquired 0.2 – – 0.9 0.1 1.2
Businesses sold (5.2) (0.2) (0.1) (33.7) (3.0) (42.2)
Charge for the year 4.0 0.3 0.3 35.5 3.6 43.7
Disposals (0.2) (0.1) – (21.4) (2.7) (24.4)
31 December 2004 25.8 7.1 2.1 218.2 30.6 283.8
Net book value
31 December 2004 130.9 4.9 4.2 280.4 8.3 428.7
31 December 2003 140.5 6.4 4.6 317.5 9.7 478.7
Included in the net book value of ﬁxed assets of £428.7m (2003: £478.7m) is £10.3m (2003: £13.1m) which relates to freehold land not depreciated.
In the Directors’ opinion the net book value of leased assets is not material.
80267_56pp  3/15/05  10:53 AM  Page 31 Notes to the Financial Statements
32 Bodycote annual report 2004
11. Tangible ﬁxed assets continued
Fixtures
and
ﬁttings
£m
Company
Cost
1 January 2004 0.3
Additions 2.8
31 December 2004 3.1
Depreciation
1 January 2004 0.1
Charge for the year 0.3
31 December 2004 0.4
Net book value
31 December 2004 2.7
31 December 2003 0.2
12. Investments
Group Company
Shares in Other Shares in
associates investments Total Shares associates Loans Total
£m £m £m £m £m £m £m
Cost
1 January 2004 0.6 0.6 1.2 397.5 – 436.1 833.6
Acquisitions and advances 5.2 – 5.2 – 5.2 30.1 35.3
Disposals and repayments – –––– (5.3) (5.3)
Currency adjustments 0.3 (0.2) 0.1 – – (8.0) (8.0)
31 December 2004 6.1 0.4 6.5 397.5 5.2 452.9 855.6
Provision
1 January 2004 and 31 December 2004 0.3 – 0.3 2.0 – – 2.0
Net book value
31 December 2004 5.8 0.4 6.2 395.5 5.2 452.9 853.6
31 December 2003 0.3 0.6 0.9 395.5 – 436.1 831.6
Shares in associates comprise:
Name of company Nature of Country of % Holding of
business incorporation ordinary shares
Traitement Compression Services SA Hot Isostatic Pressing France 49
International Heat Treatment Limited Heat Treatment Hong Kong 40
SSCP Coating S.à.r.l.* PVD Coatings Luxembourg 15
*The Group increased its holding in SSCP Coating S.à.r.l. (owners of IonBond) from 15% to 20% on 20 February 2005. Equity accounting
has not been applied in respect of these entities as the impact would be immaterial.
Details of principal subsidiary undertakings are given on pages 48 to 50. 
80267_56pp  3/15/05  10:53 AM  Page 32 Bodycote annual report 2004 33
13. Stocks
Group
2004 2003
£m £m
Raw materials and consumables 9.3 12.0
Work in progress 3.8 5.3
Finished goods and goods for resale 0.3 0.9
13.4 18.2
There is no material difference between the balance sheet value of stocks and their replacement cost.
14. Debtors
Group Company
2004 2003 2004 2003
£m £m £m £m
Amounts falling due within one year:
Trade debtors 88.3 86.1 – –
Amounts owed by subsidiary undertakings – – 4.8 6.9
Corporation tax recoverable 1.6 – 1.5 –
Other debtors 6.3 6.0 3.3 3.5
Prepayments and accrued income 6.1 6.9 0.1 1.0
102.3 99.0 9.7 11.4
Amounts falling due after more than one year:
Other debtors 6.1 3.7 2.2 –
108.4 102.7 11.9 11.4
15. Creditors
Group Company
2004 2003 2004 2003
£m £m £m £m
Amounts falling due within one year:
Bank loans 3.7 9.3 – 2.9
Obligations under ﬁnance leases 1.2 1.6 – –
Bank overdrafts 3.3 5.4 4.1 1.9
Trade creditors 33.3 36.1 0.4 0.3
Amounts owed to subsidiary undertakings – – 32.7 10.0
Corporation tax 2.5 3.2 – –
Proposed dividends 19.6 15.6 19.6 15.6
Other taxes and social security 14.7 14.5 0.1 –
Other creditors 5.4 8.6 0.3 0.3
Accruals and deferred income 33.5 24.8 2.8 1.4
117.2 119.1 60.0 32.4
Amounts falling due after more than one year:
Bank loans 219.5 224.9 212.2 216.0
Obligations under ﬁnance leases 2.9 4.3 – –
Amounts owed to subsidiary undertakings – – 305.8 277.2
Other creditors 11.8 10.3 – –
234.2 239.5 518.0 493.2
80267_56pp  3/15/05  10:53 AM  Page 33 Notes to the Financial Statements
34 Bodycote annual report 2004
15. Creditors continued
Group Company
2004 2003 2004 2003
£m £m £m £m
Bank loans are repayable:
After 5 years 1.9 47.6 – 44.7
Between 2 and 5 years 44.8 165.8 41.8 161.3
Between 1 and 2 years 172.8 11.5 170.4 10.0
219.5 224.9 212.2 216.0
On demand or within 12 months 3.7 9.3 – 2.9
223.2 234.2 212.2 218.9
Finance leases are repayable:
After 5 years 0.4 0.6 – –
Between 2 and 5 years 1.1 2.5 – –
Between 1 and 2 years 1.4 1.2 – –
2.9 4.3 – –
On demand or within 12 months 1.2 1.6 – –
4.1 5.9 – –
Bank loans are secured by interlocking intra Group guarantees with principal subsidiaries. Finance leases are secured on the assets to
which they relate.
16. Provisions for liabilities and charges
Group Company
Deferred Restructuring Deferred
tax provision Total tax
£m £m £m £m
1 January 2004 40.7 2.1 42.8 –
Utilisation – (0.6) (0.6) –
Proﬁt and loss account charge 1.4 – 1.4 0.1
Currency adjustments (0.6) – (0.6) –
Businesses acquired 0.3 – 0.3 –
Businesses sold (0.4) – (0.4) –
31 December 2004 41.4 1.5 42.9 0.1
Deferred tax Group Company
2004 2003 2004 2003
£m £m £m £m
Deferred tax is provided as follows:
Accelerated capital allowances 61.2 64.9 0.1 –
Other timing differences (2.5) (5.6) – –
Undiscounted provision for deferred tax 58.7 59.3 0.1 –
Discount (17.3) (18.6) – –
Discounted provision for deferred tax 41.4 40.7 0.1 –
80267_56pp  3/15/05  10:53 AM  Page 34 Bodycote annual report 2004 35
17. Capital and reserves
Share capital:
2004 2003
£m £m
Authorised 430,000,000 (2003: 347,060,000) ordinary shares of 10p each 43.0 34.7
Allotted, called-up and fully paid 320,968,766 (2003: 256,630,326) ordinary shares of 10p each 32.1 25.7
An analysis of the shares that were issued during the year is given in the Directors’ Report on page 9.
Share options:
Options covering 180,859 ordinary shares were exercised and 1,662,841 options lapsed. 2004 option prices and numbers have been
adjusted for the 2004 rights issue.
At 31 December 2004 options under the Bodycote International Share Option Schemes 1994, 1996 and 2003 were outstanding in respect
of 7,457,381 ordinary shares granted to 384 employees at prices ranging from 106.34p to 475.92p per share and which expire at dates
between 4 May 2005 and 15 September 2013.
Outstanding options
Option price Exercise Number of options
Date of grant pence period 2004 2003
November 1994 98.67 1997-2004 – 154,467
May 1995 106.34 1998-2005 33,981 46,411
October 1995 133.17 1998-2005 20,349 19,027
June 1996 178.19 1999-2006 78,291 73,202
December 1996 253.46 1999-2006 334,256 366,238
May 1997 241.92 2000-2007 737,738 2,399,805
December 1997 315.43 2000-2007 540,401 571,372
January 1998 353.06 2001-2008 235,241 240,000
May 1998 475.92 2001-2008 41,441 38,750
October 1998 285.18 2001-2008 286,070 285,000
April 1999 370.26 2002-2009 478,465 459,875
May 1999 329.12 2002-2009 16,042 15,000
December 1999 292.19 2002-2009 197,859 185,000
May 2000 231.42 2003-2010 1,031,856 1,034,000
April 2001 203.37 2004-2011 1,170,513 1,184,558
April* 2001 203.37 2004-2008 45,926 42,942
September 2002 125.76 2005-2012 867,031 870,700
September* 2002 125.76 2005-2009 90,158 84,300
September 2003 147.27 2006-2013 1,251,763 1,230,434
7,457,381 9,301,081
Shares under option marked * have been purchased in the market from previously issued share capital and are held by the trustees
of the Bodycote International Employee Beneﬁt Trust.
80267_56pp  3/15/05  10:53 AM  Page 35 Notes to the Financial Statements
36 Bodycote annual report 2004
17. Capital and reserves continued
Reserves:
Share Currency Proﬁt
premium and other and loss
account reserve account Total
£m £m £m £m
Group
1 January 2004 244.4 14.2 86.6 345.2
Currency adjustments on foreign currency net investments – (5.6) – (5.6) 
Currency adjustments on related borrowings – 8.5 – 8.5
Retained loss for the year – – (0.9) (0.9) 
Premium on shares issued 55.6 – – 55.6 
31 December 2004 300.0 17.1 85.7 402.8
Company
1 January 2004 244.4 0.7 50.0 295.1
Currency adjustments on foreign currency net investments – (7.9) – (7.9)
Currency adjustments on related borrowings – 7.8 – 7.8
Retained loss for the year – – (17.7) (17.7)
Premium on shares issued 55.6 – – 55.6
31 December 2004 300.0 0.6 32.3 332.9
Cumulative goodwill written off to reserves at 31 December 2004 and 2003 amounted to £122.1m.
The currency and other reserve for both the Group and the Company is stated after deducting £0.8m (2003: £0.8m) relating to the shares held in
the Bodycote International Employee Beneﬁt Trust. The trust holds Bodycote shares and satisﬁes awards made under various employee incentive
schemes when issuance of new shares is not appropriate. As at 31 December 2004 421,823 (2003: 400,000) shares were held by the trust and
following recommendations by the employer are provisionally allocated to satisfy awards under employee incentives schemes. The market
value of these shares was £0.7m (2003: £0.6m).
18. Minority interests - equity
Group
2004 2003
£m £m
Equity interest at 1 January 0.9 0.2
Currency adjustments (0.1) –
Share of proﬁts for the period 0.2 0.1
Acquisition of subsidiary undertaking – 0.7
Dividend payable – (0.1)
Equity interest at 31 December 1.0 0.9
80267_56pp  3/15/05  10:53 AM  Page 36 Bodycote annual report 2004 37
19. Capital and leasing commitments
Group
2004 2003
£m £m
Contracted capital expenditure not provided for in the ﬁnancial statements: 6.7 12.1
The annual commitment for payments in respect of operating leases is:
Land and buildings Other
2004 2003 2004 2003
£m £m £m £m
Expiring:
Within 12 months 0.5 0.6 0.7 1.9
Between 1 and 5 years 2.1 1.1 1.8 2.2
After 5 years 1.8 2.2 0.1 0.2
4.4 3.9 2.6 4.3
20. Reconciliation of operating proﬁt to operating cash ﬂows
2004 2003
£m £m
Operating proﬁt 43.6 25.1
Depreciation charges 43.7 45.7
Amortisation of goodwill 8.5 9.1
Loss on sale of tangible ﬁxed assets 0.3 0.1
Fixed assets written off on restructuring – 3.5
Decrease in stocks 3.8 –
(Increase)/decrease in debtors (2.1) 12.1
Increase/(decrease) in creditors and provisions 6.5 (11.7)
Net cash inﬂow from operating activities 104.3 83.9
21. Analysis of cash ﬂows
2004 2003
£m £m
Returns on investments and servicing of ﬁnance:
Interest received 4.2 3.6
Interest paid (12.0) (13.8)
Dividend paid to minority shareholder – (0.1)
Net cash outﬂow from returns on investments and servicing of ﬁnance (7.8) (10.3)
Capital expenditure and ﬁnancial investment:
Purchase of tangible ﬁxed assets (37.8) (39.9)
Sale of tangible ﬁxed assets 3.8 1.5
Sale of investments – 0.1
Net cash outﬂow from capital expenditure and ﬁnancial investment (34.0) (38.3)
80267_56pp  3/15/05  10:53 AM  Page 37 Notes to the Financial Statements
38 Bodycote annual report 2004
21. Analysis of cash ﬂows continued
2004 2003
£m £m
Acquisitions and disposals:
Net cash acquired with subsidiaries – 0.7
Purchase of subsidiary undertakings (note 23) (4.7) (2.9)
Net cash disposed of upon sale of business (0.4) –
Sale of business (note 23) 20.8 3.5
Investment in associates (5.2) –
Net cash inﬂow from acquisitions and disposals 10.5 1.3
Management of liquid resources:
Cash withdrawn from short term deposits 148.3 70.8
Cash placed on short term deposits (219.2) (64.9)
Net cash (outﬂow)/inﬂow from management of liquid resources (70.9) 5.9
Financing:
Issue of ordinary share capital 62.0 0.2
Repayment of bank loans (9.2) (215.6)
Additional bank loans 5.1 192.6
Repayment of ﬁnance leases (1.9) (1.5)
Additional ﬁnance leases 0.3 0.8
Net cash inﬂow/(outﬂow) from ﬁnancing 56.3 (23.5)
22. Analysis of changes in net debt
1 Jan Non-cash Currency 31 Dec
2004 Cash ﬂow Acquisitions Disposals changes adjustments 2004
£m £m £m £m £m £m £m
Cash 33.7 34.5 – – – 1.5 69.7
Short term deposits 1.5 70.9 –––– 72.4
Cash at bank and in hand 35.2 105.4 – – – 1.5 142.1
Bank overdrafts (5.4) 2.9 – – – (0.8) (3.3)
Bank loans due within one year (9.3) 8.0 (0.1) – (2.4) 0.1 (3.7)
Bank loans due after one year (224.9) (3.9) (1.0) 0.2 2.4 7.7 (219.5)
Finance leases due within one year (1.6) 1.3 – 0.2 (1.0) (0.1) (1.2)
Finance leases due after one year (4.3) 0.3 (0.6) 0.6 1.0 0.1 (2.9)
(210.3) 114.0 (1.7) 1.0 – 8.5 (88.5)
80267_56pp  3/15/05  10:53 AM  Page 38 Bodycote annual report 2004 39
23. Acquisitions and disposals
Acquisitions
Acquisitions were made at a cost of £4.7m. The acquisitions in the year are stated on page 9 in the Directors’ Report. The following table
analyses the acquisitions made in the year. No fair value adjustments were required to be made to the amounts at which the assets and
liabilities were recorded in the books of the acquired entities.
2004
Book and
fair value
£m
Tangible ﬁxed assets 3.6
Debtors 0.7
Cash 0.2
Creditors (0.7)
Bank overdrafts (0.2)
Bank loans (1.1)
Finance leases (0.6)
Deferred tax (0.3)
Total net assets acquired 1.6
Goodwill 3.1
Cash paid 4.7
Of the goodwill arising on the acquisition of subsidiary undertakings, £3.1m was capitalised in the year in accordance with FRS 10. 
This then resulted in an amortisation charge of £0.1m. The subsidiary undertakings acquired during the year contributed £0.2m to the Group’s
net operating cash ﬂow, paid £0.1m in respect of net returns on investments and servicing of ﬁnance and utilised £0.5m for capital expenditure.
Disposals
Details of the disposals made in the year are given on page 9 in the Directors’ Report. Net assets disposed of and the related sale
proceeds were as follows:
2004
£m
Intangible ﬁxed assets 0.7
Tangible ﬁxed assets 36.4
Stocks 0.8
Debtors 2.0
Cash 0.6
Creditors (1.5)
Bank loans (0.2)
Finance leases (0.8)
Overdrafts (0.2)
Deferred tax (0.4)
Net assets disposed 37.4
Loss on sale (11.2)
Sale proceeds 26.2
Satisﬁed by:
Cash 20.8
Deferred consideration 5.4
26.2
Net cash inﬂows in respect of the sale comprised:
Cash consideration 20.8
Net cash sold (0.4)
20.4
The operating loss of these disposals up to the date of disposal was £1.9m and for the last ﬁnancial year was £5.0m.
80267_56pp  3/15/05  10:53 AM  Page 39 Notes to the Financial Statements
40 Bodycote annual report 2004
24. Pension schemes
The Group operated a number of pension schemes during the year. The cost to the Group of these schemes was £7.5m (2003: £4.9m)
of which £5.6m (2003: £3.3m) related to overseas arrangements.
UK Scheme
The Group operates a funded deﬁned beneﬁt arrangement for UK employees in which the assets are held in separate trustee administered funds
and which is closed to new entrants. The pension cost relating to the UK arrangement is assessed in accordance with the advice of qualiﬁed
actuaries using the attained age method. The last actuarial assessment of the scheme was performed on 6 April 2002. The assumptions that
have the most signiﬁcant effect on the results of each of the actuarial assessments are those relating to the rate of return on the investments (6.5%),
the rate of increase in salaries (4.25%) and the allowance (3.0%) made for pension payment increases of 5% or retail price inﬂation if less.
At the last actuarial valuation of the scheme, the market value of the assets totalled £26.8m. The actuarial value of these assets represented 83%
of the beneﬁts that had accrued to members after allowing for expected future increases in earnings.
At 6 April 2002, there was a surplus of £0.2m on the basis of the minimum funding requirement of the Pensions Act 1995.
The contributions made by the employer over the ﬁnancial year have been £1.6m, equivalent to 19% of pensionable pay (after allowing
for National Insurance rebates). In addition the employer made a special contribution of £0.2m. The contribution rate for 2005 will be 21%
of pensionable pay and will be reviewed following the triennial valuation of the scheme due as at 6 April 2005. As the scheme is closed
to new entrants, the current service cost as a percentage of pensionable payroll is likely to increase as the membership ages, although
it will be applied to a decreasing pensionable payroll.
The transitional arrangements of the accounting standard FRS 17 require disclosure of assets and liabilities as at 31 December 2004
calculated in accordance with the requirements of FRS 17. They also require disclosure of the items which would appear in the proﬁt and
loss account and in the statement of total recognised gains and losses were the full requirements of FRS 17 in place. For the purpose of
these ﬁnancial statements, all of these ﬁgures are illustrative only and do not impact on the actual 31 December 2004 balance sheet or
on this year’s performance statements.
Assumptions 
The assets of the scheme have been taken at market value and the liabilities have been calculated using the following principal 
actuarial assumptions:
2004 2003 2002
% p.a. % p.a. % p.a.
Inﬂation 3.00 2.75 2.50
Salary increases 4.25 4.00 3.75
Rate of discount 5.30 5.75 5.50
Allowance for pension increases of 5% 
per annum or RPI if less in payment or if deferred 3.00 2.75 2.50
The fair value of the assets in the scheme, the present value of the liabilities in the scheme and the expected rate of return at each
balance sheet date were:
2004 2004 2003 2003 2002 2002
%£m %£m % £m
Equities 7.6 20.2 7.0 18.2 7.0 14.8
Bonds 4.5 5.2 4.7 2.9 5.4 2.5
Cash 4.75 – 4.0 0.5 4.0 0.8
With proﬁts insured policy 4.5 4.6 4.7 4.5 5.2 4.6
Total fair value of assets 30.0 26.1 22.7
Present value of scheme liabilities (50.7) (38.6) (36.1)
Deﬁcit in the scheme (20.7) (12.5) (13.4)
Related deferred tax asset 6.2 3.8 4.0
Net pension liability (14.5) (8.7) (9.4)
80267_56pp  3/15/05  10:53 AM  Page 40 Bodycote annual report 2004 41
24. Pension schemes continued
Amounts which would be charged to the proﬁt and loss account over the ﬁnancial year 2004 2003
£m £m
Current service cost (charge to operating proﬁt) 1.1 0.7
Interest on pension scheme liabilities (charge to net ﬁnance costs) 2.2 2.0
Expected return on pension scheme assets (credit to net ﬁnance costs) (1.7) (1.4)
Total charge 1.6 1.3
Amounts which would be included within the statement of total recognised gains and losses 
2004 2003
% of scheme % of scheme
£m assets/ £m assets/
liabilities liabilities
Difference between expected and actual return on assets (0.9) 3.0 (2.4) 9.2
Experience gains and losses arising on the scheme liabilities (0.1) 0.2 (0.1) 0.3
Effects of changes in the demographic and ﬁnancial 
assumptions underlying the present value of the scheme liabilities 9.4 18.5 1.9 4.9
Total charge/(credit) 8.4 (0.6)
Analysis of movements during the year 2004 2003
£m £m
Deﬁcit at 1 January 12.5 13.4
Movement in the year:
Current service cost 1.1 0.7
Net ﬁnance charge 0.5 0.6
Contributions (1.8) (1.6)
Actuarial loss/(gain) 8.4 (0.6)
Deﬁcit at 31 December 20.7 12.5
Overseas Schemes
The Group operates an unfunded scheme for employees in France. The total liability in respect of beneﬁts is €3.3m (£2.4m) 2003: €3.3m
(£2.3m) of which €2.7m (£1.9m) 2003: €2.4m (£1.7m) has been provided. 
The company also sponsors ﬁve deﬁned beneﬁt pension arrangements in the USA. These are Metallurgical Inc. Pension Plan, Lakeside
Heat Treating, and Supplemental Retirement Plan (each of which is closed to new members and with no additional beneﬁts accruing to
members) and two small plant speciﬁc plans, the Lansing (UAW) and the St Louis Hourly, under which beneﬁts continue to accrue and
which are open to new members. The ﬁgures calculated for the purposes of US accounting requirement FASB No 32 as at 31 December
2004 have been obtained and adjusted on an approximate basis for the purpose of illustrating the liabilities for the UK accounting standard
FRS 17. The disclosures required under the transitional arrangements of FRS 17 in respect of these pension schemes are set out below.
The contributions made by the employer over the ﬁnancial year have been $239,000 (£131,000) equivalent to 4.4% of pensionable pay.
The next actuarial valuations for funding purposes are at dates between 1 September 2004 and 1 January 2005.
Assumptions 
The assets of the schemes have been taken at market value and the liabilities have been calculated using a discount rate of 5% per
annum (5% at 31 December 2003).
80267_56pp  3/15/05  10:53 AM  Page 41 Notes to the Financial Statements
42 Bodycote annual report 2004
24. Pension schemes continued
The fair value of the assets in the schemes, the present value of the liabilities in the schemes and the expected rate of return at each
balance sheet date were:
2004 2004 2004 2003 2003 2003 2002 2002 2002
%£m$m % £m $m % £m $m
Equities 7.00 0.9 1.8 7.00 0.9 1.7 7.00 0.8 1.3
Bonds 5.00 0.4 0.8 5.00 0.5 0.9 5.00 0.6 0.9
Cash 2.25 0.4 0.7 1.25 0.3 0.6 1.25 11.6 18.6
Total fair value of assets 1.7 3.3 1.7 3.2 13.0 20.8
Present value of scheme liabilities (2.5) (4.9) (3.0) (5.4) (16.0) (25.8)
Deﬁcit in the scheme (0.8) (1.6) (1.3) (2.2) (3.0) (5.0)
Related deferred tax asset 0.3 0.6 0.6 1.0 1.3 2.3
Net pension liability (0.5) (1.0) (0.7) (1.2) (1.7) (2.7)
Charge to the proﬁt and loss account over the ﬁnancial year 
2004 2004 2003 2003
£m $m £m $m
Current service cost (charge to operating proﬁt) – 0.1 0.1 0.2
Gain on settlements and curtailments –– (0.6) (1.0)
Total operating charge/(credit) – 0.1 (0.5) (0.8)
Interest on pension scheme liabilities (charge to net ﬁnance costs) 0.2 0.3 0.4 0.6
Expected return on pension scheme assets (credit to net ﬁnance costs) (0.1) (0.2) (0.1) (0.2)
Total charge/(credit) 0.1 0.2 (0.2) (0.4)
Amounts which would be included within the statement of total recognised gains and losses 
% of scheme % of scheme
assets/ assets/
£m $m liabilities £m $m liabilities
Difference between expected and actual return on assets (0.1) (0.2) 6.1 – (0.1) 3.9
Experience gains and losses arising on the scheme liabilities (0.2) (0.4) 8.2 – 0.1 2.2
Total charge (0.3) (0.6) ––
Analysis of movements during the year 2004 2003
£m $m £m $m
Deﬁcit at 1 January 1.2 2.2 3.0 5.0
Movement in the year:
Current service cost – 0.1 0.1 0.2
Contributions (0.1) (0.2) (1.5) (2.4)
Other ﬁnance charges 0.1 0.1 0.2 0.4
Gain on curtailment – – (0.5) (1.0)
Actuarial gain (0.3) (0.6) ––
Deﬁcit at 31 December 0.9 1.6 1.3 2.2
2004 2003
80267_56pp  3/15/05  10:53 AM  Page 42 Bodycote annual report 2004 43
24. Pension schemes continued
The analysis of reserves that would have arisen if FRS 17 had been fully implemented is as follows: 2004 2003
£m £m
Proﬁt and loss reserve excluding pension liability 86.9 86.6
Amount relating to deﬁned beneﬁt pension liability, net of related deferred tax (15.4) (10.0)
Proﬁt and loss reserve 71.5 76.6
25. Contingent liabilities
The Company has guaranteed bank overdrafts and loans of certain subsidiary undertakings amounting to £1.3m (2003: £2.3m).
26. Derivatives and other ﬁnancial instruments
The Finance Director’s Report on page 8 summarises the objectives and policies for holding or issuing ﬁnancial instruments and similar
contracts, and the strategies for achieving those objectives that have been followed during the period.
The numerical disclosures in this note deal with ﬁnancial assets and ﬁnancial liabilities as deﬁned in FRS 13 Derivatives and Other
Financial Instruments: Disclosures. Certain ﬁnancial assets such as investments in subsidiary and associated companies are excluded
from the scope of these disclosures.
As permitted by FRS 13, short term debtors and creditors have also been excluded from the disclosures, other than the currency disclosures.
Interest rate proﬁle
Financial assets:
The Group’s ﬁnancial assets are made up of cash deposits which are part of the ﬁnancing arrangements of the Group. These deposits
comprise amounts placed on money market at ﬁxed rates for various durations from call up to one week and are detailed as follows:
2004 2003
£m £m
Currency:
Sterling 69.8 3.5
US Dollar 21.2 6.7
Swedish Krona 3.4 0.2
Norwegian Krone 0.5 0.5
Danish Krone 0.2 0.1
Euro 38.9 19.9
Canadian Dollar 1.9 0.3
UAE Dirham 2.4 1.2
Swiss Franc 0.5 0.5
Czech Koruna 2.6 1.6
Chinese Renminbi 0.6 –
Omani Rial 0.1 0.2
Mexican Peso – 0.5
Total 142.1 35.2
80267_56pp  3/15/05  10:53 AM  Page 43 Notes to the Financial Statements
44 Bodycote annual report 2004
26. Derivatives and other ﬁnancial instruments continued
Financial liabilities: 
After taking into account forward foreign currency contracts entered into by the Group, the interest rate proﬁle of the Group’s ﬁnancial
liabilities at 31 December 2004 and 31 December 2003 was as follows:
Floating Fixed Floating Fixed Interest
Total rate rate Total rate rate free
2004 2004 2004 2003 2003 2003 2003
£m £m £m £m £m £m £m
Currency:
Sterling 0.5 0.5 – 1.2 1.1 0.1 –
US Dollar 123.5 81.7 41.8 135.3 90.6 44.7 –
Swedish Krona 14.9 14.9 – 14.9 14.9 – –
Danish Krone 3.4 3.4 – 1.5 1.5 – –
Euro 72.0 67.1 4.9 74.7 64.5 9.9 0.3
Canadian Dollar 0.4 0.1 0.3 1.4 1.2 0.2 –
Swiss Franc 15.7 15.3 0.4 16.1 16.1 – –
Czech Koruna ––– 0.4 – 0.4 –
Polish Zloty 0.2 0.2 – ––––
Total 230.6 183.2 47.4 245.5 189.9 55.3 0.3
Further analysis of the interest rate proﬁle at 31 December 2004 and at 31 December 2003 is as follows:
2004 2004
Fixed rate Fixed rate
Weighted average Weighted average
interest rate period for which
rate is ﬁxed
% Years
Currency:
US Dollar 7.79 5.0
Euro 5.05 1.8
Swiss Franc 2.00 0.2
Canadian Dollar 5.21 1.1
2003 2003 2003
Fixed rate Fixed rate Interest free
Weighted average Weighted average Weighted average
interest rate period for which period to maturity
rate is ﬁxed
% Years Years
Currency:
Sterling 12.08 0.4 –
US Dollar 7.79 6.0 –
Czech Koruna 20.00 1.3 –
Euro 4.49 3.1 2.8
Canadian Dollar 7.30 0.3 1.0
The interest on ﬂoating rate ﬁnancial liabilities is based on the relevant national inter-bank rate and is ﬁxed in advance for periods normally
between 3 and 12 months.
80267_56pp  3/15/05  10:53 AM  Page 44 Bodycote annual report 2004 45
26. Derivatives and other ﬁnancial instruments continued
Currency exposures
The Group’s objectives in managing the currency exposures arising from its net investment overseas (in other words, its structural currency
exposures) are to maintain a low cost of borrowings and to retain some potential for currency-related appreciation while partially hedging
against currency depreciation. Gains and losses arising from these structural currency exposures are recognised in the statement of total
recognised gains and losses.
The table below shows the Group’s currency exposures; in other words, those transactional (or non-structural) exposures that give rise to
the net currency gains and losses recognised in the proﬁt and loss account. Such exposures comprise the monetary assets and monetary
liabilities of the Group that are not denominated in the operating (or ‘functional’) currency of the operating unit involved, other than certain
non-sterling borrowings treated as hedges of net investments in overseas operations.
The exposures as at 31 December 2004 were as follows:
Net foreign currency monetary assets
US $ Euro SEK Total
£m £m £m £m
Functional currency of Group operation:
Sterling 7.4 0.4 0.1 7.9
Euro 2.6 – – 2.6
Swiss Franc – 0.1 – 0.1
Swedish Krona 0.3 2.0 – 2.3
Canadian Dollar 1.1 – – 1.1
Total 11.4 2.5 0.1 14.0
The exposures at 31 December 2003 for comparison purposes were as follows:
Net foreign currency monetary assets
US $ Euro SEK Total
£m £m £m £m
Functional currency of Group operation:
Sterling 1.1 1.4 0.1 2.6
Swiss Franc – 0.1 – 0.1
Total 1.1 1.5 0.1 2.7
The amounts shown in the tables above take into account the effect of any forward contracts and other derivatives entered into to
manage these currency exposures.
Maturity of ﬁnancial liabilities
The maturity proﬁle of the Group’s ﬁnancial liabilities at 31 December 2004 and 31 December 2003 was as follows:
2004 2003
£m £m
In one year or less 8.2 16.3
In more than one year but not more than two years 174.2 12.7
In more than two years but not more than ﬁve years 45.9 168.3
In more than ﬁve years 2.3 48.2
Total 230.6 245.5
80267_56pp  3/15/05  10:53 AM  Page 45 Notes to the Financial Statements
46 Bodycote annual report 2004
26. Derivatives and other ﬁnancial instruments continued
Fair values
Set out below is a comparison by category of book values and fair values of the Group’s ﬁnancial assets and liabilities at
31 December 2004 and 31 December 2003.
2004 2004 2003 2003
Book Fair Book Fair
value value value value
£m £m £m £m
Primary ﬁnancial instruments held or issued
to ﬁnance the Group’s operations
Financial assets 142.1 142.1 35.2 35.2
Long-term borrowings (222.4) (223.4) (229.2) (231.4)
Short-term ﬁnancial liabilities and current portion of long-term borrowings (8.2) (8.2) (16.3) (16.3)
The fair value of forward foreign currency contracts and US Dollar denominated long-term ﬁxed rate debt with a carrying amount of
£41.8m (2003: £44.7m) have been calculated by discounting cash ﬂows at prevailing interest rates. All the other fair values shown 
above have been determined by reference to prices available from the markets on which the instruments involved are traded.
Gains and losses on hedges
The Group enters into forward foreign currency contracts to eliminate the currency exposures that arise on sales and purchases
denominated in foreign currencies when those sales or purchases are transacted. Changes in the fair value of instruments used
as hedges are not recognised in the ﬁnancial statements until the hedged position matures. The unrecognised gains and losses
were not material either in 2004 or 2003.
Borrowing facilities
The Group had undrawn committed borrowing facilities at 31 December 2004 and 31 December 2003, in respect of which all conditions
precedent had been met, as follows:
2004 2003
£m £m
Expiring in one year or less 17.4 18.4
Expiring in more than two years 15.7 14.5
Total 33.1 32.9
80267_56pp  3/15/05  10:53 AM  Page 46 Bodycote annual report 2004 47
2004 2003 2002 2001 2000
As restated As restated As restated As restated
£m £m £m £m £m
Turnover
Continuing operations 445.5 435.7 429.5 469.1 359.4
Discontinued operations 11.7 12.7 10.6 10.3 11.7
457.2 448.4 440.1 479.4 371.1
Proﬁts/(Losses)
Trading proﬁt 43.6 32.6 40.7 72.1 82.8
Operating exceptional items – (7.5) (18.3) – –
Operating proﬁt 43.6 25.1 22.4 72.1 82.8
(Loss)/proﬁt on disposal of operations (11.2) 3.5 – (1.9) 9.5
Restructuring costs – (30.0) – – –
Loss on disposal of ﬁxed assets – – – (0.8) –
Net interest payable (7.9) (9.7) (11.2) (13.9) (6.9)
Proﬁt/(loss) before taxation 24.5 (11.1) 11.2 55.5 85.4
Taxation (5.6) (6.2) (4.8) (18.0) (21.0)
Proﬁt/(loss) after taxation 18.9 (17.3) 6.4 37.5 64.4
Minority interests (0.2) (0.1) (0.1) (0.1) –
Proﬁt/(loss) for the ﬁnancial year 18.7 (17.4) 6.3 37.4 64.4
Headline earnings per share (pence)* 11.3 9.1 9.9 17.0 21.1
Dividend per share (pence)* 6.1 5.7 5.7 5.7 5.6
Assets employed
Intangible ﬁxed assets 131.4 137.5 155.5 154.4 81.6
Tangible ﬁxed assets 428.7 478.7 498.4 496.6 410.5
Other current assets and liabilities (35.7) (34.1) (30.3) (18.5) (31.1)
524.4 582.1 623.6 632.5 461.0
Financed by
Share capital 32.1 25.7 25.6 25.6 25.6
Reserves 402.8 345.2 363.6 364.2 341.7
Shareholders’ funds 434.9 370.9 389.2 389.8 367.3
Minority interests 1.0 0.9 0.2 0.7 0.2
Net borrowings 88.5 210.3 234.2 242.0 93.5
524.4 582.1 623.6 632.5 461.0
Net assets per share (pence) 135.5 144.5 151.8 152.0 143.3
Return on capital employed before exceptional items (%) 7.9 5.4 6.5 13.2 19.2
Return on capital employed after exceptional items (%) 5.9 (0.2) 3.6 12.8 21.4
Figures marked * have been adjusted to take into account the 1 for 4 rights issue completed in March 2004.
Five Year Summary
80267_56pp  3/15/05  10:53 AM  Page 47 48 Bodycote annual report 2004
Heat Treatment
Country of incorporation
or registration
*Bodycote Heat Treatments Limited Aldridge, Broxburn, Cambridge, Chard, Cheltenham, Coventry,
Derby, Gillingham, Great Barr, Hazel Grove, Macclesﬁeld,
Rotherham, Skelmersdale, Walsall, Willenhall and Woodford England
Bodycote Wärmebehandlung GmbH Ebersbach, Eching, Essen, Esslingen, Karben, Köln, Korntal,
Landsberg, Langenselbold, Lüdenscheid, Menden, Nürnberg,
Remscheid, Sömmerda, Sprockhövel and Wehingen Germany
Bodycote Hardingscentrum BV Diemen, Hengelo, Tilburg and Venlo Netherlands
Bodycote Hardiff BV Apeldoorn Netherlands
Bodycote Rheintal Wärmebehandlung AG Schaan Liechtenstein
Bodycote Austria Wärmebehandlung GmbH Kapfenberg, Marchtrenck and Vienna Austria
Bodycote Switzerland Wärmebehandlung AG Fallenden and Urdorf Switzerland
Bodycote Czech Republic Heat Treatment S.r.o. Modrice, Pilzen and Prague Czech Republic
Bodycote Pribram S.r.o. Pribram Czech Republic
Bodycote HT S.r.o. Brno and Liberec Czech Republic
Bodycote Polska Sp z.o.o. Warsaw Poland
Nitrex-HTC Sp z.o.o. Czestochowa, Chelmno, Grodzisk Mazowiecki and Zabrze Poland
Bodycote Hokezelo KFT Budapest Hungary
Vide Express Romania Brasov Romania
Bodycote IMT Inc. London OH and Camas WA USA
Bodycote Thermal Processing, Inc. Boaz AL, Fremont, San Diego, Santa Fe Springs, Santa Ana,
Gardena, Huntington Park, Los Angeles, Rancho Dominguez,
Vernon, Walnut, Westminster and Tarzana CA, Berlin, Waterbury,
South Windsor and Sufﬁeld CT, Ipswich and Worcester MA,
Canton, Lansing, Livonia and Grand Rapids MI, Cincinnati and
Cleveland OH, Oklahoma City and Tulsa OK, Dallas, Houston
and Fort Worth TX, Laconia NH, Melrose Park IL, Indianapolis IN,
Eden Prairie MN, St Louis MO, Rochester NY, Lexington TN,
Clintonville, Sturtevant and New Berlin WI USA
Bodycote Thermal Processing Canada, Inc. Newmarket and Kitchener ON Canada
Bodycote HIT Ambazac, Amiens, Beaugency, Brétigny sur Orge,
Billy-Berclau, Cernay, Chanteloup les Vignes,
Charleville Mézières, Chassieu, Cluses, Condé sur Noireau,
Gemenos, Gennevilliers, Lagny sur Marne,
La Monnerie Le Montel, La Talaudière, Le Subdray,
Neuilly sur Marne, Neuilly en Thelle, Nogent, Pusignan,
Serres Castet, St Aubin les Elbeuf, St Dié, St Nicolas d’Aliermont,
St Rémy en Mauges, Thyez and Voreppe France
Bodycote Italia Srl Gorgonzola Italy
Bodycote Trattamenti Termici SPA Flero, Madone and Rodengo Italy
Bodycote Belgium Brussels and Nivelles Belgium
Bodycote Värmebehandling AB Anderstorp, Göteborg, Karlskoga, Linköping, Malmö,
Mora, Stockholm, Värnamo and Västerås Sweden
Bodycote Lämpökäsittely Oy Pieksämäki, Tampere, Vaasa and Vantaa Finland
Bodycote Värmebehandling A/S Århus and Herlev Denmark
Bodycote Haustrup Haerderiet A/S Ejby Denmark
Vacuum and sealed quench and induction heat treatment, carburising, carbonitriding, gas and plasma nitriding, nickel, copper,
silver and gold brazing, hardening, tempering, kolsterising, low pressure carburising and electron beam welding.
Principal Subsidiary Undertakings
80267_56pp  3/15/05  10:53 AM  Page 48 Bodycote annual report 2004 49
Materials Testing
Bodycote Materials Testing Limited Bridgwater, Burton-on-Trent, Dalkeith, Daventry,
Droitwich, Dudley, Glasgow, Greenford, Greenock,
Huddersﬁeld, Lancaster, Manchester, Middlesbrough,
Newcastle, Newbridge, Nuneaton, Salford,
Shefﬁeld, Shotton, Washington and Windsor Scotland
Bodycote Materials Testing BV Emmen and Spijkenisse Netherlands
Bodycote Materials Testing A/S Sandnes Norway
Bodycote Materials Testing Srl Milan Italy
Bodycote CTR Srl Padua Italy
Bodycote Materials Testing Services Limited Abu Dhabi and Al Ain Guernsey
Al Futtaim Bodycote Materials Testing
Services LLC (49% owned)‡ Dubai Dubai
Bodycote Materials Testing
Services Limited Company & LLC (70% owned)‡ Muscat and Sohar Oman
Bodycote Materials Testing
Services LLC (24.5% owned)‡ Doha Qatar
Bodycote Materials Testing Inc. Chicago and Melrose Park IL, Houston TX, Los Angeles CA,
Detroit MI and Portland OR USA
Bodycote Materials Testing Canada Inc. Burlington, Cambridge, Mississauga and Niagara Falls ON, 
Montreal and Quebec City QC, Calgary and Edmonton AL Canada
Bodycote Polymer AB Nyköping Sweden
Bodycote CMK AB Karlskoga Sweden
Bodycote Materials Testing s.r.o. Pilzen Czech Republic
Testing services for producers and users. Mechanical, corrosion, physical, radiographic and chemical testing of ferrous and non-ferrous
alloys, building products, ceramics, composites and plastics and lifetime assessment of polymers. Healthcare testing, microbiological
assessment, water analysis, ﬁre, drug, pharmaceutical, asbestos and food product testing. Automotive engine structural and
environmental exposure testing.
Hot Isostatic Pressing
*Bodycote H.I.P . Limited Chesterﬁeld and Hereford England
Bodycote IMT Inc. Andover MA, London OH, Princeton KT and Camas WA USA
Bodycote Heiss-Isostatisches Pressen GmbH Haag German
Bodycote IMT NV Sint-Niklaas Belgium
Bodycote Hot Isostatic Pressing AB Surahammar Sweden
Application of the hot isostatic process and the manufacture of specialist steels and products using hot isostatic pressing technology.
80267_56pp  3/15/05  10:53 AM  Page 49 50 Bodycote annual report 2004
Principal Subsidiary Undertakings
Surface Engineering
Country of incorporation
or registration
*Bodycote Metallurgical Coatings Limited Knowsley, Macclesﬁeld,
Uxbridge and Wolverhampton England
Bodycote K-Tech, Inc Hot Springs AR USA
Bodycote Ytbehandling AB Gnosjö, Katrineholm, Karlstad, 
Mullsjö, Vansbro and Västra Frölunda Sweden
Bodycote Pintakäsittely Oy Espoo Finland
Bodycote Nussbaum GmbH & Co KG. Kaufbeuren Germany
Surface engineering for product improvement including sherardizing, mechanical plating, organic, plasma spray, anodising
and ceramic coating.
Property and General
*Thomas Cook & Son Insurance
Brokers Limited (75% owned) Burnley England
Insurance broking, industrial and commercial risk management, independent ﬁnancial advisers.
Bodycote Property Holdings Inc. Mississauga ON Canada
Managers of the Group’s property interests.
SSCP Coating S.à.r.l. - Physical Vapour Deposition
Through its investment in SSCP Coating S.à.r.l. in which the Company has a 20% shareholding, Bodycote has sales representation at
the following IonBond locations:
Consett and Mansﬁeld (England), Cernay, Chassieu, Neuilly-en-Thelle, Serres Castet, and Auterive (France), Gorgonzola and Vimercate
(Italy), Nurnberg and Hohenstein-Ernstthal (Germany), Venlo (Netherlands), Linkoping (Sweden), Madison Heights and Troy MI, West
Chicago IL, Beachwood OH, Indianapolis IN, Greensboro NC, Rockaway NJ, Duncan SC, West St Paul MN (USA), Stoney Creek and
Cambridge ON (Canada), Sta Caterina and Tecate (Mexico), Bangplee (Thailand) and Singapore.
Except where stated, these companies are wholly owned subsidiaries and have only one class of issued shares. Subsidiaries marked with
an asterisk* are held directly by Bodycote International plc. Entities marked ‡ have been treated as subsidiary undertakings in the ﬁnancial
statements because the Group exercises a dominant inﬂuence over these entities.
Principal Subsidiary Undertakings
50 Bodycote annual report 2004
80267_56pp  3/15/05  10:53 AM  Page 50 Bodycote annual report 2004 51
NOTICE IS HEREBY GIVEN that the 52nd Annual General Meeting of BODYCOTE INTERNATIONAL PLC will be held at
The Stanneylands Hotel, Stanneylands Road, Wilmslow SK9 4EY on Wednesday 25 May 2005, at 1500 hours for the
following purposes:
As ordinary business
1. To receive the annual report and statement of accounts for the year ended 31 December 2004.
2. To approve the Board Report on Remuneration.
3. To declare a ﬁnal dividend.
4. To re-elect Mr J D Hubbard as a Director of the Company.
5. To re-elect Mr J Vogelsang as a Director of the Company.
6. To re-appoint Deloitte & Touche LLP as auditors of the Company and authorise the Directors to ﬁx their remuneration.
As special business
To consider and, if thought ﬁt, to pass the following resolutions which will be proposed as to resolution 7 as an ordinary resolution
and as to resolutions 8 and 9 as special resolutions:
7. That the Directors be and they are hereby generally and unconditionally authorised pursuant to Section 80 of the Companies
Act 1985 to exercise any power of the Company to allot and grant rights to subscribe for or to convert securities into shares
of the Company up to a maximum aggregate nominal amount of £10,899,953 PROVIDED THAT the authority hereby given shall
expire on the date which is ﬁfteen calendar months after the passing of this resolution unless previously renewed, varied or
revoked by the Company in general meeting save that the Directors may, notwithstanding such expiry, allot any shares or grant
any such rights under this authority in pursuance of an offer or an agreement so to do made by the Company before the expiry
of this authority.
8. That, subject to the passing of the resolution numbered 7, the Directors be and they are hereby empowered pursuant to
Section 95 of the Companies Act 1985 to allot equity securities (within the meaning of Section 94 of the Companies Act 1985)
for cash pursuant to the authority conferred by the said resolution as if Section 89(1) of the Companies Act 1985 did not apply
to any such allotment provided that this power shall be limited:
(a) to the allotment of equity securities (within the meaning of Section 94 of the Companies Act 1985) in connection with rights
issues in favour of ordinary shareholders where the equity securities respectively attributable to the interests of all ordinary
shareholders are proportionate (as nearly as may be) to the respective numbers of ordinary shares held by them subject to
such exclusions or other arrangements as the Directors consider appropriate, necessary or expedient to deal with any
fractional entitlements or with any requirements of any regulatory body or recognised investment exchange or otherwise;
(b) to the allotment of equity securities pursuant to the terms of the Bodycote International executive share option schemes
(c) to the allotment (otherwise than pursuant to sub-paragraphs (a) and (b) above) of equity securities up to an aggregate
nominal value of £1,605,002 being 5% of the issued share capital of the Company; and
(d) the authority hereby given shall expire at the close of the next annual general meeting of the Company to be held after the date
hereof unless such authority is renewed prior to such time; but a contract of purchase may be made before such expiry which
will or may be executed wholly or partly thereafter, and a purchase of shares may be made in pursuance of any such contract.
9. That the Company be and it is hereby generally and unconditionally authorised to make market purchases (within the meaning
of Section 163(3) of the Companies Act 1985) of ordinary shares of 10 pence each in the Company provided that:
(a) the maximum number of shares hereby authorised to be acquired is 32,096,876;
(b) the maximum price which may be paid for any such share is an amount equal to 105% of the average of the middle market
quotations for an ordinary share as derived from the London Stock Exchange Daily Ofﬁcial List for the ﬁve business days
immediately preceding the day on which the share is contracted to be purchased;
(c) the minimum price which may be paid for any such share is 10 pence; and
(d) the authority hereby given shall expire at the close of the next annual general meeting of the Company to be held after the date
hereof unless such authority is renewed prior to such time; but a contract of purchase may be made before such expiry which
will or may be executed wholly or partly thereafter, and a purchase of shares may be made in pursuance of any such contract.
By order of the Board Hulley Road, Hurdsﬁeld,
J. R. GRIME, Macclesﬁeld, Cheshire SK10 2SG
Secretary. 1 March 2005
Notice of Annual General Meeting
80267_56pp  3/15/05  10:53 AM  Page 51 Notice of Annual General Meeting continued
52 Bodycote annual report 2004
Notes
1. Pursuant to Regulation 41 of the Uncertiﬁcated Securities Regulations 2001, the Company speciﬁes that only those shareholders
registered in the Register of Members of the Company as at 1700 hours on 23 May 2005 shall be entitled to attend or vote at
the Meeting in respect of the number of shares registered in their names at that time. Changes to entries on the Register of
Members after 1700 hours on 23 May 2005 shall be disregarded in determining the rights of any person to attend or vote at
the Meeting.
2. Every member who is entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and on 
a poll vote in his/her stead. A proxy need not be a member.
3. Brief biographical details of Directors standing for re-election at the Meeting are set out on page 18.
Recommendation and explanatory notes
Renewal of authority to allot shares (Resolutions 7 and 8)
Under the provisions of Section 80 of the Companies Act 1985 the Directors are not able to allot shares except with the general or
speciﬁc approval of shareholders. A general authority was granted on 26 May 2004 in respect of the shares then unissued and it is
now proposed in resolution number 7 in the notice convening the annual general meeting that this authority be renewed for a period
of ﬁfteen months from the date of passing the resolution in respect of £10,899,953 (being the unissued share capital as at 20
February 2005) which represents 33.9% of the issued share capital. No shares are held in treasury.
The Board has no present intention of issuing any further shares nor will any such issue be made which would effectively alter the
control of the Company without the prior approval of shareholders in general meeting.
Sections 89 and 95 of the Companies Act 1985 provide that any ordinary shares issued for cash must ﬁrst be offered to existing
shareholders unless their approval is obtained that this stipulation should not be applied. The Directors consider it desirable that they
should have the authority to make allotments of ordinary shares for cash, other than by way of rights issues to existing shareholders,
up to a maximum nominal value of £1,605,002 being 5% of the issued ordinary share capital as at 20 February 2005.
Purchase of own Shares (Resolution 9)
Under Article 9 the Company is empowered to purchase its own shares. The Directors consider that the power to make purchases in
the market of the Company’s own shares should be maintained, and accordingly recommend the approval of the special resolution set
out as resolution number 9. The Directors intend to exercise this authority only where, in the light of market conditions prevailing at
that time, they believe that the effect of such purchases would be to increase earnings per share, or to deliver shares to participants
in the Bodycote International executive share option schemes. Any shares purchased in this way will either be cancelled, in which case
the number of shares in issue will be reduced accordingly, or held as treasury shares.
The resolution speciﬁes the maximum and minimum prices at which shares may be bought, and the maximum number of shares
which may be bought, this being 10% of the Company’s issued ordinary share capital. As at 31 December 2004 outstanding share
options over unissued shares totalled 7,321,297 and this represented 2.3% of the Company’s issued share capital. If the Company
utilised the authority proposed by resolution 9 in full, outstanding share options would then represent 2.5% of the consequently
reduced share capital.
The Directors consider that the proposals described in this notice are in the best interests of the shareholders as a whole and unanimously
recommend shareholders to vote in favour of all the resolutions proposed, as they intend to do in respect of their own beneﬁcial holdings.
A form of proxy is enclosed for those entitled to vote. Instructions are given for electronic proxy voting and voting by CREST.
80267_56pp  3/15/05  10:53 AM  Page 52 Bodycote annual report 2004 53
Annual general meeting 25 May 2005
Final dividend for 2004 6 July 2005
Interim results for 2005 August 2005
Interim dividend for 2005 January 2006
Results for 2005 March 2006
Shareholder Enquiries
Enquiries on the following administrative matters can be addressed to the Company’s registrars, Capita Registrars, Northern House,
Woodsome Park, Fenay Bridge, Huddersﬁeld HD8 0LA. Telephone: 0870 1623131 or +44(0)208 639 2157; Fax: +44(0)1484 600911;
and email: shareholder.services@capitaregistrars.com
- Change of address
- Lost share certiﬁcates or dividend cheques
- Dividend mandates
- Amalgamation of holdings
Forms for these matters can be downloaded from the registrars’ website at www.capitaregistrars.com, where shareholders can also
check their holdings and details.
Shareholder Analysis
Analysis of share register as at 20 February 2005
Holding range: Number of shareholders % Number of Shares %
1 to 1,000 945 29.10 478,291 0.15
1,001 to 10,000 1,619 49.86 5,917,432 1.84
10,001 to 100,000 594 18.29 43,218,802 13.46
100,001 to 500,000 36 1.11 25,877,366 8.06
500,001 and over 53 1.64 245,508,571 76.49
3,247 100.00 321,000,462 100.00
Types of shareholders: % of shareholders % of total shares
Directors’ interests 0.1 0.5
Major institutional and corporate holdings 7.1 92.0
Other shareholdings 92.8 7.5
100.0 100.0
As at 1 March 2005 the following interests of 3% or more in the issued share capital of the Company appeared in the register maintained under the
provisions of Section 211 of the Companies Act 1985:
Number of shares %
Sprucegrove Investment Management Limited 24,005,166 7.5
Franklin Resources Inc. 20,433,059 6.4
Aegon Asset Management UK plc 17,840,270 5.6
LD Pensions 14,917,556 4.6
Legal & General Investment Management Limited 13,120,030 4.1
Financial Calendar
80267_56pp  3/15/05  10:53 AM  Page 53 outsourcing for industry
Bodycote International plc
Hulley Road
Macclesﬁeld
Cheshire
SK10 2SG
Tel: +44 (0)1625 505300
Fax: +44 (0)1625 505313
Email: info@bodycote.com
© Bodycote International plc 2004
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