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Page 1: My cool new Slideshow2!

annual report 2010

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Cover imageThis photograph by Jane LaGoy shows the microstructure of a sample of an aluminium alloy casting that has undergone Hot Isostatic Pressing (HIP). The tree or skeleton-like dendrite structure is typical of aluminium. The HIP process removes voids and porosity in the casting but still preserves the original microstructure of the metal. The result is a component with many desirable features, including exceptional strength.

Bodycote continually improves the website offerings for both customers and investors. The most recent is the addition of an audio webcast of Bodycote’s 2010 Results presentation in the Investor Relations section of the website. We invite you to view and to listen by visiting www.bodycote.com/audiocast

www.bodycote.com/audiocast

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 1

FinanCialHiGHliGHts

1adetailedreconciliationisprovidedonpage15andexcludesexceptionalitemssuchasthedeductionofmajorfacilityclosurecostsof£nil(2009:£25.4m)andimpairmentofgoodwillof£nil(2009:£29.0m).

2Headlineoperatingcashflowisdefinedasoperatingcashflowstatedbeforecashflowrelatingtoexceptionalitems(£9.2m,2009:£19.2m).3operatingcashflowisdefinedascashgeneratedbyoperations(£103.9m,2009:£47.7m)lessnetcapitalexpenditure(£35.8m,2009:£32.2m).4adetailedreconciliationisprovidedinnote10onpage64.5seenote9onpage64.6returnoncapitalemployedisdefinedasheadlineoperatingprofit(£52.1m)dividedbyaveragecapitalemployed(£517.9m).Capitalemployedisdefinedasnetassetsplusnetdebt.

2010 2009

revenue-continuingoperations £499.8m £435.4m

Headlineoperatingprofit1-continuingoperations £52.1m £8.0m

operatingprofit/(loss)-continuingoperations £51.2m £(50.2)m

Headlineprofitbeforetaxation1-continuingoperations £46.1m £3.7m

profit/(loss)beforetaxation-continuingoperations £45.2m £(54.5)m

Headlineoperatingcashflow2 £77.3m £34.7m

operatingcashflow3 £68.1m £15.5m

netdebt £51.3m £85.5m

basicheadlineearningspershare4-continuingoperations 18.3p 0.4p

basicearnings/(loss)pershare 14.9p (27.0)p

dividendpershare5 8.7p 8.3p

returnoncapitalemployed6-continuingoperations 10.1% 1.5%

7.0 8.0 8.3 8.3 8.7

06 07 08 09 10

DiviDenDpersharepence

413.9 465.2 551.8 435.4 499.8

06 07 08 09 10

revenue-Continuingoperations£Million

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2 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

BusinessreviewFinancialHighlights 1whatisbodycote’sbusiness? 2Coretechnologies 3theoutsourcingprinciple 4onsolidFoundations–acomponentjourney 5ourGlobalnetwork 6strategyandobjectives 8Keyperformanceindicators 9Chairman’sstatement 10Chiefexecutive’sreview 12downtoearth–acomponentjourney 14businessperformance 15powderpower–acomponentjourney 16businessoverview 17businessreview–aerospace,defence&energy 18businessreview–automotive&Generalindustrial 20Financedirector’sreport 22principalrisksanduncertainties 26Corporateresponsibilityandsustainability 28

CorporategovernanCedirectors’report 32CorporateGovernancestatement 34reportoftheauditCommittee 36reportofthenominationCommittee 38boardreportonremuneration 39directors’responsibilitiesstatement 44boardofdirectorsandadvisers 45

aCCountsindependentauditors’report-GroupFinancialstatements 46Consolidatedincomestatement 47ConsolidatedstatementofComprehensiveincome 47Consolidatedbalancesheet 48ConsolidatedCashFlowstatement 49ConsolidatedstatementofChangesinequity 50Groupaccountingpolicies 51notestotheConsolidatedFinancialstatements 56Fiveyearsummary 90Companybalancesheet 91independentauditors’report–CompanyFinancialstatements 92Companyaccountingpolicies 93notestotheCompanyFinancialstatements 94

aDDitionalinformationprincipalsubsidiaryundertakings 99shareholderinformation 101FinancialCalendar 102

whatisBoDyCote’sBusiness?

operatinganinternationalnetworkoffacilitiesandservingawiderangeofindustries,bodycoteistheworld’slargestandmostrespectedproviderofthermalprocessingservices–avitallinkinthemanufacturingsupplychain.

bodycoteoperatesintwomajorareas:theaerospace,defence&energy(ade)businessservestheaerospace,defence,powergenerationandoil&gasindustries,whilsttheautomotive&Generalindustrial(aGi)businessservessectorsincludingautomotive,construction,agriculture,medicalandtransportation.

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 3

thermalproCessingBodycoteprovidesthermalprocessingserviceswhichimprovematerialpropertiessuchasstrength,durabilityandcorrosionresistance,enablingmanufacturers’componentstoworkmoreefficientlywithsignificantlyextendedoperationallifetimes.Bodycote’streatmentservicesconsistofanumberofcoretechnologies:heattreatmentandmetaljoining,hotisostaticpressing(hip)andsurfacetechnology.

heattreatmentandmetalJoiningHeattreatmentsarecontrolledprocessesusedtoalterthemicrostructureofmaterials,suchasmetalsandalloys,toimpartpropertieswhichbenefittheworkinglifeofacomponent,forexample:increasedsurfacehardness,temperatureresistance,ductilityandstrength.Metaljoiningincludesspecialisedprocessessuchaselectronbeamwelding,vacuumandhoneycombbrazing–complexoperationsrequiringafusionofexpertiseandtechnology.

bodycoteoffersanextensiverangeofheattreatmentservicesandspecialistmetaljoiningtechniquesfromfacilitiesaroundtheworld.withunmatchedcapacityandcomputerisedsystems,bodycotefacilitiescanprocessawiderangeofcomponentsizestoexactingstandardswithreliable,repeatableresults.

hotisostaticpressing(hip)Hipcombinesveryhightemperature(upto2,000°C)withinertgasunderveryhighpressure(upto30,000psi–equivalenttothatfoundatanoceandepthof11,000msuchasatthebottomoftheMarianatrenchinthepacificocean).Hipcanbeusedtoeliminateporosityincastingsandconsolidateencapsulatedpowderstodensematerials.dissimilarmaterialscanbebondedtogethertomanufactureuniquecost-effectivecomponents.everyweekatypicalbodycoteHipplantwillprocessmanytonsoftitanium,aluminium,steelandsuper-alloycastings,removingporosityandimprovingtheperformanceofpartssuchasturbinebladesandoilfieldcomponents.

withthelargestoperationalcapacityintheworldandawidevarietyofsizesofequipment,bodycoteHipisabletoaccommodatelargevolumesofsmallproductaseconomicallyaslargeindividualcomponents.

surfacetechnologysurfacetechnologiesareusedextensivelytoprolongtheworkinglifeofcomponentsandprotectthemfromenvironmentalfactorssuchascorrosionandabrasion.therangeofsurfacetreatmentsavailablefrombodycotecoversawidevarietyofapplications,providingmanufacturerswithsolutionstomeetrequirementssuchasdurability,wearresistance,improvedhardnessandelectricalconductivity.

bodycoteisaproviderofspecialisedplasmaspray,highvelocityoxyfuel(HvoF)andthermallyformedceramictreatmentsandisabletosurfaceengineercomponents(includingcomplexgeometricshapesandinternalbores)thataredesignedtooperateinthemostdemandingofindustrialapplications.

CoreteCHnoloGies

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4 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

bodycotehasalonghistoryofsuccessfuloutsourcing

partnerships,fromglobaltolocalmanufacturers...

thepartnerofChoiCebodycotehasbecomethepartnerofchoicefortheworld’smostrespectedandinnovativeengineeringcompaniesbyprovidinghighlyefficient,cost-effectiveservicestothehighestqualitystandardsthroughstrategicinvestmentinpeopleandthelatesttechnology,equipmentandqualitysystems.

byoutsourcingnon-corebutvitallyimportantthermalprocessingrequirementstobodycote,customersareabletoconcentratetheirbusinessresourceswheretheyareneededmost.bodycote’sservicesoffertangiblebenefitstocustomerssuchasreducedequipmentmaintenance,capitalexpenditure,energycosts,peoplecostsandamajorreductioninCo2emissions.

bodycotehasalonghistoryofsuccessfuloutsourcingpartnerships,fromglobaltolocalmanufacturers.inmanycases,subcontractingrelationshipsleadtocomponentandservice-specificlong-termagreements,orstrategicpartneringarrangements,whichembodyprotectionandfreedomfromriskforthecustomerandbodycote.theseareoftenexclusiveincharacterandprovidethebasisformutualbusinessdevelopment,withbothcompaniesfreedtoconcentratecapitalandotherresourcesoncorecompetencies.

makinginnovationspossiBlebodycote’sextensivefacilitiesandexpertisemeandevelopmentprojectscanexpandfarbeyondcustomers’in-housecapabilities,helpingtorealisegoalsmorequicklyandmorecost-effectively.

aroundtheglobe,bodycotehasdedicatedteamsworkingonavarietyofprojects.whenrequired,thismayincludethedevelopmentofspecificprocessesandequipmentforacustomerorverificationofmaterialsordesigns,priortotheirapplication.

in-housedevelopmentandimprovementofstandardprocesseshasledtobodycoteofferingarangeofproprietaryprocessessuchasKolsterising®,Corr-i-dur®andsheraCote®,whichfaroutperformtheirstandardcounterparts.

tHeoutsourCinGprinCiple

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 5

onsolidFoundations-aCoMponentjourney

shaftsrequiringanebwoperationafterheattreatmentarefirstselectivelychemicallycoatedtopreventcarbonpenetration;thiswillensureacleanelectronbeamweldatalaterstage

theshaftsrequirecarburisingtoincreasetheirwearresistanceandimparthighhardnessproperties.theyarethenquenchedandtemperedtoremoveinternalstresses

thepartsundergoautomaticshaftstraighteningtocorrectanydistortioncausedbyhighprocessingtemperatures

theshaftsaremachinedagaintoachievefinalengineeringdimensions

theshaftsneedassemblywiththeirgearordrumusingebw.thepartsareultrasonicallycleanedandmeasuredtoensurenocontaminationofthepartsduringtheebwvacuumprocesswhichfusestheparentmetalofthepartstogether

transmissionshaftstransmissionshaftsformpartofthedrivetrainofallvehicles.inthisexample,wewilllookathowthesehardworkingcomponentsaregivenalongerlifetimeaspartofpowerfulconstructionvehicles,suchasexcavators,throughheattreatmentandmetaljoiningprocesses.

transmissionshaftsareanexcellentexampleofthermalprocessing’scontributiontovalueengineering.theelectronbeamwelding(ebw)process,inparticular,allowsthefabricationofahighperformancecomponentfromtwopieces,therebyavoidingmachiningfromsolidwhichisbothwastefulandexpensive.

denotesthepartsofthecomponentjourneyundertakenbybodycote

BoDyCoteComponentJourneysthisisjustoneexampleofhowbodycotebringstogetherthehugewealthofknowledgeandexpertisefromacrosstheGrouptoprovidethevitalengineeringservicesourcustomersneed...

Formorecomponentjourneysvisitwww.bodycote.com

theforgedsteelpartisthenmachinedintoitsnearnetshaftshapeandsentforheattreatment

theshaftsbeginlifeashighgradesteelalloyforgings

endapplication–constructionvehiclesuchasanexcavator

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6 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

paGetitleinHere[deleteiFnotrequired][paGetitleline2iFrequired]ourGlobalnetworK

overviewastheonlytrulyglobalproviderofsubcontractthermalprocessingservices,bodycoteisabletoofferasignificantadvantagetoitscustomers.throughaninternationalnetworkofplants,bodycotecaneffectivelyutiliseawealthofknowledge,experienceandspecialistexpertisetodeliverqualityservicewhenandwhereitisneeded.

thenetworkoperatesfrom173facilities,withcustomersabletobenefitfrombodycote’scomprehensiverangeofservicesfrommultiplelocations.Customersknowthatiftheirbusinessexpands,bodycotewillhavethecapabilitytomeettheirneeds.theyknowthatiftheyweretobroadentheirmanufacturingfootprint,bodycotewouldbeabletoassistthem.theyknowthattheycanobtainthesameprocesstothesamequalitystandardsfrommultiplelocations.

suchalargenetworkbringseconomiesofscale,withtechnologydevelopedatonelocationbeingavailablegloballyifthemarketrequiresit.

thebodycotenetworkhasawealthoftechnicalaccreditations,someindustryorcustomerspecific,othersmoregeneral.individualoperationsconcentrateontheaccreditationssuitedtotheirmarket.

althoughbodycoteisheadquarteredintheuK,89%oftheGroup’srevenueisderivedoutsidetheuK.withfacilitiesin26countries,bodycoteistrulyglobal.

northameriCabodycotehas39facilitiesinnorthamerica,concentratedwheremanufacturingandtechnicalindustriesarelocated.

thenetworkincludesfivespecialistoperations,fourofferingHip,andtheotherofferingsurfacetechnology.Hipcapacityhasrecentlybeenexpandedtoensurethatbodycoteisbestpositionedtosatisfyitscustomers’needsastheeconomicclimatecontinuestoimprove.

lowpressurecarburisingcapabilityhasbeensimilarlyexpanded.thisenergyefficienttechnologycan,forexample,enableautomotivemanufacturerstoproduce7-and8-speedautomatictransmissionsofmodestweightandcompactdimensions,whichassistinthequestforloweremissions.

aerospace&defence

energy

automotive

Civileng,agriculture,rail&Marine

otherGeneralindustrial

revenueBymarketseCtor–northameriCaaerospace&defence

energy

automotive

Civileng,agriculture,rail&Marine

otherGeneralindustrial

grouprevenueBymarketseCtor

aerospace&defence powerGeneration oil&Gas automotive Civileng,agriculture,rail&Marine

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 7

paGetitleinHere[deleteiFnotrequired][paGetitleline2iFrequired]

westerneuropebodycotehas104facilitiesinwesterneuropeincludingsevenHipplantsandsevendedicatedsurfacetechnologyfacilities.theimportantFrench,Germanandscandinavianmarketsareparticularlywellservedwith28,19and18facilitiesrespectively.recentcapacityextensionsincludeexpandedfacilitiesaimedattheneedsofthewindenergymarket.

Hipcapacityhasbeensignificantlyenhancedtomeetcustomers’growingneedsforthisservice.

emergingmarketsbodycotehas30facilitiesinemerginggeographiesincludingtwodedicatedsurfacetechnologyplants,oneeachinsingaporeanddubai.bodycoteisthenumberonethermalprocessingproviderinbothbrazilandeasterneuropeandisnumbertwoinChina.thesemarketshaveaspecialemphasisintheGroup’sgrowthstrategyforthefuture.

aerospace&defence

energy

automotive

Civileng,agriculture,rail&Marine

otherGeneralindustrial

revenueBymarketseCtor–emergingmarketsaerospace&defence

energy

automotive

Civileng,agriculture,rail&Marine

otherGeneralindustrial

revenueBymarketseCtor–westerneurope

tooling Consumerproduct electronics&telecoms Medical&environmental Mining

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8 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

strateGyandobjeCtives

bodycote’sobjectiveistocreatesuperiorshareholderreturnsthroughtheprovisionofselectedthermalprocessingservicesthatarehighlyvaluedbyourcustomers.

servingtheaerospace,defenceandenergymarkets,withafocusednetworkofgloballycoordinatedfacilities,attunedtothesecustomers’specificneedsandrequirements.

servingtheautomotiveandchosengeneralindustrialmarketsthrougharegionallyorganisedbusiness,cateringforthesecustomers’specificlocalneedsandproximityrequirements.

achievingthehighestlevelsofcustomerserviceintermsofquality,delivery,reliabilityandtechnicalproblemsolving.

Capitalisingonourproprietarytechnologiestoprovideourcustomerswiththeabilitytocreateinnovative,differentiatedproducts.

Migratingtechnology,overtime,fromthedevelopedmarketstoourtargetemergingmarketswithanemphasisoneasterneurope,brazilandChina.

bodycoteaimstoachievethisinasafeworkingenvironmentandwithminimalenvironmentalimpact.

Our strategy is based on the following fundamentals:

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 9

KeyperForManCeindiCators

theGroupfocusesonasmallnumberofKeyperformanceindicators(Kpis),whichcoverbothfinancialandnon-financialmetrics.

thefinancialKpisarereturnonCapitalemployed1(roCe),returnonsales2(ros)andHeadlineearningspershare3andthenonfinancialKpisarethepercentageofiso14001accreditedfacilitiesandaccidentFrequency4.

financialin2010theGroup’sfinancialperformanceimprovedsignificantly.asaresult,roCefor2010was10.1%(2009:1.5%),roswas10.4%(2009:1.8%)andHeadlineearningspersharewas18.3p(2009:0.4p).

nonfinancialreducingtheenvironmentalimpactoftheGroup’sactivitiesistakenveryseriously.Compliancewiththerequirementsofiso14001helpsminimisetheriskofadverseenvironmentaleffectsatbodycotelocations.attheendof2010,81%ofourplantshadiso14001accreditation-140plantsoutofatotalof173(2009:137outof178).

bodycoteworkstirelesslytoreduceworkplaceaccidentsandiscommittedtoprovidingasafeenvironmentforanyonewhoworksatorvisitsourlocations.themajorrestructuringprogrammehasnotmadethisaneasytaskin2010.nevertheless,theaccidentFrequencyratewasreducedto1.8(2009:1.9).

14.1 15.1 12.9 1.8 10.4

06 07 08 09 10

returnonsales(ros)%

12.1 13.7 12.1 1.5 10.1

06 07 08 09 10

returnonCapitalemployeD(roCe)%

3.1 2.4 2.0 1.9 1.8

06 07 08 09 10

aCCiDentfrequenCynumber

47 68 71 77 81

06 07 08 09 10

iso14001aCCreDiteDfaCilities%

definitions:1Headlineoperatingprofitasapercentageofaveragecapitalemployedfromcontinuingoperations.Capitalemployedisdefinedasnetassetsplusnetdebt.2Headlineoperatingprofitasapercentageofrevenuefromcontinuingoperations.3Headlineearningspershareisdefinedinnote10totheGroupfinancialstatements.4accidentFrequency–thenumberoflosttimeaccidentsx200,000hours(approximately100manyears),dividedbythetotalhoursworked.

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10 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

overviewafterayearwhichsawvariableratesofrecoveryacrossourmajormarkets,iampleasedtoreportthattheGrouphasmadeasubstantialrecoveryfromthelossreportedin2009.salesincreasedby14.8%to£499.8m.theimprovementwasunderpinnedbythesuccessoftherestructuringprogrammeannouncedin2008andthecontinuingfocusontightoperationalandbalancesheetmanagement.operatingprofitrecoveredto£51.2mandborrowingsdroppedfrom£85.5mto£51.3m.

wesawimprovementintheautomotiveandgeneralindustrial(aGi)marketsalthoughvolumesremainsomewaybelowthelevelsof2008.theaerospace,defenceandenergy(ade)marketstendtopeaklaterintheeconomiccycleandsalesgrowthreflectedthis.asaresultoftherestructuringprogrammetheGrouphasnowexitedlargeamountsofunprofitablecommoditybusiness,andisactivelygrowingitshigheraddedvalueservices.bodycoteshouldbecapableofdeliveringimprovedthrough-cyclereturnsgoingforward.

sustainaBilitythesafetyperformanceoftheGroupiscloselymonitoredatallmanagementandboardmeetings.bodycoteiscommittedtoimprovementsinemployeesafetyandHealthperformancetoensurethatallemployeesandvisitorsoperateinasafeworkingenvironment.theCompanycontinuestogainaccreditationsforitsenvironmentalcompliance.attheendof2010over80%ofitsfacilitieshadmettherequirementsforiso14001.wealsotrackenergyandwaterusageandreductionsarebeingrealisedalthoughmoreneedstobedonetoreachourinternaltargets.FurtherinformationregardingtheGroup’sobjectivesinrelationtosustainabilitycanbefoundonpage28.

DiviDenDin2009theboardrecommendedamaintaineddividenddespitethechallengesposedbythedownturn,baseduponitsconfidencethatactionstakenbythenewmanagementteamwouldrestoretheCompanytoasatisfactorylevelofprofitabilityandcashgeneration.theboardissatisfiedwiththesteadyimprovementinresultsthroughout2010andisconfidentinthefutureoutlookforthebusiness.theboardisrecommendingthatafinaldividendof5.75pbepaidtoshareholders,givinganincreasedtotalof8.7p(4.8%increase)forthefullyear.

CHairMan’sstateMent

alanthomsonChairman

thefinancialturmoilofthepasttwoyears

hasbeentestingfortheGroup,buttheboard

believesthatbodycotehasemergedstrengthened

bythechallengeswhichithasfaced.

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 11

BoarDafterthechangesmadetothecompositionoftheboardin2008and2009themembershipwasunchangedin2010andshouldremainsothroughout2011.duringtheyear,inaccordancewithitsusualpractice,theboardconductedaformalinternalevaluationofitsperformance,includingthatoftheChairman.in2011theboardhasdecidedthatthisprocesswillbecarriedoutbyanexternalfacilitatorwiththeresultsbeingreportedinthe2011annualreport.thisexternalevaluationwillassisttheChairmanintheprocessofgraduallyrefreshingboardmembershiptomeetthechangingrequirementsofagrowingbusiness.duringthelastyearallboardmembersreceivedtrainingoncurrenttopicsincludingreportingstandards,riskmanagementandsustainability.inlinewiththerevisedGovernancecodealldirectorshaveagreedtoseekre-electionattheannualGeneralMeetinginapril.

summarythefinancialturmoilofthepasttwoyearshasbeentestingfortheGroup,buttheboardbelievesthatbodycotehasemergedstrengthenedbythechallengeswhichithasfaced.withastrongbalancesheetandanexcellentmanagementteamwefacethefuturewithconfidence.

despitethemixedbusinessclimateoverthelasttwelvemonthstheGrouphasdeliveredasignificantimprovementinperformanceandiswellpositionedforthefuture.thisislargelyduetothehardworkandcommitmentofstephenHarrisandhiscolleaguesaroundtheworld.theboardcongratulatesthemontheirachievementsandcommitmentwhichhaveresultedinincreasedvalueforshareholders.bodycoteremainsafirstclassbusinesswithgoodprospectsforthefuture.

a.m.thomsonChairman24February2011

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12 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

CHieFexeCutive’sreview

traDingoverview2010wasayearofrecoveryforbodycoteafterthedifficultiesofthedownturnin2009.salesgrewby14.8%to£499.8mwithlikeforlikesales(atconstantcurrenciesandrebasedtotakeaccountofthesitesclosedin2009)up17.8%.MuchofthesalesgrowthwasdrivenbytheendofoeMsupplychaindestockingandincreasedendmarketdemandwithstronggrowthfromthegeneralindustrial,oilandgasand,inparticular,theautomotiveandheavytrucksegments.thesedevelopmentsmorethanoffsetthedeclineindemandinpowergeneration.demandimprovementsinaerospaceanddefencealsocontributedtothesalesgrowthbutonlymarginally.itisnoteworthy,however,thatalloftheGroup’smarketsarestillmateriallybelow2008levels.inadditiontoincreasesinendmarketdemand,salesimprovedasaresultofnotablegainsinmarketshare.themostmarkedofthesesharegainswasintheautomotivesegmentwherethelatesttechnologiesofferedbybodycotearesupplantingmoretraditionalformsofheattreatment.

thedriveforefficiencyintheGroupyieldedexcellentresults.totalheadcountattheendof2010of5,487wasmarginallybelowthatofayearearlierand28%belowthepeakheadcountofjune2008.theyearendheadcountwas311lowerthanthenumberathalfyearasthetailendrestructuringprogrammesinFranceandbrazilcameintoeffect.thetightdisciplineonthebuildbackofexpensesagainstabackdropofrisingsalesdrovemarginsupto10.4%(1.8%in2009).increasedsellingpricescontributed100basispointstothemargins,offsetby70basispointsofincreasedinputcosts.

netcapitalexpenditureat£35.8mamountedto0.8timesdepreciation(0.6in2009).approximatelyhalfoftheexpenditurein2010(0.4timesdepreciation)wasspentondevelopingcapacityinemergingmarkets,increasingcapacityforspecifichighaddedvalueprocessesinnorthamericaandinvestingintheGroup’schosenproprietarytechnologies.theremainderofthecapitalexpenditurewasspentonmaintenance.theGroupisrelativelywellequippedwithlonglifeassetsandhasalowrequirementformaintenancecapitalintheshortandmediumterm.thelevelofcapitalexpenditure,combinedwithstrongcontrolofworkingcapital,ledtoheadlineoperatingcashflowof£77.3m,representingacashconversionratioof148%.asaresult,netdebtattheyearendwasreducedto£51.3m.

strategiCDevelopmentsaswellasthedriveforincreasedsalesandhigherlevelsofoperatingefficiency,2010wasayearofimplementationofthestrategicagendaoutlinedinFebruaryofthatyear.

attheendof2009theGroupwasreorganisedintotwobusinessareas.theaerospace,defenceandenergybusiness(ade)isorganisedonaglobalbasis,andcomprisestheHotisostaticpressing(Hip)andheattreatmentdivisions.theGroup’ssurfacetechnologybusinessispartoftheadeheattreatmentdivision.incontrast,theautomotiveandgeneralindustrialbusiness(aGi)isorganisedgeographically,coveringwesterneurope,northamericaandtheemergingmarkets.Customerreactiontothereorganisationhasbeenverypositive,withindustryspecialistsalesteamsabletoengagewiththeircustomersinafarmoreproductivewaythanwaspossibleinthepast.inaddition,thespecialisationoftheplantsineachbusinessareahashelpedsimplifytheoperationsandimproveefficiency.

stephenharrisChiefexecutive

thereorganisationoftheGroupintomarketfocuseddivisionshas

enhancedrevenuegrowthandcarefultargetingofcapitalinvestmenthas

improvedcashflowandreturnoncapital.

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 13

developmentoftheemergingmarketsandinvestmentinbodycote’schosenproprietarytechnologiesarekeyelementsofthestrategy.theemergingmarketsfocusforbodycoteisoneasterneurope,brazilandChina.whileemergingmarketsrevenuesrepresentjustover10%oftheGroup’sbusinesstoday,bodycoteisalreadythemarketleaderineasterneuropeandbrazilandnumbertwoinChina.in2010newgreenfieldsiteswereaddedinpoland,Czechrepublicandbrazil,whileadditionalmoderncapacitywasdeployedinexistingplantsinturkey,brazilandChina.

thedevelopmentoftheGroup’sproprietarytechnologiescontinuedapacein2010:

thespecialitystainlesssteelbusinessunit(s3p)capacitywasexpandedby20%,withafurther25%putonorderinreadinessfortheincreaseddemandnowexpectedforthisbusiness.

theHotisostaticpressingproductFabricationbusinessunit(HippF)grewat70%,albeitfromarelativelymodestbase.thebusinessoperatesfromcentresofexcellenceinGermany,swedenandtheusawithmuchoftheprocessdevelopmentandcomputermodellingcarriedoutintheuKandtheusa.

theCorrosionpreventionprocessesbusinessunit(Cpp)commissioneditsfirstcommercialproductionunitforthesheraCote®familyofprocesses.

progresswasalsomadeondevelopingtheGroup’spersonnelbothinternallyandthroughtheappointmentofnewtalentinmanyareas.inaddition,theGroup’sexecutivecommitteewasalsostrengthenedwithnewtalentrecruitedduringtheyear.thecommitteecomprisesfivedivisionalpresidents,theHumanresourcesdirectorandtheGroupFinancedirector,togetherwiththeChiefexecutiveofficer,whochairsthecommittee.

futuretrenDsthefuturetrendsforbodycote’smarketsareveryfavourable.themorenotabletrendsinclude:

intheaerospacesegmentmostindustryanalystsforeseeasignificantgrowthinflyinghoursandnewbuildofaeroplanesassociatedwithtrafficfortheemergingmarkets.themovetohigherengineoperatingtemperaturerequirementsincreasesthermalprocessingneeds.theseareallpositivefactorsforthedemandforthermalprocessing.

risingoilandgasprices,togetherwiththeincreasingsophisticationassociatedwithextractingdifficulttoreachreserves,areincreasingthematerialrequirementsofexplorationandproductionequipment,whichinturnisdrivinggreaterdemandforthermalprocessingservices.

powergeneration,wherebodycoteenjoysastrongpresenceinbothheattreatmentandHipservices,willresumeitslongtermgrowthpathinduecourse,astheexpansionintheemergingmarketscontinues.

theautomotivesegmentismovingtomoresophisticatedmaterialsengineeringasmanufacturerstrytoreduceweightandincreasestrength.thisinturndirectlyincreasestheamountofthermalprocessingrequired.inaddition,theintroductionofhybridvehiclesisleadingtoalargernumberofcomponentsinvehicles,whichinturnrequiremoreservicesofferedbybodycote.

outsourcingremainsamajoropportunityfortheGroup.agreementsaretypicallyframeworkinnature,withstandardtermsandconditionsandacommitmenttosolesourcetheworkfrombodycote.pricingisnormallydefinedasabaselevelwithpriceslinkedtovariousindicessuchasthecostofenergy.

Goingforwarditisexpectedthatthepaceofoutsourcingandsizeofoutsourcecontractswillincrease.thisisduenotonlytothegeneraltendencyofcompaniestoeliminatenoncoreactivitiesovertime,butalsototwoothersignificantfactors.

therisingcostofenergy.bodycoteistypicallymoreenergyefficientthanmanufacturersthatprocesstheworkin-houseandcanbalancetheloadinitsprocesslinesbyaggregatingworkfromseveralcustomers.levelloading,initself,isamuchmoreefficientwayofoperatingthermalprocessingplantsthanthefluctuatingloadconditionsfacedbymostmanufacturers’in-housefacilities.asaresult,risingenergypricestendtodriveincreasedlevelsofoutsourcing.

thegeneralmoveofmanufacturingindustriestoemergingmarkets.thisnotonlycreatesopportunitiesinemergingmarketsforbodycotetoservethesecustomers,butalsoprovidesasourceofopportunityindevelopedeconomies.thisisbecausemostcustomersthatmovetheirmanufacturingtoemergingmarketstendnottoclosetheirfacilitiescompletelyinthedevelopedeconomies.instead,thesefacilitiesstopbeingexpandedandhaveinvestmentconstrained.thecapitalintensivenatureofthermalprocessingmeansthatsuchfacilitiesoftenbecomeundercapitalisedoroutmodedandoutsourcingbecomesanattractiveoption.thechoiceofcompaniescapableoftakingonsuchoutsourcedworkinareliablewayissmall,andbodycotebecomesthepreferredpartnerformostofthecustomerbase.

summary&outlook2010sawanotableandpleasingimprovementintheperformanceoftheGroup.bettermacroeconomicconditionswereanimportantcontributortothisandtheunderlyingabilityofthebusinesstodeliverconsistentlysuperiorvaluehasbeenstrengthenedconsiderably.totalrevenuegrowthwaswellaheadofmarketimprovement.thereorganisationoftheGroupintomarketfocuseddivisionshasenhancedrevenuegrowthandcarefultargetingofcapitalinvestmenthasimprovedcashflowandreturnoncapital.

lookingat2011,itisanticipatedthatautomotiveandgeneralindustrialbusinesswillcontinuetogrowatareasonablepace.aerospace,defenceandenergydemandhasbeguntorecover,althoughwithinthisthepowergenerationsegmentremainssoft,withthetimingofimprovementstillunclear.insummary,theboardisconfidentthat2011willbeanotheryearofgrowthforbodycote,albeitatalessrapidratethanexperiencedin2010.theyearhasstartedinlinewiththeseexpectations.lookingfurtherout,theboardseesencouragingopportunitiesforimprovedthrough-cyclereturns.

s.C.harrisChiefexecutive24February2011

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14 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

athermochemicallyformedceramicsurfacetreatmentisappliedresultinginasuper-hard,corrosionresistantlayerwhichprotectsthesteelandgivessuperiorwearresistance

therotormustbefinishpolishedusingdiamondtoolsduetotheextremehardnessoftheceramictreatment

endapplication–oildrillingservice

denotesthepartsofthecomponentjourneyundertakenbybodycote

BoDyCoteComponentJourneysthisisjustoneexampleofhowbodycotebringstogetherthehugewealthofknowledgeandexpertisefromacrosstheGrouptoprovidethevitalengineeringservicesourcustomersneed...

Formorecomponentjourneysvisitwww.bodycote.com

thesteelisthenmachinedintotherotorshaperequiredfordown-holedrillingphotocourtesyofweingartnerwww.weingartner.com

therotorsbeginlifeaspiecesofsteelbar

downtoeartH-aCoMponentjourney

muDrotorsCorrosionandwearcanleadtoexpensivedowntimeinoil&gasexploration,whereequipmentisincontinualuse.Mudrotorsoperateatthebottomofdrillingwells,andasaresult,theremovalandreplacementofwornrotorsisparticularlytimeconsumingandcostly.Followingprocessingbybodycote,thelifeofmudrotorsisimprovedsignificantly.

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 15

2010 2009 £m £m

revenue–continuingoperations 499.8 435.4

operatingprofit/(loss) 51.2 (50.2)addback:Majorfacilityclosurecosts .– 25.4impairmentcharge .– 31.5amortisationofacquiredintangible

fixedassets 0.9 1.3

headlineoperatingprofit–continuingoperations 52.1 8.0

Grouprevenuefromcontinuingoperationswas£499.8m,anincreaseof£64.4m(14.8%)on2009(£435.4m).theincreaseinrevenuesatconstantexchangeratesamountedto£64.7m(14.9%).theyearonyearreductioninrevenuesasaresultofsiteclosureswas£10.3matconstantexchangerates.

theGroupmadeanoperatingprofitof£51.2m(2009:loss£50.2m).HeadlineoperatingprofitfortheGroup’scontinuingoperationswas£52.1m,anincreaseof£44.1mcomparedto2009.Foreignexchangeratemovementsdecreasedprofitsby£0.5m.Headlineoperatingmarginsfromcontinuingoperationsincreasedfrom1.8%to10.4%.

2010 2009 £m £m

headlineoperatingprofit 52.1 8.0addbacknon-cashitems:depreciationandamortisation 47.4 49.6share-basedpayments 4.2 (0.1)loss/(profit)ondisposalofproperty,

plantandequipment 0.7 (0.1)

headlineeBitDa1 104.4 57.4

netcapitalexpenditure (35.8) (32.2)networkingcapitalmovement 8.7 9.5

headlineoperatingcashflow 77.3 34.7

Cashcostofrestructuring (9.2) (19.2)

operatingcashflow 68.1 15.5

interest (5.5) (4.4)taxation (5.4) (24.4)lumpsumcontributiontopensionscheme .– (1.5)

freecashflow 57.2 (14.8)

Headlineoperatingcashflowof£77.3mismadeupof£104.4mheadlineebitda,apositivecontributionfromreducedworkingcapitalof£8.7m,andnetcapitalexpenditureof£35.8m.afterinterestandtaxpayments,theheadlinefreecashflowwas£66.4m.theoutflowonexceptionalitemstotalled£9.2m,andallofthiswascashspendontherestructuringprogramme.

Capitalexpenditurehascontinuedtobemanagedcarefully.Capitalspend(netofassetsales)in2010was£35.8m,being0.8timesdepreciationcomparedto0.6timesin2009.therehasbeenacontinuedfocusoncashcollectionanddebtordayshavebeenreducedto59daysat31december2010,comparedto63daysat31december2009.theincreaseinsalesof£64.4mcomparedto2009hasresultedinanincreaseindebtorsof£7.7m,althoughthishasbeenmorethanoffsetbyhighercreditorbalances.

businessperForManCe

definitions:1earningsbeforeinterest,tax,depreciation,amortisation,share-basedpaymentsandexceptionalitems.

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16 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

Followingmaterialselection,bodycote’sdesignengineerswillworkcloselywithcustomerstoexploretheuniqueandflexiblecomponentdesignopportunitiesaffordedbypMHipnns.whenthefinalnnscomponentdesignisreceivedfromthecustomer,bodycotewillcreateanengineeringdrawing

Componentdesignisthentranslatedintoacapsuledesignwhereskilledengineersmanufacturethecanisteranduseweldingtechniquestoproducethecomplexcapsuleassembly

thefabricatedcapsule,almostidenticalinshapetothefinishedcomponentbutlargerinsize,isfilledwithpowder

theencapsulatedpMvalveisthenHipedusinghightemperaturesandpressureswhichallowsthepowdertobecome100%denseandformannnscomponent

theHipedandheattreatednnsshapevalvebodyislaserscannedtocomparethedimensionsoftheactualcomponentwiththennsproductdrawing

afterHipthennscomponentissolutionheattreatedandwaterquenchedtoachieveoptimummaterialpropertieswhichareisotropicinnature

endapplication–offshoreoil,chemicalorenergyindustries

valveBoDyvalvecomponentsoperatingintheharshenvironmentsoftheoil&gasandchemicalindustriesmustwithstandextremematerialdemandsandresistattackfromavarietyofaggressiveenvironments.theuseofpowdermetalHipednearnetshape(pMHipnns)componentsoffersoptimisedmaterialsolutionsforenhancedproductstrengthanddurability.

denotesthepartsofthecomponentjourneyundertakenbybodycote

BoDyCoteComponentJourneysthisisjustoneexampleofhowbodycotebringstogetherthehugewealthofknowledgeandexpertisefromacrosstheGrouptoprovidethevitalengineeringservicesourcustomersneed...

Formorecomponentjourneysvisitwww.bodycote.com

thevalvebodybeginslifeashighqualitygasatomisedstainlesssteelandnickel-basedpowders

powderpower-aCoMponentjourney

FinallythecomponentcanbepickledormachinedtoremovethecapsulematerialresultinginapMHipnnsvalvebodywhichisinspectedusingultrasonictestingtechniques

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 17

businessoverview

aerospaCe,DefenCe&energy

seepage18foranin-depthreview

automotive&generalinDustrial

seepage20foranin-depthreview

%ofgrouprevenue

Divisionalrevenue

DivisionalheaDline

operatingprofit

1,9262009:1,934

£202.1m2009:£189.5m

£33.9m2009:£24.7m

2009:43%

40

3,4562009:3,505

£297.7m2009:£245.9m

£25.6m2009:loss£(12.3)m

2009:57%

60

no.ofemployees

aerospaCe,DefenCe&energy(aDe)incorporatinghipandsurfacetechnologywithintheadesectors,ourcustomersthinkandoperategloballyandincreasinglyexpectbodycotetoservicetheminthesameway.Consequently,theadebusinessisorganisedglobally.thisgivesbodycoteanotableadvantageastheonlythermalprocessingcompanywithaglobalfootprintandknowledgeofoperatinginalloftheworld’skeymanufacturingareas.anumberofbodycote’smostimportantcustomersfallwithinthecompassofadeandbodycoteintendstocontinuetoleverageitsuniquemarketpositiontoincreaserevenuesinthesemarketsectors.thebusinessincorporatestheGroup’sactivitiesinhotisostaticpressingandsurfacetechnologyaswellastherelevantheattreatmentservices.

automotive&generalinDustrial(agi)incorporatingspecialitystainlesssteelprocesses–s3pwhilsttheaGimarketplacehasmanymultinationalcustomers,italsohasverymanymedium-sizedandsmallerbusinesses,withthelargemultinationalstendingtooperateonamoreregionally-focusedbasis,asopposedtoglobally.Generally,therearemorecompetitorstobodycoteinaGiandmuchofthebusinessislocally-oriented,meaningthatproximitytothecustomerisveryimportantandexcellentserviceisvital.

bodycote’suniquelylargenetworkof110aGifacilitiesenablesthebusinesstoofferthewidestrangeoftechnicalcapabilityandsecurityofsupply,continuingtoincreasetheproportionoftechnicallydifferentiatedservicesthatitoffers.bodycotehasalongandsuccessfulhistoryofservingthiswide-rangingcustomerbaseandtheaGibusinessservesthefollowinggeographies:

northamerica

westerneurope

emergingMarkets

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18 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

resultsrevenuesforaerospace,defence&energy(ade)were£202.1min2010comparedto£189.5min2009,anincreaseof6.6%,reflectingimprovedaerospaceoeMandoil&gasdemand,partlyoffsetbysoftaerospacemaintenanceandrepairrequirementsandweakindustrialGasturbine(iGt)markets.revenuesinconstantcurrencieswerealsohigherby6.6%.like-for-likerevenuegrowth,excludingrevenuesfromclosedsites,was8.5%.

Headlineoperatingprofitforadewas£33.9m(2009:£24.7m),withmarginsimprovingfrom13.0%to16.8%.

2010sawalowerlevelofcapitalexpenditureinade,aswefocusonfillingavailablecapacity.weexpectthatcapitalexpenditurewillcontinuetobelowerthandepreciationin2011.netcapitalexpenditurein2010was£9.9m(2009:£19.1m)whichrepresents0.6timesdepreciation(2009:1.1timesdepreciation).

Capitalemployedinadein2010was£240.0m(2009:£244.2m).thereductionreflectscontinuingmanagementfocusonimprovingreturnoncapital.returnoncapitalemployedin2010was14.6%(2009:10.1%).

gloBalmarketsaerospacedemandin2010differedmarkedlybetweenrequirementsfornewbuildprogrammesandforthemaintenanceandrepairmarket.newbuildrevenueswererobust,beingdrivenbyrawmaterialrequirements(forexamplemajorforgings),whichtendtoincreasemorethanayearaheadofcorrespondingfinishedcomponents.thisis,therefore,anencouragingleadingindicatorforfuturedemandsforouradebusiness.ontheotherhand,demandformaintenanceandrepairwassoft,althoughitshowedsignsofincreasinginquarterfour,aspassengermilescontinuedtorisefromthedepressedlevelsof2009.

powergenerationdemandfellby28%in2010comparedto2009,largelyasaresultofaseverereductioninindustrialgasturbinebuild.thissectorbegantofallinquarterfourof2009,ayearlaterthanearlycyclebusinessesfelttheimpactoftherecession,andreflectscontinuingdifficultyinobtainingfinancingformajorcapitalprojects.thenewbuildweaknesshasbeenexacerbatedbygenerallylowerelectricitydemandinthewesterneconomies,whichhasreducedmaintenancerequirements.

revenuesfromoil&gascustomersincreasedby37%.northamericangasproductionhasbeengoodandexploration,particularlyforshalegas,hasbeenstrong.oilmarketshavebeenrobustandincreasedinquarterfourof2010asoilpricesmovedtowardsthe$100perbarrellevel.

businessreview-aerospaCe,deFenCe&enerGy

£202.1m2009:£189.5m

revenue

£33.9m2009:£24.7m

headline operating profit

aerospace&defence

energy

Generalindustrial

revenueBymarketseCtor

westerneurope

northamerica

emergingMarkets

revenueBygeography

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 19

aChievementsin2010withitsmodestrestructuringprogrammecompletedearly,theadebusinesshasbeenabletofocusonstrengtheningitsmanagementteamsanddevelopingitscustomerofferings.inheattreatmentwehavegainedadditionaloeMapprovalsforairframecomponents,openingadditionalopportunitiesfornewbuildaircraftheattreatment.inHip,revenuesforproductfabrication(HippF)increasedby70%andworkincludedthelargestyetsinglepiecemanifoldforasub-seaoil&gasapplication.

organisationanDpeopleaspartofdevelopingourcustomer-facingdivisions,anumberofkeymanagementappointmentshavebeenmade.inade,thishasincludedrecruitmentofmanagerswithglobalremitsforsales,marketingandoperationsforbothheattreatmentandHip.Measurestoimproveproductivity,includingtheuseof‘lean’techniques,havetakenoverfromthe2009focusonrestructuring.overallheadcountremainedconstant,at1,926,anddespitemodestoverallrevenuegrowthinade,headlineoperatingprofitimprovedfrom£24.7mto£33.9m.

lookingaheaDthekeyobjectiveforadein2011istobuildonthefoundationlaidin2010torealisegrowthfromnewcustomersandprocesses,whiledrivingfurtherproductivityandoperatingefficiencyimprovements.theclearfocusoncustomerrequirementsandsatisfactionandproprietarytechnologyhasproducedrevenuegainsin2010andweexpectfurtherprogressin2011.

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20 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

resultsautomotive&Generalindustrial(aGi)revenueswere£297.7min2010,comparedto£245.9min2009,anincreaseof21.1%,reflectingageneralimprovementindemand,particularlyfromautomotiveandheavytruckcustomers,inallgeographies.salesbegantoimproveinquarterfourof2009andacceleratedinthefirsthalfof2010withfurtherincrementalimprovementinthesecondhalf.like-for-likerevenuegrowth,excludingrevenuesfromclosedsites,was25.1%.

HeadlineoperatingprofitinaGiwas£25.6mcomparedtoaheadlineoperatinglossof£12.3min2009.Marginsimprovedmarkedlyfromminus5.0%to8.6%.

netcapitalexpenditurein2010was£24.3m(2009:£12.5m),whichrepresents0.8timesdepreciation(2009:0.4timesdepreciation).weexpectthatcapitalexpenditurewillcontinuetobelowerthandepreciationin2011.returnoncapitalemployedin2010was9.3%(2009:minus4.2%).onaverage,capitalemployedin2010was£302.0m(2009:£315.1m).thereductionreflectscontinuingrestraintincapitalexpenditureastheGroupmaintainsfocusonimprovingcapitalreturnsbyincreasinglyfocusingonhigheradded-valueactivities.

marketsanDgeographiestheaGibusinessservesanextensivecustomerbaseacrossawiderangeofmarketsectors.theimpactofthedownturnwassevereinmostofourmarketsandrecoveryratesin2010havevariedsignificantly.Firsttoshowimprovementwasautomotive,whichalongwithaerospaceanddefence,isoneofthetwolargestsectorsforbodycote.automotiverevenuesgrewby40%in2010.whiledemandincreasedstronglyinallterritories,marketsharegainsaccountedfor25%oftheimprovementasbodycote’sstrengthindepthprovedattractivetocustomersworriedaboutsupplychainfailureintherecessionandafterwardsandduetocontractwinsforspecialistprocesses.Generalindustrialmarketshaverecoveredatagradualandmoremeasuredpace,withrevenuesaheadby13%.

innorthamerica,automotiverevenuesgrewverystronglyinthefirsthalfandwithmarketsharegainsgrowthwasover100%comparedtothefirsthalfof2009.thesecondhalfsawmoremodestgrowthandfortheyearasawhole,saleswereaheadby69%.Generalindustrialhaswitnessedsteadygrowththroughouttheyearandwashigherthan2009by20%.

aswithnorthamerica,automotiveledtherecoveryinwesterneuropeandparticularlybenefitedFrance,italyandGermanyforwhichthisisthemostimportantsector.automotivedemandandmarketsharegainstogetherresultedinyearonyearrevenuegrowthof28%.Generalindustrialdemandhasimprovedgraduallyoverthewholeyearwithsalesaheadof2009by7%.

businessreview-autoMotive&Generalindustrial

£297.7m2009:£245.9m

revenue

£25.6m2009loss:£(12.3)m

headline operating profit

automotive

truck

otherGeneralindustrial

energy

revenueBymarketseCtor

westerneurope

northamerica

emergingMarkets

revenueBygeography

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 21

theimprovementinthenordiccountriescamelaterintheyear,beingdrivenparticularlybythereturnofheavytruckwork,notablyinsweden.overallsalesinthenordicregionwereup29%comparedto2009,withrevenuesinwesterneuropeoverallbeingup13%.

theGroup’sbusinessinemergingmarketsgenerallyfaredverywellin2010.revenuesgrew25%ineasterneurope,withpolandinthelead,andby58%inChina.thebrazilianbusinesshasbeenthesubjectofmajorrestructuringwhichhasincludedreducingtheworkforceby32%.thelargestfacilitywasclosed,anewgreenfieldlocationwasestablished,benefitingfromtheGroup’seuropeanknow-how,andcapacitywasexpanded.evenduringthedisruption,salesinbrazilincreasedby7%yearonyear.thebusinesshasamuchreducedcostbaseandimprovedcapabilityandhastherightplatformtobenefitfromshortandmediumtermgrowththatweexpectinlatinamerica.

aChievementsin2010themajorrestructuringeffortintheaGibusinessisallbutcomplete,andwasaimedatreducingthecostbaseandexitinglowvalueaddedactivities.thissignificantmanagementchallengehasbeenmetinallpartsofthebusinessandthebenefitsareclearlyevidentinthe2010financialperformance.therehasalsobeenahighlevelofattentiontomaintainingthebenefitsoftherestructuring.during2010wehaveincreasedcapacityinseveraldifferentiatedtechnologiesinboththeunitedstatesandeurope.GreenfieldsiteshavebeenopenedintheCzechrepublic,polandandbrazil.specialitystainlesssteelprocessingcapacityhasbeenaddedineuropeandthefirstproductionfacilityforsheraCote®hasbeencommissionedintheuK.newoutsourcingcontractshavebeenwoninallgeographies.

organisationanDpeopleinjuly2008,theaGibusinessemployed5,201people.bytheendof2009thishadbeenreducedto3,505.notwithstandingrevenuesinaGiincreasingby21%,headcounthasdeclinedfrom3,505to3,456in2010,clearlydemonstratingsuccessinkeepingcostsundercontrolanddrivingproductivityimprovements.

lookingaheaDthebusinessissettobuildonthenotableimprovementsinperformancedeliveredin2010.thiswillbefoundedoncontinuedcostcontrol,capitalexpendituretargetedattheGroup’svariousproprietarytechnologiesandthedevelopmentofemergingmarkets,alongwithcloseattentiontomeetingandexceedingallcustomers’expectations.

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22 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

finanCialoverview

2010 2009 £m £m

revenue 499.8 435.4

Headlineoperatingprofit 52.1 8.0amortisationofacquiredintangiblefixedassets (0.9) (1.3)impairmentcharge .– (31.5)Majorfacilityclosurecosts .– (25.4)

operatingprofit/(loss) 51.2 (50.2)netfinancecharge (6.0) (4.3)

profit/(loss)beforetaxation 45.2 (54.5)taxation (11.7) 3.4

profit/(loss)fortheyear–continuingoperations 33.5 (51.1)lossfortheyear–discontinuedoperations (5.8) .–

profit/(loss)fortheyear 27.7 (51.1)

Grouprevenuesfor2010increasedby14.8%from£435.4mto£499.8m.inconstantcurrenciestheannualincreasewas14.9%(£64.7m).theimprovementinthesecondhalfwassomewhatbetterthaninthefirst,withrevenues,allofwhichweregeneratedorganically,increasingby22.2%from£207.5min2009to£253.5m.

Headlineoperatingprofitfortheyearincreasedfrom£8.0mto£52.1m,andheadlineoperatingmarginwas10.4%(2009:1.8%).operatingprofitwas£51.2m(2009:loss£50.2m)aftercharging£0.9m(2009:£1.3m)inrespectoftheamortisationofacquiredintangibles,£nil(2009:£31.5m)forimpairment,and£nil(2009:£25.4m)formajorfacilityclosurecosts.

HeadlineoperatingcashflowfortheGroupwas£77.3m(2009:£34.7m).thiswas148.4%(2009:433.8%)ofheadlineoperatingprofit,reflectingtightcontrolofworkingcapital,especiallypayables,whichmorethanoffsethigherinventoryandreceivables,whichincreasedasaresultoftherecoveryinactivitylevels.netcapitalexpenditurein2010at£35.8m(2009:£32.2m)continuedbelowthelevelofdepreciation,reflectingcontinuedcarefulmanagementandafocusonutilisingexistingequipment.

afterdeductinginterestandtax,theGroupreportedapositivefreecashflowof£57.2m(2009:negative£14.8m).

during2010,bodycotesecureditsfundingpositionwithtwooftheGroup’sthreebankfacilities,bothofwhichwereduetomatureduring2010,beingrefinanced.totalfundingnowavailabletobodycoteunderitscommittedfacilitiesis£230.9m(2009:£348.4m),expiringbetweenMarchandjuly2013.

eXCeptionalCoststhetotalexceptionalcostschargedtotheincomestatementamountedto£0.9m(2009:£58.2m).

thecurrentyearchargerelateswhollytotheamortisationofintangibleassetsarisingfromprioryears’acquisitions.therewerenoacquisitionsduringtheyear.thelevelofthechargereducedcomparedtotheprioryear(2009:£1.3m)ascertainassetswerefullyamortisedin2009.

withimprovedmarketconditionsandthebenefitofthewiderangingrestructuringprogrammechargedin2008and2009,theboardhasconcludedthatnoimpairmentchargeisrequiredin2010(2009:goodwillimpairmentof£29.0mandinvestmentimpairmentof£2.5m).

FinanCedireCtor’sreport

DaviDlanDlessFinancedirector

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 23

therewerenomajorfacilityclosurecostsduring2010(2009:£25.4m).restructuringactionsarenowcompleteinmostpartsoftheGroup;theonlyexceptionsbeingthefinalisationofworkinFrance,brazilanditaly,whichwillcontinueintoearly2011.netcashexpenditureasaresultoftheprogrammewas£9.2m(2009:£19.2m),including£3.2mproceedsfromthedisposalofredundantassets.therestructuringinitiativesdeliveredannualisedcumulativesavingsof£45.0min2010.astherestructuringprogrammeisnowessentiallycompletefurthersavingswillbemodest.

restructuringprovisionsoutstandingat31december2010total£20.2m,being£19.9mrelatedtothe2008/2009programmeand£0.3mrelatedtoenvironmentalremediationfromearlierinitiatives.oftheremaining£20.2mcashcosts,£12.5misexpectedtobespentin2011and£7.7min2012andlater.allexpenditureaftertheendof2011willrelatetoenvironmentalremediation.

operatingprofitfromContinuingoperationsafterchargingexceptionalitemsof£0.9m(2009:£58.2m),theoperatingprofitfromcontinuingoperationswas£51.2m(2009:lossof£50.2m).

profitBeforetaXfromContinuingoperationsHeadlineprofitbeforetaxforcontinuingoperationswas£46.1m(2009:£3.7m).theprofitbeforetaxforcontinuingoperationswas£45.2m(2009:lossof£54.5m),andtheseamountsarereconciledasfollows:

2010 2009 £m £m

Headlineoperatingprofit 52.1 8.0netfinancecharge (6.0) (4.3)

Headlineprofitbeforetax 46.1 3.7amortisationofacquiredintangiblefixedassets (0.9) (1.3)impairmentcharge .– (31.5)Majorfacilityclosurecosts .– (25.4)

profit/(loss)beforetax-continuingoperations 45.2 (54.5)

finanCeChargethenetfinancechargefromthecontinuingoperationsoftheGroupwas£6.0mcomparedto£4.3min2009(seedetailsbelow).thereisnomovementduetointerestrates;however,therehasbeenanincreaseduetohigherundrawncommittedfacilityfees(£1.0m),costsofrefinancingearlyin2010(£0.9m)andanincreaseinothercharges(£0.3m),offsetbyloweraveragenetdebt(£0.1m)andalowerpensionfinancecharge(£0.4m).

2010 2009 £m £m

netinterestpayable 1.9 2.0Financingcosts 2.3 0.4othercharges 0.9 0.6pensionfinancecharge 0.9 1.3

netfinancecharge 6.0 4.3

taXationthetaxchargewas£11.7mfortheyearcomparedtoacreditof£3.4mfor2009.theeffectivetaxrateoncontinuingoperationsof25.9%(2009:6.2%)resultedfromtheblendingofdifferingtaxratesineachofthecountriesinwhichtheGroupoperates.theloweffectivetaxratefor2009resultedfromtheblendingofprofitmakingjurisdictionswithlossmakingjurisdictionsinthatparticularyearasaresultoftheeconomicdownturn.

theheadlinetaxrateoncontinuingoperationsfor2010was25.4%(2009:108.1%),beingstatedbeforeamortisationofacquiredintangibles(whicharegenerallynotallowablefortaxpurposes).inaddition,£5.8m(2009:£nil)waschargedinrespectofthe2008disposalofthetestingdivision(seediscontinuedoperationsbelow).

subjecttoanyfuturetaxlegislationchanges,theheadlinetaxrateisexpectedtoremainbelowthecurrentuKstatutorytaxrateof28%inthemediumterm.

DisContinueDoperationsbodycotehasnotdiscontinuedanybusinessstreamsduring2010.in2008,theGroupsolditstestingdivisionandduring2010provisionsrelatingtotaxationexpectedtoarisefromthisdisposalwerereassessed.theimpactontheGroupaccountsoftheseadditionalprovisionsisachargeof£5.8m(2009:nil).inthe2008Groupaccounts,theeffectiverateoftaxontheprofitondisposalwasstatedas11.0%.therevisedeffectiverateoftaxforthedisposal,takingaccountoftheadditionaltaxprovision,is13.9%.

earningspersharebasicheadlineearningspersharefromcontinuingoperations(asdefinedinnote10)increasedto18.3pfrom0.4p.basicearnings/(loss)persharefortheyearareshowninthetablebelow:

2010 2009 pence pence

basicearnings/(loss)persharefrom:Continuingoperations 18.0 (27.0)discontinuedoperations (3.1) .–

Continuinganddiscontinuedoperations 14.9 (27.0)

DiviDenDtheboardhasrecommendedafinaldividendof5.75p(2009:5.35p)bringingthetotaldividendto8.7ppershare(2009:8.3p).ifapprovedbyshareholders,thefinaldividendof5.75ppersharefor2010willbepaidon6May2011toallshareholdersontheregisteratcloseofbusinesson8april2011.

theboardaimstofollowaprogressivedividendpolicyaslongasthedividendiscoveredatleasttwicebycurrentyearheadlineearnings.dividendcoverfor2010was2.1times.thedividendin2009wasnotcoveredbyheadlineearnings.

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24 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

CapitalstruCturetheGroup’sbalancesheetat31december2010issummarisedbelow:

assets liabilities netassets £m £m £m

property,plantandequipment 458.0 .– 458.0Goodwillandintangibleassets 118.1 .– 118.1Currentassetsandliabilities 120.2 (144.0) (23.8)othernon-currentassetsandliabilities 3.1 (16.9) (13.8)retirementbenefitobligations .– (11.6) (11.6)deferredtax 48.3 (73.1) (24.8)

totalbeforenetdebt 747.7 (245.6) 502.1

netdebt 23.5 (74.8) (51.3)

netassetsasat31December2010 771.2 (320.4) 450.8

netassetsasat31december2009 771.1 (348.5) 422.6

netassetsincreasedby£28.2m(6.7%)to£450.8m(2009:£422.6m).themajormovementscomparedto31december2009wereasignificantreductioninnetdebt(£34.2m),adecreaseinproperty,plantandequipment(£3.8m),adecreaseinretirementbenefitobligations(£3.4m),togetherwithanincreaseinnetcurrentassets(£1.7m)andanincreaseinnetdeferredtaxliabilities(£8.3m).

thedecreaseinproperty,plantandequipmentwasduetonetcapitalexpenditureof£35.8mbeingexceededbydepreciationof£46.1m,withforeignexchangevariancesof£8.0mreducingthenetdecreaseto£3.8m.

Movementsinnetcurrentassetswereduetotheincreasedleveloftradingactivityin2010comparedto2009,whichresultedinanincreaseininventoriesby£2.8m.tradereceivablesandotherreceivablesincreasedby£7.7masaresultofincreasedsaleslevels,andtightcontrolofworkingcapitalledtradeandotherpayablestoincreaseby£23.8m.

Currenttaxliabilitiesdecreasedby£1.8masaresultofthereassessmentoftaxliabilitiesresultingfromtheongoingrestructuringprogramme,whilethechangesinthetimingofdividendpaymentsfromjanuarytonovemberresultedinareductionintheproposeddividendcreditorof£5.5m.restructuringprovisionsreducedby£6.9m,asGrouprestructuringactivitiesproceededasplanned.

netliabilitiesforderivativefinancialinstrumentsdecreasedby£3.7mduetoacombinationofinstrumentmaturityandchangesinexchangeandinterestrates.

retirementbenefitobligationsreducedby£3.4mduringtheyear,primarilyasaresultoftheannouncedchangeintherelevantindexfortheuKschemefromrpitoCpiinrespectoftherevaluationofdeferredmembers’benefits.

thenetdeferredtaxliabilityincreasedby£8.3mduringtheyearduetoreductionsintaxratesincertaincountries,whichresultedinadecreaseinthevalueoftheGroup’srecogniseddeferredtaxlosses.

netDeBtGroupnetdebtat31december2010was£51.3m(2009:£85.5m).duringtheyear,loansof£32.6mundercommittedfacilitieswererepaid.theGroupcontinuestobeabletoborrowatcompetitiveratesandthereforecurrentlydeemsthistobethemosteffectivemeansoffunding.

Cashflowthenetincreaseincashandcashequivalentswas£0.5m(2009:netdecreaseof£231.6m),madeupofnetcashfromoperatingactivitiesof£95.6m(2009:£11.0m),lessinvestingactivitiesof£36.6m(2009:£27.3m)andlesscashusedinfinancingactivitiesof£58.5m(2009:£215.3m).

theincreaseinnetcashfromoperatingactivitiesfrom£11.0mto£95.6misdrivenprimarilybytheincreaseinheadlineebitdafrom£57.4mto£104.4m.tightcontrolofworkingcapital,especiallypayables,morethanoffsetincreasesinthelevelofinventoryandreceivableswhichwerehigherasaresultoftheincreasedlevelofactivity.theneteffectwasadecreaseinthelevelofworkingcapitalof£8.7m,and£1.1mwhenthemovementsinrestructuringprovisionsareincluded.

netcashoutflowsfrominvestingactivitiesincreasedfrom£27.3mto£36.6m,asthelevelsofnetcapitalexpenditurein2010at£35.8m(2009:£32.2m),althoughhigherthanintheprioryear,remainedbelowhistoriclevels,reflectingcontinuedtightmanagementcontrol.proceedsondisposalofsubsidiaryundertakingsreducedfrom£6.9min2009to£nilin2010.

netcashoutflowsusedinfinancingactivitiesreducedfrom£215.3mto£58.5m.2009sawtherepaymentof£231.9mofloansfollowingthedisposalofthetestingdivisionin2008,while2010sawafurtherrepaymentofloansof£34.0m,togetherwithpaymentofthreedividends(totaling£20.9m),followingtheboard’sdecisiontopaytheinterimdividendof2010twomonthsearlierthaninpreviousyears.

therehasbeenacontinuedfocusoncashcollectionwithdebtordaysat31december2010fallingto59daysfrom63daysayearearlier.netinterestpaymentsfortheyearwere£5.5m(2009:£4.4m)andtaxpaymentswere£5.4m(2009:£24.4m).

CapitaleXpenDiturenetcapitalexpenditure(capitalexpenditurelessproceedsfromassetdisposals)fortheyearwas£35.8m(2009:£32.2m).themultipleofnetcapitalexpendituretodepreciationwas0.8times(2009:0.6times),whichreflectstheGroup’scontinuedcarefulmanagementofitscapitalexpenditureprogramme.asat31december2010theGrouphadcapitalexpenditurecreditorsof£6.9m(2009:£8.3m).inadditioncapitalexpenditurecommitmentsamountedto£2.5m(2009:£6.7m).aproportionofthecurrentyearcapitalexpenditurewasincurredtosupporttherestructuringprogrammeintheconsolidationofplantsandthere-installationoffurnacestransferredfromclosedplants.Majorcapitalprojectsthatwereinprogressduring2010includetheupgradeoflargecapacityheattreatmentequipmentfortheusaerospacesector,additionalcapacityinFranceforanautomotiveoutsourcingproject,increasedstainlesssteelprocessingcapacity,expansionofcapacityinMexicoandproductionequipmentforournewsheraCote®process.

BorrowingfaCilitiesat31december2010,theGrouphadthefollowingcommittedfacilities:

Facility expirydate Facility loanutilisation

letterofCreditutilisation

facility head- room

£m £m £m £m

£110mrevolvingCredit 31March2013 110.0 .– .– 110.0€125mrevolvingCredit 31july2013 107.9 64.4 .– 43.5$20mrevolvingCredit 31March2013 13.0 0.2 5.4 7.4

230.9 64.6 5.4 160.9

FinanCedireCtor’sreportContinued

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 25

CapitalmanagementtheGroupmanagesitscapitaltoensurethatentitiesintheGroupwillbeabletocontinueasgoingconcerns,whilemaximisingthereturntoshareholders.thecapitalstructureoftheGroupconsistsofdebt,whichincludesborrowings,cashandcashequivalentsandequityattributabletoequityholdersoftheparent,comprisingcapital,reservesandretainedearnings.

thecapitalstructureisreviewedregularlybytheboardofdirectors.theGroup’spolicyistomaintaingearing,determinedastheproportionofnetdebttototalcapital,withindefinedparameters,allowingmovementinthecapitalstructureappropriatetothebusinesscycleandcorporateactivity.thegearingratioat31december2010hasfallento11%(2009:20%)asaresultofbothreducednetdebtandincreasedprofitintheperiod.

theGroup’sdebtfundingpolicyistoborrowcentrally(whereitistaxefficienttodoso),usingamixtureofshort-termborrowings,longer-termloansandfinanceleases.theseborrowings,togetherwithcashgeneratedfromoperations,arelentorcontributedasequitytosubsidiariesasrequired.theaimoftheGroup’sfundingpolicyistoensurecontinuityoffinanceatreasonablecost,basedoncommittedfacilitiesfromseveralsources,arrangedwithaspreadofmaturities.therecentmarketforbankfundinghasbeenrestrictedtoshortertenuresthanhavebeenavailableinthepastand,therefore,itisintendedinduecoursetoextendthematurityprofileoftheGroup’sfunding(currently2.4years).

DefineDBenefitpensionarrangementstheGrouphasdefinedbenefitpensionobligationsintheuK,Germany,switzerland,liechtenstein,usaandbrazilandcashlumpsumobligationsinFrance,italyandturkey,theentireliabilitiesforwhicharereflectedintheGroupbalancesheet.intheuK,theGrouphasafinalsalaryschemethatwasclosedtonewmembersinnovember2000,butcontinuestoaccruebenefitsforthe123currentemployeemembers.thedeficit,ascalculatedbytheschemeactuaryat31december2010usingtheprinciplesofias19is£0.6m(2009:£3.7m).theuKschemedeficitdecreasedby£3.1mduringtheyear,primarilyasaresultoftheannouncedchangeintherelevantindexfortheuKschemefromrpitoCpiinrespectoftherevaluationofdeferredmembers’benefits.

theGroup’sheattreatmentbusinessinGermanyhasinheritedseveralsmalldefinedbenefitarrangementsasaresultofprioryears’acquisitions.theyareallunfundedandareclosedtonewmembersbuttheexistingmemberscontinuetoaccruebenefits.theias19liabilityat31december2010was£3.6m(2009:£3.5m).inliechtensteintheias19liabilityat31december2010was£0.4m(2009:£0.2m)andinswitzerlandwas£0.3m(2009:£0.1m).arrangementsinbothcountriesarefunded.

inFrance,theGroupoperatesaplanwhichpaysacashlumpsumonretirementandalsoforlongservice.theplanisopentonewemployeesbutbyitsnatureisnotmortalitydependent.itisunfundedandtheias19liabilityat31december2010was£5.2m(2009:£5.7m).italyandturkeyalsohaveunfundedcashlumpsumobligations,whichbystatuteareopentonewmembers.theias19liabilityis£0.7mforitaly(2009:£0.8m)and£0.2mforturkey(2009:£0.2m).

theGroupsponsorsthreedefinedbenefitpensionarrangementsintheusathatwereinheritedwiththeacquisitionoflindbergandthesehadatotalias19deficitat31december2010of£0.5m(2009:£0.6m).thereisnofutureaccrualofbenefits.inbrazil,bodycoteoperatesadefinedbenefitplanforaseniormemberofstaff.itisfundedandthemembercontinuestoaccruebenefits.at31december2010ithadadeficitof£0.1m(2009:£0.2mdeficit).

postBalanCesheeteventstherearenopostbalancesheeteventsfollowingthe2010yearend.

ChangeinaCCountingpoliCiesthechangesinaccountingpoliciesaredetailedintheaccountingpoliciesonpage51ofthisreport.theadoptionofnewaccountingpolicieshasnothadanymaterialimpactontheamountsreportedinthesefinancialstatements.

goingConCerntheGroup’sbusinessactivities,togetherwiththefactorslikelytoaffectitsfuturedevelopment,performanceandpositionaresetoutinthisGroupreview.thereviewincludesanoverviewoftheGroup’sfinancialposition,itscashflows,liquiditypositionandborrowingfacilities.inaddition,thereisadescriptionoftheGroup’sobjectives,policiesandprocessesformanagingitscapital;itsfinancialriskmanagementobjectives;detailsofitsfinancialinstrumentsandhedgingactivities;anditsexposurestocreditandliquidityrisk.

theGroupmeetsitsworkingcapitalrequirementsthroughacombinationofcommittedanduncommittedfacilitiesandoverdrafts.theoverdraftsanduncommittedfacilitiesarerepayableondemandbutthecommittedfacilitiesaredueforrenewalasshownbelow.thereissufficientheadroominthecommittedfacilitycovenantstoassumethatthesefacilitiescanbeoperatedascontractedfortheforeseeablefuture.

us$20mrevolvingCreditFacilitymaturing31March2013

£110mrevolvingCreditFacilitymaturing31March2013

€125mrevolvingCreditFacilitymaturing31july2013

theGroup’sforecastsandprojections,takingaccountofreasonablepotentialchangesintradingperformance,showthattheGroupshouldbeabletooperatewithinthelevelofitscurrentcommittedfacilities.

thedirectorshavereviewedforecastsandprojectionsfortheGroup’smarketsandservices,assessingthecommittedfacilityandfinancialcovenantheadroom,centralliquidity,andthecompany’sabilitytoaccessfurtherfunding.thedirectorsalsorevieweddownsidesensitivityanalysisovertheforecastperiod.Followingthisreview,thedirectorshaveformedajudgement,atthetimeofapprovingthefinancialstatements,thatthereisareasonableexpectationthattheGrouphasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Forthisreasonthedirectorscontinuetoadoptthegoingconcernbasisinpreparingthefinancialstatements.

D.f.landlessFinancedirector24February2011

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26 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

effectivemanagementofrisksisessentialtothedeliveryoftheGroup’sobjectives.theGroup’sapproachhasbeenfordivisionalmanagementtoreporttheirsignificantriskstotheGroup,explainingthenatureandtheeffectivenessofthemitigationthatisinplacetomanageeachrisk.therecentappointmentofavice-president(riskandbusinessprocesses)willensurecontinuingimprovementsintheGroup’sriskmanagementframework.

theprincipalrisksshownbelowrepresentthemostsignificantareaswhichtheboardbelievescouldmostlikelyimpacttheGroup’sfinancialperformanceandposition,togetherwiththeactionsinitiatedtomitigatetheconsequences.

marketandCustomerrisksMarketsbodycote’spresencein26countriesandinawidevarietyofendmarketsactsasanaturalhedgetobalanceoutlocalisedeconomicvolatility.nevertheless,theGroupiscontinuouslyworkingtoimproveitsresponsivenesstochangesindemandandusesanalyticaltoolstoassesstheflexibilityofitscostbase.Closecontactwithcustomersprovidesmanagementwithmarketintelligencethatallowstimelyactiontominimisetheimpactofadownturn.thiswasdemonstratedinthelastdownturn,whichbeganattheendof2008,whentheGroupreactedquicklytochangesindemandandreduceditscostbaseby£45minthefaceofa21%fallinsales.

Loss of key customerstheGroupbenefitsfrommanylongtermandpartnershipagreementswithkeycustomers.damageto,orlossof,anyoftheserelationshipsmaybedetrimentaltoGroupresults,althoughtheboardbelievethisishighlyunlikelyasbodycotehasexcellentlong-termrelationshipswithitsmajorcustomersandtheGroup’snetworkofstrategicallylocatedfacilitiesensuresthatitisthesupplierofchoicetothesemajormanufacturers.Furthermorethereisnosignificantcustomerdependency,withtheGroup’stoptencustomersaccountingforlessthan13%ofsalesandthebalancemadeupbymanythousandsofcustomers.

CorporateandCommunityrisksHumanresourcesbodycoteisreliantonitsabilitytorecruit,developandretainstafftomeetfuturegrowthplans.Competitionforresourcesishighandthereisariskthatbodycotemaynotbeabletoattractortoretainskilledindividuals.asthemarketleaderbodycoteisseenasasourceoftalentbycompetitors.duringthelasttwoyearstheGrouphasaddressedtheriskbyupdatingitsHumanresources(Hr)strategy,whichcoverssuccessionplanningandstaffdevelopmentprogrammes,performancemanagementprocesses,recruitmentpoliciesandremunerationstrategy.

safety&Healthbodycoteiscommittedtoprovidingthehighestlevelofprotectioninitsworkenvironmentandtosafeguardingthesafetyofitsemployees.theGroup’sworkenvironmentpresentsanumberofriskswhichrequiremanagement.shortcomingsinhealthandsafetyprocedurescanhaveasignificanteffectonindividualemployees,causedisruptiontobusinessandleadtofinancialpenaltiesandlossofreputation.safetyandHealth(s&H)policiesaresetbytheGroup’ssafetycommitteeandallfacilitiesarerequiredtooperateinaccordancewiththesepolicies.responsibilityforimplementationofs&HpolicieslieswithdivisionalmanagementandeachdivisionhasaprofessionallycompetentHeadofs&Hinplace.allfacilitiesaresubjecttosafetyauditsatleastonceayear,followingstandardauditprogrammes,andfindingsarereportedtodivisionalandcorporatemanagement.

environmentbodycoteiscommittedtoprovidingthehighestlevelofprotectiontotheenvironment.Historicaluseofsolventsandotherhazardouschemicalscouldhaveledtogroundcontamination.theenvironmentallawsofthevariousjurisdictionsimposeactualandpotentialobligationsonbodycotetoremediatecontaminatedsites,boththosecurrentlyoperatedand,insomecases,thosewhichhavebeensold.bodycoteincurscostsannuallyinmeetingitsobligationsandmaintainsaprovisionof£16.8mtomeetliabilities.ifthisexistingprovisionisinadequatetomeetcostsarisingfromenvironmentalobligations,thenthiscouldimpacttheGroup’sresults.someoftheGroup’sheattreatmentplantscontinuetousesolventsandotherhazardouschemicalsinsmallquantitiesbuttheriskoffuturecontaminationismanagedbystringentprocedures,typicallyundertherequirementsoftheiso14001environmentalsystem.

operationalrisksservicequalityworkthatisreleasedintousewhichisnotincompliancewithspecificationcouldariseasaresultofsystemorhumanfailure.bodycotehasstringentqualitysystemsinplaceandwherenecessaryitsplantshaverelevantaccreditations,suchasiso9000,nadcapandts16949.allfacilitiesaresubjecttointernalaudits,externalauditsbyaccreditorsorcustomerinspectionsatleastonceayear.

energyanenergyriskmanagementcommitteeoverseesthepurchasingofalltheGroup’senergyrequirements.itsobjectiveistominimisethepotentialexposuretobodycoteofrapidchangesinenergypricesandtomatchcommitmentstobuyenergy,bothintermsofpriceandvolume,withdemandfortheGroup’sservices.anincreaseinenergycostisariskwhichtheGroupislargelyabletomitigatethroughpriceadjustmentsandsurcharges,althoughwithsometimelag.bodycoteisconfidentthatitwillcontinuetobeabletopassonenergycostincreasestoitscustomersinfuture.

regulatoryrisksregulatoryandlegislativeCompliancebodycoteoperatesin26countrieswhichallhaveuniquelegislativeandregulatoryrequirements,includingtaxregulations.insomecountriesregulationscanvaryfromstatetostate.non-compliancecouldleadtopenalties,disruptiontobusiness,diversionofmanagementtimeandlossofreputation.tomitigatethisriskbodycoteengagesspecialistswithexpertiseinthelocallegislativeandregulatorylandscapetoperformcomplianceactivityortoadviselocalmanagement.

financialriskstheGroup’streasuryfunctionprovidesacentralisedservicetotheGroupforfunding,foreignexchange,interestratemanagementandcounterpartyrisk.treasuryactivitieshavetheobjectiveofminimisingriskandtreasuryoperationsareconductedwithinaframeworkofpoliciesandguidelinesauthorisedandreviewedperiodicallybytheboard.FurtherdetailsontheGroup’sfinancialrisksandriskmanagementpoliciesareprovidedinnote20tothefinancialstatements.

prinCipalrisKsandunCertainties

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 27

risk Description impact mitigation

marketanDCustomerrisks

Markets asubstantialproportionofbodycote’ssalesarecloselylinkedtotheeconomiccycle.salesinthemarketsservedbytheaGibusinesses(67%ofthetotalGroup)tendtodevelopinlinewithoraheadoftheeconomiccycle,whereasaerospacesales(20%)tendtotrackbehindtheeconomiccycle.salestotheenergysectors(13%)arecloselylinkedtoenergyprices,whichinturncanbeaffectedbygeneraleconomicactivity.shortordervisibilitymeansthataccuratelyforecastingdemandremainsdifficult.

asalowproportionoftheGroup’scostsarevariable(approx20%),afallinsaleswillhaveasignificantimpactonprofitability.

engageincontinuousdialoguewithcustomersandmonitormacro-economicforecastswhichshouldalerttheGrouptolikelychangesindemand.

Maintainflexibilityofcostbasee.g.byensuringthataproportionoftheworkforceisemployedontemporarycontracts.

respondquicklytochangesincustomerdemandonalocaloraGroup-widelevel.

lossofkeycustomers

damagetotherelationshipwithkeycustomersthatwillresultinlossofsales.

alossofakeycustomerwillresultinareductioninprofitandmayaffecttheviabilityofoneormoreoftheGroup’sfacilities.

Continuetheemphasisonlong-termagreements.

Maintainexcellentrelationshipswithmajorcustomers.usekeyaccountmanagementtomonitorcustomersatisfactionwithGroup’sservicelevels.

CorporateanDCommunityrisks

Humanresources

bodycote’sgrowthplansrelyonitsabilitytoretain,developandattractstaff.

ashortageofstaffwiththeappropriateskillswillimpedetheGroup’sabilitytoexecuteitsbusinessplans.

ContinuedevelopmentofaHrstrategytoaddressthelong-termdevelopmentandretentionofstaff.

developsuccessionplans.

ensureperformancemanagementprocessesareproperlyimplementedandusedeffectively.

safetyandHealth

shortcomingsinsafetyandhealthframework.

Failuretodevelop,implementorcomplywiththehighestlevelsofsafetyandhealthprocessescanleadtoinjury,financialandreputationalloss.

MaintainaGroupsafetycommitteetodevelophealthandsafetypolicies.

MaintainGroup-widehealthandsafetypoliciesenforcedbydivisionalhealthandsafetyteams.

safetycomplianceauditsatleastonceayearatallplants.

environment Groundandwatercontaminationthroughtheuseofpotentiallyhazardoussubstancesandemissionsofcarbondioxide.

Financialimpactofcleaningupcontaminationfrompastandpresentactivitiesinvolvinghazardoussubstances.reputationalimpact,particularlyforfacilitieswhichoperateinurbanorresidentialareas.

remediationofcontaminatedsitesasrequiredbylocallegislation.

reduceuseofhazardoussubstances,suchaschlorinatedsolvents.

adoptiso14001certification.

Continuouslyimproveenergyefficiency.

operationalrisks

servicequality workbeingreleasedforendusethathasnotbeenprocessedtospecification.

processedpartwillnotperformasrequired,leadingtofinancialcostofremediation,breakdownincustomerrelationship,reputationalloss,andpotentialfordamages/litigation.

Maintainindustryrelevantaccreditations.

divisionalqualityteamstomaintainqualityprocessatplantlevel.

performqualityauditsatallplantsatleastonceayear.

energy increaseinenergyprices. energyisthesecondlargestvariablecosttobodycote.thevolatilityofenergypricesmeansthatcostchangesaredifficulttoforecastwhichcouldleadtoareductionintheGroup’sprofitability.

energyriskmanagementcommitteeoverseesenergypurchasingandenergypriceagreements.

passonenergycoststocustomersthroughcontractualarrangementsandregularpricereviews.

regulatoryrisks

regulatoryandlegislativecompliance

non-compliancewithregulatoryorlegislativerequirements.

non-compliancecouldleadtofinancialpenalties,disruptiontobusiness,diversionofmanagementtime,personalandcorporateliabilityandlossofreputation.

engagelocalspecialiststosupportbodycoteatlocal,divisionalandGrouplevel.

developbusinessprocesstoincorporatelocalregulatoryrequirements.

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28 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

ourapproaChbodycote’sobjectiveistocreatesuperiorshareholderreturnsthroughtheprovisionofselectedthermalprocessingservicesthatarehighlyvaluedbyourcustomersandtoachievethisinasafeworkingenvironment,withminimalenvironmentalimpact.

bodycoteisdedicatedtoimprovingmanagementofcorporateresponsibilityissuesandisimplementingpoliciesandinitiativestoachievethisgoal.thefuturesuccessandgrowthoftheGroupisintrinsicallylinkedtoourabilitytoensuretheGroup’soperationsaresustainableandthatwecannurtureanddevelopourtalent.

ourpeoplethestrengthoftheGroupprimarilyrestsinitspeopleandoneofthekeychallengesformanagementistoensureavailabilityofappropriatelyqualifiedpeopletosupportitscontinuedgrowth.bodycoteisfortunatetohaveacompetentandcommittedinternationalteamthatiswellrespectedintechnicalandbusinesscircles.MostacquisitionshavebeenbasedonhistoricalrelationshipswithbodycotepersonnelwhichisatestamenttotheintegrityoftheGroup’speople.

theboardhasestablishedaremunerationpolicythatrewardsperformancewhileofferingcompetitivebasepackages.inlinewiththepolicyofcontinuousimprovement,theGrouphasaddedfurtherresourcesinthisareatoassessmanagementperformanceandtoimprovethesuccessionpipelineforfuturebusinessleadership.

bodycote’semploymentpoliciesarenon-discriminatory,complyingwithallcurrentlegislationtoengenderequalopportunityirrespectiveofrace,gender,religion,disability,sexualorientationornationality.Harassmentisnottolerated.

Corporateresponsibilityandsustainability

bodycoteisdedicatedtoimprovingmanagement

ofcorporateresponsibilityissuesandisimplementing

policiesandinitiativestoachievethisgoal.

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responsiBleBusinessethiCsallbodycotepersonnelareexpectedtoapplyahighethicalstandard,consistentwithaninternationaluK-listedcompany.directorsandemployeesareexpectedtoensurethattheirpersonalinterestsdonotatanytimeconflictwiththoseofbodycote.shareholderemployeesareadvisedofandcomplywithsharetradingcodes.

bodycotehassystemsinplacedesignedtoensurecompliancewithallapplicablelawsandregulationsandconformitywithallrelevantcodesofbusinesspractice.Further,bodycotedoesnotmakepoliticaldonations.

withregardtocompetition,bodycoteaimstowinbusinessinadifferentiatedhigh-valuemanner.theGroupdoesnotemployunfairtradingmethodsanditcompetesvigorouslybutfairlywithintherequirementsoftheapplicablelaws.employeesareprohibitedfromeithergivingorreceivinganyinducements.

Communitieswhilstbodycotehasnocentralisedcommunityinitiativesinplace,ourglobalteamsfrequentlytakepartincharityeventsandgroupsthathelptofostergoodcommunityrelationships.

improvingsafetyCulturethenatureoftheGroup’soperationsisthatemployeesareregularlyexposedtopotentiallydangeroussituations.itisstandardbodycotepracticetoensurethatappropriatesafetyandhealthpoliciesandproceduresareinforcearoundtheGroupandthatemployeesaregivensuitabletrainingappropriatetotheirworkingenvironment.

in2004theGroupcommencedreportinginauniformmanneritsperformanceinternallyintermsofboththefrequencyandseverityoflost-timeaccidents.asaresult,eachfacilityisnowabletobenchmarkitssafetyandhealthperformanceandformulatestrategiesforimprovements.bodycoteiscommittedtothehighestpracticablestandardsofsafetyandhealthmanagementandtakesazerotoleranceapproachtosafetyviolations.

underpinningthevitalimportanceofworkplacesafety,bonuspaymentstodirectorsandseniorexecutivesare,inpart,dependentonachievementofsafetytargets,whicharekeyperformanceindicators.

kpi–accidentfrequency(number)bodycoteworkstirelesslytoreduceworkplaceaccidentsandiscommittedtoprovidingasafeenvironmentforanyonewhoworksatorvisitsourlocations.themajorrestructuringprogrammehasnotmadethisaneasytaskin2010.nevertheless,theaccidentFrequencyratewasreducedto1.8(2009:1.9).

3.1 2.4 2.0 1.9 1.8

06 07 08 09 10

accidentFrequencyisdefinedasthenumberoflosttimeaccidentsx200,000hours(approximately100manyears),dividedbythetotalhoursworked.

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30 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

proteCtingtheenvironmentbodycoteoperatesmodern,efficientequipmentaroundtheclock.theGroupaggregatesdemandfromawiderangeofcustomerstomaximiseefficiencyandminimiseenergycosts.byreplacingunder-utilisedin-housethermalprocessingoperationswithbodycote’sstate-of-the-artequipment,theoverallamountofenergyusedbyindustrycanbedramaticallyreduced,asisexplainedfurtherinthefollowingpages.thesuccessofbodycote’sprocessesinaddressingtheseissuesiskeytoitsenvironmentalcredentials.theGroupdoesnotsimplyaimtominimiseitsownenergyconsumption,butalsotoeffectsubstantialreductionsinitscustomers’energyuse.

thereplacement,wherepossible,ofharmfulmaterialshasreducedtheneedfordisposalofwasteproducts.byactingresponsiblytheGrouphasbeenabletosubstantiallyreduceitschlorinatedsolventusageandisinvestinginclosedsolventwashingsystemstorecuperatesolventeffluentandreduceevaporationemissions.

kpi–iso14001accreditedfacilities(%)reducingtheenvironmentalimpactoftheGroup’sactivitiesistakenveryseriously.Compliancewiththerequirementsofiso14001helpstominimisetheriskofadverseenvironmentaleffectsatbodycote’slocations.attheendof2010,81%ofourplantshadachievediso14001accreditation–140plantsoutofatotalof173(2009:137outof178).

47 68 71 77 81

06 07 08 09 10

CarbonfootprintandwaterconsumptionthereductionofCo2e(carbondioxideequivalent)andwaterconsumptionisahighpriorityfortheGroup.

totalCo2eemissionsper£msalesdecreasedby5%in2010andwaterusageper£msalesdecreasedby8%.theGroup’stotalCo2emissiondataisbasedonscope1andscope2emissions,asdefinedbytheuKGovernment’sdepartmentforenvironment,Foodandruralaffairs,anddatarelatingtothishasbeencalculatedtoincludecountry-specificelectricityconversionfactors.

Carbonfootprint waterconsumption(tonneCo2e/£msales) (thousandm3/£msales)

698.5 665.5

09 10

1.85 1.70

09 10

bodycoteismakingacommitmenttoreducingenergyandwaterconsumptionandspecificmethodsforachievingthiswillbeexploredfurtherin2011.

CorporateresponsibilityandsustainabilityContinued

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agreener,Cleanerenvironmentreducinganydetrimentalimpactontheenvironmenthasbecomeagrowingfocusofindustryworldwideandbodycotecanassistinthedrivetowardscarbonreductionandenvironmentallyfriendlyapproachesinanumberofways.

Forexample,certainheattreatmentandthermallysprayedsurfacetreatmentsareleadingthewayinthereplacementofolder,lessenvironmentallyfriendlyprocessessuchashardchromeplating.

Futurerestrictionsthatwillbeplacedonchromeplatingduetohealthandenvironmentalissueshaveledmanybusinessesincludingthemajoraerospacecompaniestoembarkoninitiativestoreplaceit.thesecompanieshavehighlightedthermalspraycoatingsasthepreferredreplacementforchromeplating.

bodycotehasbeeninvolvedinanumberofinitiativestoreplacechromeplateandresultshaveshownthat,inadditiontotheenvironmentalbenefits,thermallysprayedtungstencarbideoutperformshardchromeplateforbothwearandcorrosionprotection.

Modernthermalprocessingtechniqueshavealloweddesignengineersandmanufacturerstousemuchlightermaterials,suchasaluminiumforexample,andhavesignificantlyprolongedcomponentlifetimes.throughtheeffectiveuseofthermalprocessing,partscannowbelighterandoverallcomponentweightreduced,leadingtoimprovedefficiencyandreducedfuelconsumption.

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32 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

thedirectorsarepleasedtosubmittheirreportandtheauditedfinancialstatementsfortheyearended31december2010.

theChairman’sstatement,theChiefexecutive’sreview,theFinancedirector’sreport,andalltheinformationcontainedonpages8to45togethercomprisethedirectors’reportfortheyearended31december2010.

prinCipalaCtivitiestheCompanyisaholdingcompanywithsubsidiariescarryingonbusinessintheprovisionofthermalprocessingservices.theactivitiesandlocationsoftheprincipalsubsidiaryundertakingsaresetoutonpages99and100.

groupreviewtheGroupreview,whichencompasses:

strategyandobjectives;

Keyperformanceindicators;

Chairman’sstatement;

Chiefexecutive’sreview;

businessperformance;

businessoverview;

businessreview;

Financedirector’sreport;and

Corporateresponsibilityandsustainability

isprovidedonpages8to31ofthisannualreport.thisisareviewofthedevelopmentofthebusinessesoftheGroup,thefinancialperformanceduringtheyearended31december2010,keyperformanceindicators,adescriptionoftheprincipalrisksanduncertaintiesfacingtheGroupandinformationabouttheuseoffinancialinstruments.theGroupreviewhasbeenpreparedsolelytoassisttheshareholdersinassessingtheGroup’sstrategiesandthepotentialofthosestrategies.itshouldnotbereliedonbyanyotherpartyforanyotherpurpose.Forward-lookingstatementshavebeenmadebythedirectorsingoodfaithusinginformationavailableuptothedateofthisreportandsuchstatementsshouldberegardedwithcautionbecauseoftheinherentuncertaintiesineconomictrendsandbusinessrisks.sincetheendofthefinancialyearnoimportanteventsaffectingthebusinessoftheGrouphaveoccurred.

DiviDenDstheboardisrecommendingafinaldividendof5.75pperordinarysharemakingatotalfortheyearof8.7ppershare(2009:8.3p).thefinaldividend,ifapproved,willbepaidon6May2011toshareholdersontheregisteratthecloseofbusinesson8april2011.

shareCapitaltheCompany’sissuedordinarysharecapitalasat31december2010was£32.8mandduringtheyearwasincreasedbytheissueof1,714,205ordinarysharesbetween12Marchand22december2010foratotalconsiderationof£618,471inconnectionwiththeCompany’sexecutiveshareincentiveschemes.attheannualGeneralMeetingon28april2010theshareholdersauthorisedtheCompanytopurchaseupto18,816,771ofitsownshares.thisauthorityexpiresattheconclusionoftheforthcomingannualGeneralMeetingtobeheldon27april2011,atwhichtimeafurtherauthoritywillbesoughtfromshareholders.

CapitalstruCturedetailsoftheauthorisedandissuedsharecapitalareshowninnote25.theCompanyhasoneclassofordinaryshares,whichcarrynorighttofixedincome.eachsharecarriestherighttoonevoteatgeneralmeetingsoftheCompany.therearenospecificrestrictionsonthesizeofaholdingnoronthetransferofshares,bothofwhicharegovernedbythegeneralprovisionsofthearticlesofassociationandprevailinglegislation.thedirectorsarenotawareofanyagreementsbetweenholdersoftheCompany’ssharesthatmayresultinrestrictionsonthetransferofsecuritiesoronvotingrights.detailsofemployeeshareschemesaresetoutinnote28andsharesheldbythebodycoteemployeebenefittrustabstainfromvotingandwaivedividend.nopersonhasanyspecialrightsofcontrolovertheCompany’ssharecapitalandallissuedsharesarefullypaid.theappointmentandreplacementofdirectorsisgovernedbytheCompany’sarticlesofassociation,theuKCorporateGovernanceCode,theCompaniesactandrelatedlegislation.thearticlesofassociationmaybeamendedbyaspecialresolutionofshareholders.thepowersofthedirectorsaredescribedintheCorporateGovernancestatementonpage34.underthearticlesofassociationtheCompanyhasauthoritytoissueordinaryshareswithanominalvalueof£3,250,168.therearealsoanumberofotheragreementsthattakeeffect,alter,crystalliseorterminateuponachangeofcontroloftheCompanyfollowingatakeoverbidsuchascommercialcontracts,bankloanagreements,propertyleaseagreements,employmentcontractsandemployeeshareplans.noneoftheseareconsideredtobesignificantintermsoftheirlikelyimpactonthebusinessoftheGroupasawhole,andthedirectorsarenotawareofanyagreementsbetweentheCompanyandthemselvesoremployeesthatprovideforcompensationforlossofofficeoremploymentthatoccursbecauseofatakeoverbid.

DireCtorsthecurrentdirectorsandtheirbiographicaldetailsarelistedonpage45andallservedthroughouttheyear.underthearticlesofassociationoftheCompanyeachdirectormustretirefromofficeandstandforre-electionbyshareholdersasaminimumateverythirdannualgeneralmeetinginordertocontinuetoserveasadirector.HoweverinviewofthenewlyintroduceduKCorporateGovernanceCodeandtofurtherincreaseaccountability,thisyearalldirectorswillretireattheannualGeneralMeetingandstandforre-electionbytheshareholdersiftheywishtocontinuetoserveasdirectorsoftheCompany.accordingly,thosedirectorsretiringandofferingthemselvesforre-electionatthe2011annualGeneralMeetingareMessrsa.M.thomson,s.C.Harris,d.F.landless,j.vogelsang,j.a.bilesanddrK.rajagopal.there-electionsofMessrsthomsonandvogelsangareinaccordancewiththeretirementprovisionsofthearticlesofassociation.theserviceagreementsforMessrsHarrisandlandlessareterminableby12months’notice.theremainingdirectorsdonothaveaserviceagreementwiththeCompanyandtheirappointmentsareterminablebysixmonths’notice(orinthecaseoftheChairman,Mrthomsonby12months’notice).

direCtors’report

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 33

DireCtors’interestsinContraCts&sharesdetailsoftheexecutivedirectors’servicecontractsanddetailsofthedirectors’interestsintheCompany’ssharesandshareincentiveplansareshownintheboardreportonremunerationonpages39to43.nodirectorhashadanydealingsinanysharesoroptionsintheCompanysince31december2010.qualifyingthirdpartyindemnityprovision(asdefinedbysection234oftheCompaniesact2006)hasremainedinforceforthedirectorsfortheyearended31december2010and,asatthedateofthisreport,remainsinforceforthebenefitofthecurrentdirectorsinrelationtocertainlossesandliabilitieswhichtheymayincur(orhaveincurred)tothirdpartiesinthecourseoftheirduties.apartfromtheseexceptions,noneofthedirectorshadamaterialinterestinanycontractofsignificanceinrelationtotheCompanyanditssubsidiariesatanytimeduringthefinancialyear.

potentialConfliCtsofinterestduring2008thedutiesowedbydirectorstoacompanywerecodifiedandextendedbytheCompaniesact2006sothatdirectorsnotonlyhadtodeclareactualconflictsofinterestsintransactionsastheyarosebutalsohadadutytoavoidsuchconflictswhetherrealorpotential.potentialconflictsofinterestcouldarisewhereasingledirectorowesafiduciarydutytomorethanoneorganisation(a‘situationalConflict’)whichtypicallywillbethecasewhereadirectorholdsdirectorshipsinmorethanonecompany.inordertoensurethateachdirectorwascomplyingwiththenewduties,eachdirectorprovidedtheCompanywithaformaldeclarationtodisclosewhatsituationalConflictsaffectedhim.theboardreviewedthedeclarationsandapprovedtheexistenceofeachdeclaredsituationalConflictuntiloctober2011andpermittedeachaffecteddirectortoattendandvoteatbodycotedirectors’meetings,onthebasisthateachsuchdirectorcontinuedtokeepbodycote’sinformationconfidential,andprovidedoverallthatsuchauthorisationremainedappropriateandintheinterestsofshareholders.wheresuchauthorisationbecomesinappropriateornotintheinterestsofbodycoteshareholders,theChairmanorthenominationCommittee,canrevokeanauthorisation.nosuchrevocationshavebeenmade.

employmenttheGrouprecognisesthevaluethatcanbeaddedtoitsfutureprofitabilityandstrengthbytheeffortsofemployees.thecommitmentofemployeestoexceliskeytotheGroup’scontinuedsuccess.throughtheirattendanceat,orparticipationinstrategy,production,safetyandhealthmeetingsatsitelevel,employeesarekeptuptodatewiththeperformanceandprogressoftheGroup,thecontributiontotheGroupmadebytheirsiteandareadvisedofsafetyandhealthissues.theGrouppublishesin11languages,viatheGroupintranet,anelectronicmagazineforallstaffdetailingtheGroup’sactivities,performanceandsomeofitspersonalitiesandhasalsofeaturedtheGroup’sopendoorpolicyunderwhichemployeeconcernscanbevoicedonaconfidentialbasis.approximately1,600bodycoteemployeesareconnectedtothebodycoteintranet,whichimprovesknowledgeofGroupactivities,andassistsgreatlywithtechnologyexchangeandco-ordination.itistheGroup’spolicytogivefullandfairconsiderationtoapplicationsforemploymentfromdisabledpersons,havingregardtotheirparticularaptitudesandabilities,andtoencouragethetrainingandcareerdevelopmentofallpersonnelemployedbytheGroup,includingdisabledpersons.shouldanemployeebecomedisabledtheGroup,wherepracticable,willseektocontinuetheemploymentandarrangeappropriatetraining.anequalopportunitiespolicyisinoperationintheGroup.

researChanDDevelopmentproductdevelopmentandqualityimprovementatallGroupcompaniesisacontinuousprocess.theGrouphasapolicyofdeployingthebesttechnologyavailableandactivelyseekingimprovements.italsoconductsresearchprogrammeswithitscustomers.

DonationsCharitabledonationsduringtheyearnetofincometaxamountedto£6,000(2009:£2,750).therewerenopoliticalcontributionsin2009or2010.

CreDitorspoliCyGroupoperatingcompaniesareresponsibleforagreeingthetermsandconditionsunderwhichbusinesstransactionsareconducted.itisGrouppolicythatpaymentstosuppliersaremadeinaccordancewiththetermsagreed,providedthatthesesuppliershavealsocompliedwithapplicabletermsandconditions.CreditordaysattheyearendfortheGroupwere46days(2009:46days).

shareholDersananalysisoftheCompany’sshareholdersandthesharesinissueat18February2011anddetailsoftheinterestsofmajorshareholdersinvotingsharesnotifiedtotheCompanypursuanttochapter5ofthedisclosureandtransparencyrulesaregivenonpage101.

auDitorsinaccordancewiththeprovisionsofsection489oftheCompaniesact2006,aresolutionforthereappointmentofdeloittellpasauditorsistobeproposedattheforthcomingannualGeneralMeeting.eachpersonwhoisadirectoratthedateofapprovalofthisannualreportconfirmsthat:-

sofaraseachdirectorisaware,thereisnorelevantauditinformationofwhichtheCompany’sauditorsareunaware;and

eachdirectorhastakenallthestepsthatheoughttohavetakenasadirectortomakehimselfawareofanyrelevantauditinformationandtoestablishthattheCompany’sauditorsareawareofthatinformation.

thisstatementisgivenandshouldbeinterpretedinaccordancewiththeprovisionsofsection418oftheCompaniesact2006.

annualgeneralmeetingthe2011annualGeneralMeetingwillbeheldon27april2011inaccordancewiththenoticebeingsenttoshareholderswiththisreport.

byorderoftheboard

J.r.grimesecretary24February2011

springwoodCourtspringwoodClose

tytheringtonbusinessparkMacclesfield

CheshiresK102xF

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34 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

CorporateGovernanCestateMent

ComplianCewith2008ComBineDCoDeinrespectofthefinancialyear2010bodycote’sobligationunderthedisclosureandtransparencyrulesistoprepareacorporategovernancestatementwithreferencetotheCombinedCodeonCorporateGovernancepublishedbytheuKFinancialreportingCouncil(FrC)injune2008(the‘2008Code’).

inrespectofeachsubsequentfinancialyearsuchstatementwillneedtoreferencetheuKCorporateGovernanceCodeissuedbytheFrCinjune2010(the‘newCode’).

inrespectoftheyearended31december2010bodycotehascompliedwiththeprovisionsofthe2008Code,savethattheboardhastakentheviewthatgenerallyitistheresponsibilityoftheChiefexecutiveandtheFinancedirectortomanagerelationshipswithinstitutionalinvestors.theChairmanalsomeetsinstitutionalinvestorstodiscussoverallstrategy,governanceandanyconcernsthatshareholdersmayhave.onlywherethesemoreusualchannelsofcommunicationhavefailedwouldtheboardexpecttheseniorindependentorothernon-executivedirectorstobecomeinvolved,notwithstandingthatboththe2008CodeandthenewCodespecifyattendanceoftheseniorindependentnon-executivedirectoratmeetingswithmajorshareholders.regularfeedbackbytheCompany’sadvisersoninvestormeetingsandresultspresentationsiscirculatedtoalldirectors.

apartfromthisdistinctarea,bodycotewasincompliancewiththeprovisionsofthe2008Codethroughout2010.

operationoftheCoDetakentogetherwiththeauditCommitteereport,thenominationCommitteereportandtheboardreportonremunerationpresentedonpages36to43,thisstatementexplainshowbodycotehasappliedtheprinciplesofgoodcorporategovernancesetoutinthe2008Code.

leaDershiptheboardisresponsibletoshareholdersforgoodcorporategovernance,settingtheCompany’sstrategicobjectives,valuesandstandardsandensuringthenecessaryresourcesareinplacetoachievetheobjectives.

theboardmetonelevenoccasionsduring2010,includingaspecificmeetingtoreviewandupdatetheCompany’slong-termstrategy.

theboardofdirectorscomprisessixmembers,ofwhomfourarenon-executivedirectorsandtwoareexecutivedirectorsledbytheCompany’spart-timenon-executiveChairman,Mra.M.thomson,whoalsochairsthenominationCommittee.theChiefexecutiveisMrs.C.Harrisandtheseniorindependentnon-executivedirectorisMrj.vogelsang,whoalsochairstheremunerationCommittee.theauditCommitteeischairedbyMrj.a.biles.briefbiographicaldetailsofalldirectorsaregivenonpage45.

theboardmakesvisitstouKandoverseasfacilities.Certaindefinedpowersandissuesarereservedfortheboardtodecide,interalia:

strategy;

approvaloffinancialstatementsandcirculars;

Capitalprojects,acquisitionsanddisposals;

annualbudgets;

directors’appointments,serviceagreements,remunerationandsuccessionplanning;

policiesforfinancialstatements,treasury,safety,healthandenvironment,donations;

Committees’termsofreference;

boardandcommitteechairmenandmembership;

investments;

equityandbankfinancing;

internalcontrolandriskmanagement;

Corporategovernance;

Keyexternalandinternalappointments;and

employeeshareincentivesandtheuKpensionscheme.

inadvanceofboardmeetingsdirectorsaresuppliedwithup-to-dateinformationaboutthetradingperformanceofeachoperatingdivisionandsub-division,theGroup’soverallfinancialpositionanditsachievementagainstprioryear,budgetsandforecasts.theyarealsosuppliedwiththelatestavailableinformationonsafety,healthandenvironmentalandriskmanagementissuesanddetailsofthesafetyandhealthperformanceoftheGroup,andeachdivision,intermsofseverityandfrequencyratesforaccidentsatwork.

whererequired,adirectormayseekindependentprofessionaladvicethecostofwhichisreimbursedbytheCompany.alldirectorshaveaccesstotheCompanysecretaryandtheymayalsoaddressspecificissuestotheseniorindependentnon-executivedirector.inaccordancewiththearticlesofassociation,allnewlyappointeddirectorsandanywhohavenotstoodforre-electionatthetwopreviousannualGeneralMeetings,ifeligible,mustsubmitthemselvesforre-election.non-executivedirectors,includingtheChairman,areappointedforfixedtermsnotexceedingthreeyearsfromthedateoffirstelectionbyshareholders,afterwhichtheappointmentmaybeextendedbymutualagreement.astatementofthedirectors’responsibilitiesissetoutonpage44.theboardalsooperatesthreecommittees.thesearethenominationCommittee,theremunerationCommitteeandtheauditCommittee.

sothatthenecessaryactionscanbetakenpromptly,afinancecommittee,comprisingtheChairman(orfailinghimanyothernon-executivedirector),theChiefexecutiveandtheFinancedirectoroperatesbetweenthedatesofscheduledboardmeetingsandisauthorisedtomakedecisions,withinlimitsdefinedbytheboard,inrespectofcertainfinance,treasury,taxorinvestmentmatters.

inDepenDenCeofnon-eXeCutiveDireCtorstheboardconsidersthatMessrsj.a.biles,j.vogelsanganddrK.rajagopalareallindependentforthepurposesoftheCode.

CommitmentattendanceofdirectorsatregularscheduledmeetingsoftheboardanditsCommitteesisshowninthetablebelow:

Fullboard audit Committee

remuneration Committee

nomination Committee

director –––––––eligibletoattend&attended–––––––

a.M.thomson 11 – 7 1s.C.Harris 11 – – 1j.vogelsang 11 4 7 1j.a.biles 11 4 7 1K.rajagopal 11 4 7 1d.F.landless 11 – – –

alldirectorsattendedthemaximumnumberofscheduledboard,audit,remunerationandnominationCommitteemeetingsthattheywerescheduledtoattend.inadditionbyinvitationMessrsthomson,Harrisandlandlessattendedthewholeorpartofthemeetingsoftheaudit,nominationandremunerationCommittees.

**

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 35

performanCeevaluationduringtheyear,theboardconductedanevaluationofitsownperformanceandthatofitscommitteesandindividualdirectors.theprocessinvolvedthecompletionbyeachdirectorofaconfidentialquestionnaireinaformconsistentwithpreviousyears,andincludingamongstotherareas:remitandobjectives,boardcomposition,trainingandresources,governance,stakeholderengagement,boardproceduresandoveralleffectiveness.

theCompanysecretaryanalysedthecompletedquestionnairesandsummarisedthefindingsinareportfortheChairman.theChairmansubsequentlyconductedone-to-onediscussionswitheachoftheboardmembersafterwhichhereportedbacktothewholeboardontheevaluationprocess.theresponsestothequestionnairesdemonstratedahighdegreeofconsistencyandtheevaluationprocessaffirmedtheboard’sconfidenceintheGroup’ssystemofcorporategovernance.arisingfromtheexercise,theboardhasconcludedthatanenhancedfocusshouldbeplacedondivisionalstrategies,overallperformanceevaluation,sustainabilityandriskmanagement.

Messrss.C.Harrisandd.F.landlesswereappraisedinternallyinjanuaryandFebruary2011.theremunerationandauditCommitteesreviewedtheirownperformanceindecember2010andthenominationCommitteerevieweditsperformanceinnovember2010.

ledbytheseniorindependentnon-executivedirector,thedirectorshavecarriedoutanevaluationoftheChairman’sperformanceinnovember2010.

proposalsforre-eleCtiontheboardhasdecided,inlinewiththenewCode,thatalldirectorswillretireannuallyand,otherthaninthecaseofanydirectorwhohasdecidedtostanddownfromtheboard,willofferthemselvesforre-electionattheannualGeneralMeeting.accordinglyMessrsa.M.thomson,s.C.Harris,d.F.landless,j.vogelsang,j.a.bilesanddrK.rajagopalwillstandforre-electionandtheboardrecommendstoshareholdersthattheyre-electallthedirectors.

theperformanceofeachdirectorwasevaluatedasindicatedaboveandtheboardconfirmsinrespectofeachthattheirperformancecontinuestobeeffectiveandthateachcontinuestodemonstratecommitmenttohisrespectiverole.

internalControl&riskmanagementtheboardisresponsiblefortheGroup’ssystemofinternalcontrolandforreviewingitseffectiveness.suchasystemisdesignedtomanageratherthaneliminatetheriskoffailuretoachievebusinessobjectives,andcanonlyprovidereasonableandnotabsoluteassuranceagainstmaterialmisstatementorloss.theboardhasappliedprincipleC.2oftheCodebyestablishingacontinuousprocessforidentifying,evaluatingandmanagingtheGroup’ssignificantrisks,includingrisksarisingoutofbodycote’scorporateandsocialengagement.theboardcontinuouslyandregularlyreviewstheprocess,whichhasbeeninplacefromthestartof2000tothedateofapprovalofthisreportandwhichisinaccordancewithinternalControl:GuidancefordirectorsontheCombinedCodepublishedinseptember1999andwithrevisedguidanceoninternalcontrolpublishedoctober2005.theboard’smonitoringcoversallcontrols,includingfinancial,operationalandcompliancecontrolsandriskmanagementsystems.itisbasedprincipallyonreviewingreportsfrommanagementandfrominternalaudittoconsiderwhetheranysignificantweaknessesarepromptlyremediedandindicateaneedformoreextensivemonitoring.theauditCommitteeassiststheboardindischargingthesereviewresponsibilities.

theGrouppreparesacomprehensiveannualbudgetwhichiscloselymonitoredandupdatedquarterly.theGroup’sauthoritymatrixclearlysetsoutauthoritylimitsforthosewithdelegatedresponsibilityandspecifieswhatcanonlybedecidedwithcentralapproval.

theinternalauditdepartmentmonitorstheGroup’sinternalfinancialcontrolsystemanditsreviewsareconductedonthebasisofplansapprovedbytheauditCommittee,towhichinternalauditreportsaresubmittedonaregularbasis.

eachdivisionprovidesassuranceonspecifiedfinancialandnon-financialcontrolsandthesearereportedtwice-yearlytotheauditCommittee.

during2010,incompliancewithprovisionC.2.1,managementperformedaspecificassessmentforthepurposeofthisannualreport.Management’sassessment,whichhasbeenreviewedbytheauditCommitteeandtheboard,includedareviewofallGroupandoperationalrisks(bymeansofworkshopsandinterviews)andtherisksidentified(bothbeforeandaftermitigatingactions)wereassessedusingconventionalimpactandlikelihoodscoring,andfurtherassessment,monitoringandreviewworkwasscheduledfor2011.theGroup’sriskmanagementframeworkisprogressivelybeingembeddedthroughouttheGroup.theprincipalrisksanduncertaintiesaffectingtheGroupareshownintheFinancedirector’sreportonpage26.nosignificantpreviouslyunidentifiedriskswereuncoveredaspartofthisprocess,andthenecessaryactionshavebeenorarebeingtakentoremedyanysignificantfailingsorweaknessesidentifiedaspartofthereviews.

investorrelationstheChiefexecutiveandFinancedirectorregularlytalkwithandmeetinstitutionalinvestors,bothindividuallyandcollectively,andthishasenabledinstitutionalinvestorstoincreasetheirunderstandingoftheGroup’sstrategy.thebusinessoftheannualGeneralMeetingcomprisesareviewoftheGroup’soperationsforthebenefitofshareholdersattending.inaddition,since1998,internetusershavebeenabletoviewup-to-datenewsontheGroupanditssharepriceviathebodycotewebsiteatwww.bodycote.com.usersofthewebsitecanaccessnewsofallrecentannouncementsandcopiesofresultspresentationsandcanenroltohearlivepresentations.onaregularbasis,bodycote’sfinancialadvisers,corporatebrokersandfinancialpublicrelationsconsultantsprovidethedirectorswithopinionsurveysfromanalystsandinvestinginstitutionsfollowingvisitsandmeetingswiththeChiefexecutiveandFinancedirector.asstatedonpage34theChairmanandseniorindependentnon-executivedirectorareavailabletodiscussanyissuesnotresolvedbytheChiefexecutiveandFinancedirector.onspecificissues,suchastheintroductionoflongtermincentiveandsharematchingschemesin2006andchangestheretoin2009and2010,andin2008withthereturnofcash,theCompanywillseektheviewsofleadinginvestors.

byorderoftheboard

J.r.grimesecretary24February2011

springwoodCourtspringwoodClose

tytheringtonbusinessparkMacclesfield

CheshiresK102xF

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36 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

reportoFtHeauditCoMMittee

theauditCommitteeisasub-committeeoftheboardwhosemainroleistoencourageandsafeguardthehigheststandardsofintegrity,financialreporting,riskmanagementandinternalcontrols.

theCommittee’sresponsibilitiesaresetoutinwrittentermsofreferencewhichincludeallmattersindicatedbythedisclosureandtransparencyrulesandtheCode,whichareavailableforinspectionontheCompany’swebsiteandinclude:

reviewingtheformandcontentofinterimandfullyearaccountsandresultsannouncementsoftheCompany,interimmanagementstatementsandanyotherformalannouncementsrelatingtotheCompany’sfinancialperformance,includingmonitoringtheirintegrityandreviewingsignificantreportingissuesandjudgementscontainedtherein,andrecommendingthemtotheboardforapproval;

reviewingtheGroup’ssystemsofriskmanagementandinternalfinancialcontrol;

monitoringandreviewingtheeffectivenessoftheCompany’sinternalauditfunctionandconsideringregularreportsfrominternalauditoninternalfinancialcontrolsandriskmanagement;

consideringtheappointment,re-appointmentorchangingofexternalauditors,overseeingtheprocessfortheirselectionandmakingrecommendationstotheboardontheirappointmentwhichwillbeputtotheshareholdersfortheirapprovalataGeneralMeetingandtoapprovetheirremunerationandtermsofengagement;

agreeingthenatureandscopeoftheexternalauditor’sworkandconsideringtheirreportsontheCompany’saccounts,reportstoshareholdersandtheirevaluationofthesystemsofinternalfinancialcontrolandriskmanagement;and

monitoringandreviewingtheexternalauditors’independence,objectivityandeffectiveness,takingintoaccountprofessionalandregulatoryrequirements.

CompositionoftheauDitCommitteetheauditCommitteecomprisesMessrsj.a.biles,j.vogelsanganddrK.rajagopalwhoareallindependentnon-executivedirectors.theirbiographicaldetailsaresetoutonpage45andtheirremunerationisshownonpage42.theChairmanoftheauditCommitteesince16august2007hasbeenMrj.a.biles,whowasappointedadirectoronthatdate,followingarecommendationfromthenominationCommittee.theauditCommitteeChairmanisconsideredtohaverecentandrelevantfinancialexperience.Mrbilesisacharteredaccountant,whoservedasaplcfinancedirector(FKiplcfrom1998to2004andChubbsecurityplcfrom1991to1997)andiscurrentlyalsotheChairmanoftheauditCommitteesofCharterinternationalplc(2005)andHermesFundManagerslimited(2005).theCompanysecretaryissecretarytotheauditCommittee.theChairman,Chiefexecutive,Financedirector,seniorinternalauditor,GroupFinancialController,vice-president(riskandbusinessprocesses),Grouptreasurer,Headoftax,otherseniorfinancepersonnelandexternalauditorsattendauditCommitteemeetingsasappropriatebyinvitation.

mainaCtivitiesoftheauDitCommitteetheauditCommitteemetfourtimesduring2010,andinFebruary2011toconsiderthisfinancialreportandallCommitteemembersattendedthemaximumnumberofmeetingstheywerescheduledtoattend.

theCommitteealsomeetsseparatelywiththevice-president(riskandbusinessprocesses)andwiththeexternalauditors,withoutmanagementbeingpresent,aftertheendofmostformalmeetings.

inaddition,theCommitteeChairmanhaspreparatorymeetingswiththeexternalauditorsand,wherenecessary,withGroupseniormanagement,priortocommitteemeetings.

attheirmeetings,theauditCommitteeconsidersanagendaofitemsincludingtheminutesofthelastmeetingandalistofactionpointsfrompreviousmeetings,toensurethattheseareprogressed.inaddition,anumberofspecificitemswerereviewed:

attheirFebruaryandjulymeetings,theauditCommitteereviewedrespectivelythepreliminaryandinterimannouncementsofresultsandthedraftreportsandaccountsforthefinancialyearandthehalfyear.ontheseoccasionstheCommitteereviewedreportsfromtheexternalauditors,identifyinganyaccountingorjudgementalitemsrequiringitsattention(includingapprovaloftheprocesses,assumptionsandoutcomestoassessfairvaluesandimpairments)andcommentingonriskmanagementandcontrolmatters.

aquarterlyreportoninternalauditfromthevice-president(riskandbusinessprocesses)waspresentedateachmeetingandthefindingsdiscussed.duringtheyeartheplanfortheensuingyear’sworkwasconsidered.

theexternalauditorsalsopresentedtheirauditplansatthedecemberandaprilmeetingscoveringscopeofworktobedoneandduringtheyeartherewasadetailedreviewoftheirmanagementlettercoveringtheauditors’findingsinrespectof2009.

theauditCommitteeisalsopresentedwithanupdateonanymateriallitigationinwhichtheGroupmaybeinvolved.

ateachmeetinganupdateispresentedofanynewaccountingdevelopmentsandrequirementsandanychangesincorporategovernancearrangementsthatmayaffecttheGroup.

onaregularbasis,theCommitteereviewedpapersonliquidity,bankingarrangementsandtheappropriatenessofthegoingconcernassumptionforpreparationofthefinancialstatements.theCommittee’sactivitiessupportedthedirectorsintheirassessmentofthegoingconcernpositionoftheGroup,whichissetoutonpage25.

during2010anewpositionofvice-president(riskandbusinessprocesses)wascreatedwithresponsibilityfordevelopingtheGroup’sriskmanagementframeworkandenhancingtheGroup’sriskassessmentandmitigationactivities.thisactiondemonstratestheboard’scontinuedcommitmenttomaintainsoundriskmanagementandinternalcontrolsystems.

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 37

during2010theauditCommitteealso:

assessedandconfirmedtheindependenceoftheexternalauditors;

havingreviewedtheeffectivenessoftheaudit,theperformanceandcapabilitiesoftheexternalauditorsandhavingtakenintoaccounttheirtenureofofficefrom2002andwhetherthepositionshouldbeformallytendered,recommendedtotheboardthattheauditorsbere-appointedandagreedtheirfees;

approvedtheGroup’saccountingpolicies;

approvedthemanagementrepresentationstotheexternalauditors;

reviewedarrangementsforreportingandinvestigatingfraudandemployeeconcerns;normalinternalauditactivityandoperationoftheGroup’s‘opendoor’policyuncoveredasmallnumberofpotentiallyfraudulentincidentswhichwereallfullyinvestigated.nonehadanymaterialfinancialimpactontheGroupand,wherenecessary,systemsandprocedureswereamendedtominimisetheriskofrecurrence;

reviewedtheeffectivenessofinternalcontrolsandriskmanagementprocessesandrecommendedcertainchanges;

reviewedthetermsofreferencefortheauditCommittee;and

assessedtheCommittee’sowneffectiveness.

inDepenDenCeofeXternalauDitorstheauditCommitteehasputinplacesafeguardstoensurethattheindependenceoftheauditisnotcompromised.inthisrespect,theauditCommitteereviewed:

theexternalauditors’planforthecurrentyear,notingtheroleoftheseniorstatutoryauditor,whosignstheauditreportandwho,inaccordancewiththeprofessionalrules,hasnotheldofficeformorethanfiveyears,andanychangesinthekeyauditstaff;

thearrangementsforday-to-daymanagementoftheauditrelationship;and

theoverallextentofnon-auditservicesprovidedbytheexternalauditorsasspecifiedbelow.

thepolicyinrespectofservicesprovidedbytheexternalauditorsisasfollows:

audit-relatedservices.theexternalauditorsareinvitedtoprovideserviceswheretheirpositionasauditorsrendersthembestplacedtoundertakethework.thisincludesreportingandcertificationconnectedwithborrowings,shareholdersandcirculars,regulatoryrequirementsandworkinrespectofacquisitionsanddisposals.

inthecaseofotherservicesnocontractsinexcessof£20,000invaluecanbeawardedtotheexternalauditorswithoutpriorapprovalfromtheChairmanoftheauditCommittee.

taxandgeneralconsultingwork.ingeneralandwhereconflictsarise,theworkisnotawardedtotheexternalauditorsandisputouttotender.

therearenocontractualrestrictionsonwhotheauditCommitteecanchooseasexternalauditors.

internalauDitinternalauditindependentlyreviewstheriskandcontrolprocessesoperatedbymanagement.itcarriesoutindependentauditsinaccordancewithaninternalauditplanwhichisagreedwiththeauditCommitteebeforethestartofthefinancialyear.thisplantakesaccountoftheriskmanagementframeworksurroundingmajorbusinessrisksineachoperationandprovidesahighdegreeoffinancialandgeographicalcoverage.whereappropriate,eitherbecauseoflanguage,geographicalremotenessorwheretechnicalexpertiseisrequired,theinternalauditdepartmentengagesthirdpartyspecialiststoconductinternalaudits.internalauditreportsincluderecommendationstoimproveinternalcontrolstogetherwithagreedmanagerialactionplanstoresolveissuesraised.internalauditfollowsuptheimplementationofrecommendationsandreportsprogresstoseniormanagementandtheauditCommittee.theCommitteenotedthatthe2010internalauditprogrammewassuccessfullycompletedwithsitesrepresentingapproximately70%ofGrouprevenuebeingthesubjectofinternalauditreports.atthesametimetherewasadecliningtrendintherequirementforcorrectiveactions.theeffectivenessoftheinternalauditfunctionisreviewedanddiscussedonanannualbasiswiththevicepresident(riskandbusinessprocesses)andseniorinternalauditor.

overviewasaresultofitsworkduringtheyear,theauditCommitteehasconcludedthatithasactedinaccordancewithitstermsofreferenceandhasensuredtheindependenceandobjectivityoftheexternalauditors.

onbehalfoftheauditCommittee:

J.a.BilesauditCommitteeChairman24February2011

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38 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

reportoFtHenoMinationCoMMittee

roleofthenominationCommitteethenominationCommitteeisasub-committeeoftheboardwhosepurposeistoadvisetheboardontheappointmentand,ifnecessary,dismissalofexecutiveandnon-executivedirectors.thefulltermsofreferenceofthenominationCommitteeareprovidedontheCompany’swebsite.

CompositionofthenominationCommitteethenominationCommitteecomprisesalltheindependentnon-executivedirectorstogetherwiththeChairmanandChiefexecutive.thequorumnecessaryforthetransactionofbusinessistwo,eachofwhommustbeanindependentnon-executivedirector.

theChairmanactsastheChairmanoftheCommittee,althoughtheChairmanmaynotchairtheCommitteewhenitisdealingwiththematterofsuccessiontotheChairmanshipoftheCompany.onlymembersoftheCommitteehavetherighttoattendtheCommitteemeetings.However,otherindividualsandexternaladvisersmaybeinvitedtoattendforallorpartofanymeetingasandwhenappropriate.

theCompanysecretaryissecretarytotheCommittee.

theCommitteehastheauthoritytoseekanyinformationthatisrequiredfromanyofficeroremployeeoftheCompanyoritssubsidiaries.inconnectionwithitsduties,theCommitteeisauthorisedbytheboardtotakesuchindependentadvice(includinglegalorotherprofessionaladvice,attheCompany’sexpense)asitconsidersnecessary,includingrequestsforinformationfrom,orcommissioninginvestigationsbyexternaladvisers.

mainaCtivitiesofthenominationCommitteeMra.M.thomsonchairsthenominationCommitteewhichalsocomprisesMessrsj.a.biles,j.vogelsang,s.C.HarrisanddrK.rajagopal.

in2010theCommitteediscussedperformancemanagementandassessmentfortheChiefexecutiveandotherseniorexecutivesandconsideredandauthorisedthepotentialconflictsofinterestwhichmightarisewhereadirectorhasfiduciaryresponsibilitiesinrespectofotherorganisations.noinappropriateconflictsofinterestsexist.theCommitteealsoassignedtheChairmantoreviewandagreewiththeChiefexecutivetheGroup’sobjectivesfortheforthcomingyear.

innovember2010thenominationCommittee,withbothexecutivedirectorsinattendance,carriedoutaformalevaluationoftheboard’sperformance,andreviewedtheboard’ssizeandcomposition,thefrequencyofandprocessforboardandcommitteemeetings,andbestpracticeforthehandlingofanumberofboardissuesincludingthereviewofstrategy,successionplanning,sustainability,theimplicationsforbodycoteoftheuKbriberyactandriskmanagement.

onbehalfoftheCommittee:

a.m.thomsonChairmanofthenominationCommittee24February2011

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 39

boardreportonreMuneration

theremunerationCommitteeisresponsibleforremunerationpoliciesthataimtocreatevalueforshareholders.

remunerationstructuresandpackagesthereforeincludecompetitivebasicsalaries,ahighpotentialforvariablepaythatisclearlylinkedwithsuperiorperformanceandabsolutevaluedeliveredinthebusiness,withkeybusinessvaluedriversusedasabasisformeasuringperformanceandasignificantproportionofvariablepayinconditionalshares.

thisreportsetsoutthepolicyanddisclosuresondirectors’remunerationasrequiredbythelargeandMedium-sizedCompaniesandGroups(accountsandreports)regulations2008issuedundertheCompaniesact2006(the‘act’).inaccordancewiththeact,aresolutiontoapprovethisreportwillbeproposedattheforthcomingannualGeneralMeetingoftheCompany.thevotewillhaveadvisorystatusinrespectoftheremunerationpolicyandoverallremunerationpackagesandwillnotbespecifictoindividuallevelsofremuneration.theChairmanoftheremunerationCommitteewillbeavailableattheannualGeneralMeetingtoanswerquestionsaboutdirectors’remuneration.

thesectionsofthisreportdealingwithdirectors’emolumentspaid,pensionsandshareoptionsandincentiveshavebeenaudited.theremainingsectionsarenotsubjecttoaudit.

theremunerationCommitteetheCommitteedeterminestheremunerationofexecutivedirectorsandseniorexecutives,andthetermsoftheservicecontractsandallothertermsandconditionsofemploymentoftheexecutivedirectors.

theCommittee’sfulltermsofreferenceareavailableontheGroup’swebsite.themembersoftheremunerationCommitteeduring2010werej.vogelsang(Chairman),j.a.biles,a.M.thomsonanddrK.rajagopal.duringtheyear,theCommitteehastakenadvicefromernst&youngllptoprovideindependentadviceonremuneration.inaddition,theCompanyreceivedactuarialandotherpensionsadvicefromdeloittellpinrelationtothemanagementofriskarisingfromtheuKfinalsalarypensionscheme.

noneoftheCommitteemembershasanypersonalfinancialinterest(otherthanasashareholder),conflictofinterest,cross-directorshipsorday-to-dayinvolvementintherunningofthebusiness.

remunerationpoliCytheCommitteeaimstoprovidearemunerationpolicyconsistentwiththeGroup’soverallbusinessstrategyandtherebyattractandretainhighcalibreexecutives,alignexecutives’rewardswiththecreationofshareholdervalueandmotivateexecutivestoachieveandmaintainchallenginglevelsofcompanyandindividualperformance.Marketratesaredeterminedbyreferencetoothercompaniesofsimilarsize,activitiesandcomplexity.atthesametime,policyinthisareaissensitivetotheremunerationstructurewithintheGroup.

theCommitteekeepsboththefixedandvariableelementsofeachexecutivedirector’sandseniorexecutive’soverallpackageunderreview.inrecentyears,theCommitteehasprogressivelyincreasedtheproportionofvariableasopposedtofixedelementofpay,sothatcurrentlythetotalpotentialfromvariableperformancerelatedpayisnowsubstantiallyinexcessofbasicpay.

theCommitteealsoconsidersthetargetssetforthevariableelementsofexecutivedirectors’andseniorexecutives’remunerationwhichatalltimesaimtoencourageappropriatebehavioursanddeliverexceptionalandsustainablefinancialperformancemeasuredagainsttheGroup’sstrategicplans.

duringtheyeartheCommitteemetseventimestoconsideramongstothermatters:

theannualbonusandpaymentsforthefinancialyearended31december2009;

theannualbonusstructureandperformancetargetsforthefinancialyearended31december2010;

basicsalariespayabletoeachoftheexecutivedirectorstoensuretheyremainbothcompetitiveandalignedwithremunerationpolicy;

theconditionalawardsmadeunderthebodycoteincentiveplanand,followingshareholderapprovalatthe2010aGMofchangestothebodycoteshareMatchplan,thefirstroundofawardsunderthenewbodycoteCo-investmentplan;

thedisclosurepolicyinrelationtoperformancetargetsattachingtoawardsmadeunderbothitsshortandlongtermincentiveplansascomparedtoitspeersandgeneralmarketpractice;and

thecompany’sremunerationpolicyinlightoftherevisedrecommendationsintheuKCorporateGovernanceCode(formerlytheCombinedCode)andtherevisedabiguidelinesonexecutiveremunerationpublishedindecember2009.

fiXeDelementsofpaythefixedelementsofremunerationaresalaries,pensionsandotherbenefits.

BasicsalaryaspartoftheCommittee’sannualreviewprocessthebasicsalariesforeachexecutivedirectorandtheseniorexecutiveswerereviewedbytheCommitteeduringtheyear.thereviewtookintoaccounttheresponsibilitiesandperformanceoftheindividual,currentmarketpracticeandpayinsimilaruKengineeringbusinesses,companieswhooperateinthesamesectorasbodycoteandcompaniesofacomparablesizeandscaleofoperations.theCommitteewasalsomindfulofpaylevelsamongsttheemployeepopulation.

pensiontheCommitteereviewsthepensionarrangementsfortheexecutivedirectorstoensurethatthebenefitsprovidedareconsistentwiththoseprovidedbyothersimilarcompanies.

MrHarrisisamemberoftheGroup’sdefinedcontributionarrangementandreceivescontributionsfromtheGroupatarateof22%ofbasicsalary.inaddition,intheeventofdeath,adeathinservicebenefitofeighttimesbasicsalarywillbecomepayable.

thepensionforMrlandlessisprovidedpartlyundertheGroup’suKcontributorydefinedbenefitpensionscheme,whichhasanormalretirementageof65andwhichisclosedtonewmemberswithincreasesinpensionablesalarycappedat3%perannum,andpartlythroughadefinedcontributionarrangement.theGroup’scontributionstoMrlandless’definedcontributionarrangementare16%ofbasicsalaryabovethedefinedbenefitschemecap.

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40 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

boardreportonreMunerationContinued

thedefinedbenefitschemealsoprovideslumpsumdeath-in-servicebenefitsandpensionbenefitsbasedonfinalpensionablesalary.

ananalysisoftheaccruedpensionentitlementsforMrlandlessunderthedefinedbenefitpensionschemeduring2010isgivenonpage42.

otherfixedelementstheCompanyprovidesotherbenefitsinlinewithmarketpractices.theseincludetheprovisionofacompanycar(oranallowanceinlieu),privatemedicalinsurancefortheexecutivedirectorsandtheirfamilies,andlong-termdisabilityinsurance.

variaBleelementsofpaytherearethreevariableelementsofpay.

annualBonusestheCommitteeprovidedexecutivedirectorsandotherseniorexecutiveswiththeopportunitytoreceiveanannualbonusin2010ofupto100%ofbasicsalary,subjecttomeetingtargetsbaseduponGroup,individualperformanceandtheachievementofpersonalobjectives.Forthoseseniorexecutiveswithdivisionalresponsibilities,partoftheperformance-relatedbonusisalsobasedontheirrelevantsphereofresponsibility.theCommitteeadoptaweightedbasketofmeasuresapproachtotargetsettingforannualbonusesthatincludesarangeofkeyfinancialandindividualperformancemetrics.theCommitteeconsiderthisapproachthemostappropriateinordertoensurebehavioursareappropriatelybalanced.

themeasuresusedforannualbonuspaymentsinrespectof2010,themaximumpotentialandthelevelofperformanceachievedaresetoutasfollows:

Measure Maximum achievement

GroupManagementoperatingprofit 50% 50%GroupCashManagement 30% 30%

Finally,upto20%oftheannualbonuswassubjecttoindividualperformanceobjectives.severalperformanceobjectivesaresetforexecutivedirectorsandallseniorexecutivesandthesearedesignedtoachievedeliveryofkeyfinancialandorstrategicobjectivesfortheGroup.

inadditiontothemeasuressetoutabove,theCommitteealsohasdiscretiontoreducetheawardsotherwiseearnedbyupto10%totakeintoaccountthesafetyperformanceoftheGroup.

asaresult,thebonuspayablewas98%ofbasicsalaryforboththeChiefexecutiveandtheFinancedirectorinrespectofperformancein2010.

For2011theCommitteehasdeterminedthatthebonusopportunityforexecutivedirectorsandseniorexecutiveswillagainbecontingentonmeetingtargetsrelatingtosafety,operatingprofit,cashmanagementandpersonalobjectives.nobonuswillbepaidforthecashmanagementelementunlessthelevelofoperatingprofitachievedisatleast95%oftarget.

shareawardsbodycoteincentiveplan(bip)theCompanyoperatesthebipunderwhichexecutivedirectorsandseniorexecutivesarerewardedforthedeliveryoftheCompany’sstrategicplan.Finalawardsarebasedupontwoperformancemeasures,overathreeyearperiod:

50%oftheawardissubjecttoareturnoncapitalemployed(roCe)performancecondition;and

50%oftheawardissubjecttoanearningspershare(eps)performancecondition.

Forbipconditionalawardsmadein2009,theCommitteedeterminedthattheentrythresholdtargetsrequireroCeequalto10%andepsequalto16pencefortheperformanceperiodending31december2011.Forbipconditionalawardsmadein2010,theentrythresholdtargetsrequireroCeandepsof11.1%and19.8pencerespectivelyfortheperformanceperiodending31december2012.

intheeventthattheentrythresholdtargetforbothepsandroCearenotachievednoneoftheconditionalawardswillvest.regardlessofroCeperformance,shouldepsattheendoftheperformanceperiodbebelow16penceforawardsmadein2009and2010thennoawardshallvest.

theCommitteeintendstousetheroCeandepsmeasuresincombinationforbipawardsmadein2011.

detailsoftheawardsmadeunderthebipareprovidedonpage43.

Followingcompletionoftheperformanceperiodon31december2010,theremunerationCommitteehasdeterminedthatnoneofthebipawardsmadein2008shallvest(2007:nil).

DeferredshareawardsbodycoteCo-investmentplan(Cip)asnotedabove,certainchangesmadetothebodycoteshareMatchplan(bsMp)wereapprovedbyshareholders,nowrenamedasthebodycoteCo-investmentplan.theCipcontinuestoprovidealinkbetweentheCompany’sshortandlong-termincentivearrangementsandthekeychangeswere:

executivesareabletoinvestinsharesuptoavalueequivalentto40%ofnetbasicsalaryregardlessofwhetheracashbonushasbeenpaid;and

theperformancecriterionforawardsisanabsolutetotalshareholderreturn(tsr)target.

theCipwillcontinuetoprovidethegrantofawardsofmatchingsharestoparticipantsonanannualbasisinamaximumratioof1:1tothegrossinvestmentmadeindeferredshares.deferredsharesmustbeheldforthreeyearsandthethresholdtargetforvestingofthematchingsharesawardedin2010and2011istsrgrowthofnotlessthan4%perannumcompoundinexcessofgrowthintheConsumerpricesindex(Cpi).10%perannumcompoundgrowthinexcessofgrowthintheCpiwillberequiredforfullvesting.

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 41

detailsoftheawardsundertheCiptogetherwithpreviousawardsunderthebsMpandthejoiningawardmadetoMrHarrisinoctober2008arenotedonpage43.

Followingcompletionoftheperformanceperiodon31december2010,theremunerationCommitteehasdeterminedthatnoneofthesharematchawardsmadein2008underthebsMpshallvest(2007:nil).

totalshareholDerreturn(tsr)thegraphonpage43illustratestheCompany’stsrperformancesince2005relativetotheFtseallshareindustrialindexofwhichtheCompanyisacomponentpart.thissectorisconsideredthemostappropriatecomparatorgroupoverthefive-yearperiodtodecember2010.inlinewithmarketpracticethecalculationfortsrassumesreinvestmentofdividendsandisbasedondataprovidedbydatastream.

serviCeContraCtsitistheCompany’spolicythatexecutivedirectorshaveservicecontractswithaone-yearnoticeperiod.alltheexecutivedirectorshaveserviceagreementswhichareterminablebyoneyear’snoticebytheemployeratanytime,andbypaymentofoneyear’sremunerationinlieuofnoticebytheemployer,andbyoneyear’sremunerationintheeventofachangeincontroloftheCompany(saveforMrHarriswherethechangeofcontrolprovisiondoesnotapply).legallyappropriatefactorswouldbetakenintoaccounttomitigateanycompensationpayment,coveringbasicsalary,annualincentivesandbenefits,whichmayariseontheterminationofemploymentofanyexecutivedirector,otherthanpaymentsmadeonachangeincontrolorforpaymentsinlieuofnotice.MrHarris’serviceagreementisdated6october2008andMrlandless’contractisdated26september2001.

eXeCutiveDireCtors’shareholDingretentionpoliCyin2005theCommitteeintroducedashareholdingretentionpolicyunderwhichexecutivedirectorsandotherseniorexecutivesareexpected,withinfiveyearsofthatdateorcommencementofemploymentiflater,tobuildupashareholdingintheCompany.inrespectofexecutivedirectorstheexpectationistoholdatleast100%ofbasicsalary.asat31december2010,theCommitteeissatisfiedthattheexecutivedirectorshavefulfilledthisrequirement.

non-eXeCutiveDireCtorstheremunerationofnon-executivedirectorsisdeterminedbytheChairmanandtheexecutivedirectors.remunerationfortheChairmanisdeterminedbythewholeboard(excludingtheChairman).remunerationfortheChairmanandnon-executivedirectorstakesintoaccountthetimecommitmentsanddutiesandresponsibilitiesinvolved.theChairmanandeachnon-executivedirectorholdlettersofappointmentfortermsofthreeyears(or41monthsinrespectoftheChairman).

eachisterminableundertheCompany’sarticlesofassociation,theact,bythedirector’sresignationorotherwiseonsixmonths’notice(twelvemonthsinthecaseoftheChairman)ifterminationoccursbeforeexpiryoftheterm.

todeterminethefeesitpaystonon-executivedirectors,theboardtakesintoaccounttheneedtoattractindividualsofappropriatecalibreandexpertise,thefeespaidtonon-executivedirectorsbyothercompaniesofasimilarsizeandscaleofoperationsandthetimecommitmentattachedtoeachappointment.theboardkeepsfeesunderreview.theChairmanandnon-executivedirectorsarenotentitledtoanypensionorotheremploymentbenefitsortoparticipateinanyincentivescheme.

approvedbytheboard:

J.vogelsangChairmanoftheremunerationCommittee24February2011

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42 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

boardreportonreMunerationContinued

emolumentsDuringtheyear–auDiteD

Basicsalary andfees Benefits

annual Bonus

total 2010

total 2009

£000 £000 £000 £000 £000executiveDirectorss.C.Harris 400 26 392 *818 443d.F.landless 268 27 262 557 308

668 53 654 1,375 751

non-executiveDirectorsa.M.thomson 130 – – 130 130j.vogelsang 46 – – 46 46j.a.biles 47 – – 47 47K.rajagopal 40 – – 40 40

931 53 654 1,638 1,014

*s.C.Harriswaivedhisrighttotheperformance-relatedbonuspriortoitsdetermination.theamountof£818,000shownasemolumentsfors.C.Harrisincludesanamountof£392,000whichhasbeenappointedtoanemployeebenefittrust.

DireCtors’interests–auDiteDthebeneficialinterestofthedirectorsandtheirfamiliesintheordinarysharesoftheCompanyaredetailedbelow.

ordinaryshareholdings

31December2010 numberof ordinaryshares

31December2009 numberof ordinaryshares

executiveDirectorss.C.Harris 138,690 98,048d.F.landless 134,948 156,024

non-executiveDirectorsa.M.thomson 41,841 41,841j.vogelsang – –j.a.biles 23,157 23,157K.rajagopal 17,368 17,368

noneofthedirectorshasabeneficialinterestinthesharesofanyotherGroupCompany,ornon-beneficialinterestintheCompanyoranyotherGroupCompany.

DireCtors’pensions–auDiteD*

Director

accruedannual

pensionat01/01/10

transfervalueat

01/01/10

realincrease

inaccruedannual

pension inflation

increaseinaccrued

annualpension

transfervalue

ofrealincrease

inaccruedannual

pension(less

members’Contributions)

realincrease

intransfervaluelessmembers’

Contributionsmember’s

Contributions

accruedannual

pensionat31/12/10

**transfervalueat31/12/10

£000 £000 £000 £000 £000 £000 £000 £000 £000 £000

d.F.landless 37 561 2.5 1.7 4.2 19 82 17 41 686

*dereksleightretiredasadirectoron27april2009butcontinuedasanemployeeuntilhisretirementon6april2010.Hestartedtodrawhispensionwitheffectfrom1May2010.on1april2010hispensionwasincreasedbywayofaCompanyaugmentationof£175,000whichwascontributedtothedefinedbenefitschemeinlieuofpaythathewouldhaveearnedduringaperiodofnotice.

**thetrusteeofthebodycoteuKpensionschemehasnotreviewedthebasisonwhichtransfervaluesarecalculatedinordertoallowforthechangeofstatutoryindexationfromrpitoCpi.therefore,theabovefigurescontinuetoassumerpiincreasesindefermentandpayment.However,whenthetrusteereviewstransfervalueassumptions,thisislikelytoleadtoachangeinactuarialassumptionsthatwouldreducethetransfervalueentitlementattheyearendto£627,000.

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 43

DireCtors’interestsunDertheBoDyCoteinCentiveplan–auDiteD

interestsasat1January2010

awardedinyear

lapsedinyear

interestsasat31December2010

marketpriceatawarddate vestingdate

s.C.Harris 514,138–

–391,345

––

514,138391,345

£1.56£1.79

February2012February2013

d.F.landless

76,784132,275344,215

–––

262,004

(76,784)–––

–132,275344,215262,004

£2.94£1.89£1.56£1.79

May2010May2011

February2012February2013

DireCtors’interestsunDertheBoDyCoteCo-investmentplan(formerlyBoDyCotesharematChplan)–auDiteD

interestsasat1January2010

*awarded/(lapsed)inyear

asat31December2010

marketpriceatawarddate

earliestvestingdate

s.C.Harris

**145,47423,437

––

82,942

145,47423,43782,942

£1.40£1.87£1.93

March2012March2012

May2013

d.F.landless

3,3808,2524,480

(3,380)––

8,010

–8,2524,4808,010

£2.93£1.79£1.87£1.89

May2010March2011March2012

May2013

*sharesacquiredviainvestmentofthenetoftaxannualbonusundertheCo-investmentplanareeligibleforamatchingawardbyreferencetothegrossamountinvested.

**thisawardrelatestothejoiningawardmadeinnovember2008followings.C.Harris’appointmentasChiefexecutivedesignate.

totalshareholDerreturn(tsr)

Source: Datastream

0

50

100

150

200

250

31-Dec-05 31-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 31-Dec-10

This graph looks at the value, by 31/12/10, of £100 invested in Bodycote plc on 31/12/05 compared with thatof £100 invested in the FTSE All Share Industrials. The points plotted are the values at financial year-ends.

Value (£)

FTSE All Share Industrials Bodycote plc

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44 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

direCtors’responsibilitiesstateMent

responsiBilityofDireCtorsforthepreparationoftheannualreportanDfinanCialstatementsthedirectorsareresponsibleforpreparingtheannualreport,theboardreportonremunerationandthefinancialstatementsinaccordancewithapplicablelawandregulations.

Companylawrequiresthedirectorstopreparefinancialstatementsforeachfinancialyear.underthatlawthedirectorsarerequiredtopreparethegroupfinancialstatementsinaccordancewithinternationalFinancialreportingstandards(iFrss)asadoptedbytheeuropeanunionandarticle4oftheiasregulationandhaveelectedtopreparetheparentcompanyfinancialstatementsinaccordancewithunitedKingdomGenerallyacceptedaccountingpractice(unitedKingdomaccountingstandardsandapplicablelaw).undercompanylawthedirectorsmustnotapprovetheaccountsunlesstheyaresatisfiedthattheygiveatrueandfairviewofthestateofaffairsoftheCompanyandoftheprofitorlossoftheCompanyforthatperiod.

inpreparingtheparentcompanyfinancialstatements,thedirectorsarerequiredto:

selectsuitableaccountingpoliciesandthenapplythemconsistently;

makejudgementsandaccountingestimatesthatarereasonableandprudent;

statewhetherapplicableuKaccountingstandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancialstatements;and

preparethefinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethattheCompanywillcontinueinbusiness.

inpreparingtheGroupfinancialstatements,internationalaccountingstandard1requiresthatdirectors:

properlyselectandapplyaccountingpolicies;

presentinformation,includingaccountingpolicies,inamannerthatprovidesrelevant,reliable,comparableandunderstandableinformation;

provideadditionaldisclosureswhencompliancewiththespecificrequirementsiniFrssareinsufficienttoenableuserstounderstandtheimpactofparticulartransactions,othereventsandconditionsontheentity’sfinancialpositionandfinancialperformance;and

makeanassessmentoftheCompany’sabilitytocontinueasagoingconcern.

thedirectorsareresponsibleforkeepingadequateaccountingrecordsthataresufficienttoshowandexplaintheCompany’stransactionsanddisclosewithreasonableaccuracyatanytimethefinancialpositionoftheCompanyandenablethemtoensurethatthefinancialstatementscomplywiththeCompaniesact2006.theyarealsoresponsibleforsafeguardingtheassetsoftheCompanyandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.

thedirectorsareresponsibleforthemaintenanceandintegrityofthecorporateandfinancialinformationincludedontheCompany’swebsite.legislationintheunitedKingdomgoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislationinotherjurisdictions.

responsiBilitystatementoftheDireCtorsinrespeCtoftheannualreportanDthefinanCialstatementsweconfirmthattothebestofourknowledge:

thefinancialstatements,preparedinaccordancewiththerelevantfinancialreportingframework,giveatrueandfairviewoftheassets,liabilities,financialpositionandprofitorlossoftheCompanyandtheundertakingsincludedintheconsolidationtakenasawhole;and

theChairman’sstatement,theChiefexecutive’sreport,theFinancedirector’sreport,alltheinformationcontainedonpages8to43togethercomprisethedirectors’reportfortheyearended31december2010.itincludesafairreviewofthedevelopmentandperformanceofthebusinessandthepositionoftheCompanyandtheundertakingsincludedintheconsolidationtakenasawhole,togetherwithadescriptionoftheprincipalrisksanduncertaintiesthattheyface.

thisresponsibilitystatementwasapprovedbytheboardofdirectorson24February2011andissignedonitsbehalfby:

s.C.harrisChiefexecutive24February2011

D.f.landlessFinancedirector24February2011

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 45

boardoFdireCtorsandadvisers

BoarDofDireCtorsexecutiveDirectorss.C.harris-Chiefexecutiveappointedadirectoron1november2008andChiefexecutivefrom12january2009.non-executivedirectorofbrixtonplcfrom2006to2009.executivedirectoratspectrisplcfrom2003to2008andatpowellduffrynplcfrom1995to2003.priortothisheheldseveralseniorpositionsinapvinc.intheunitedstatesfrom1984to1995.MemberofthenominationCommittee.aCharteredengineer.

D.f.landless-financeDirectorappointedFinancedirectorandjoinedtheGroupin1999.From1989to1997servedasFinancedirectorinuKandusdivisionsofCourtauldsplc.FinancedirectorofCourtauldsCoatings(Holdings)limitedfrom1997to1999.aCharteredManagementaccountant.

non-executiveDirectorsa.m.thomson-Chairmanappointedadirectorin2007.ChairmanofHaysplC(2010)andHamsard3054ltd(polypipe),andseniorindependentnon-executivedirectorofjohnsonMattheyplcandnon-executivedirectorofalstomsa.presidentoftheinstituteofCharteredaccountantsofscotland.servedasFinancedirectorofsmithsGroupplcfrom1995to2006andofrugbyGroupplcfrom1992to1995.MemberoftheremunerationCommitteeandChairmanofthenominationCommittee.aCharteredaccountant.

J.vogelsang-seniorindependentnon-executiveDirector–netherlandsappointedadirectorin2003.non-executivedirectorofMetexsa(2007).presidentoftechnologyatbasellpolyolefins(2001to2002),presidentofMontellpolyolefinseurope(1999to2001),vice-presidentshellChemicaleuropeandafrica(1994to1999)andChiefexecutiveoftheshellCompaniesinsweden(1992to1994).ChairmanoftheremunerationCommitteeandmemberoftheauditandnominationCommittees.aChemicalengineer.

J.a.Bilesappointedadirectorin2007.non-executivedirectorofCharterinternationalplc(2005),HermesFundManagerslimited(2005),armorGroupinternationalplc(2004to2008),andofnorthernirelandelectricityplc(previouslyviridianGroupplc)(2005to2011).FinancedirectorofFKiplcfrom1998to2004andGroupFinancedirectorofChubbsecurityplC(1991to1997).ChairmanoftheauditCommitteeandmemberoftheremunerationandnominationCommittees.aCharteredaccountant.

k.rajagopalappointedadirectoron24september2008.non-executivedirectorofw.s.atkinsplc(2008),spirax-sarcoengineeringplc(2009)ande2vtechnologiesplC(2010)andmemberofuKCouncilforscienceandtechnology.executivedirectorofboCGroupplc(2000to2006)andChiefexecutiveofboCedwards(1998to2006)andnon-executivedirectorofFosecoplc(2005to2008).Memberoftheaudit,remunerationandnominationCommittees.aMechanicalengineer.

seCretaryanDregistereDoffiCeJ.r.grime–solicitorspringwoodCourtspringwoodClosetytheringtonbusinessparkMacclesfieldCheshiresK102xF

tel:+44(0)1625505300Fax:+44(0)1625505313registerednumber519057englandandwales

aDvisersauditorsdeloittellp

principalBankersHsbCbankplc,barclaysbankplC,theroyalbankofscotlandplc,svenskaHandelsbankenab,lloydstsbbankplc,uniCreditbankaG,inGbanknv,scotiabankeuropeplcandwellsFargobank,na

solicitorsevershedsllpandHerbertsmithllp

financialadviserslazard&Co.limited

BrokersCreditsuissesecurities(europe)limitedandevolutionsecuritieslimited

registrarsCapitaregistrarslimited,Huddersfield

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46 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

independentauditors’reporttotHeMeMbersoFbodyCoteplC

wehaveauditedthegroupfinancialstatementsofbodycoteplcfortheyearended31december2010,whichcomprisetheConsolidatedincomestatement,theConsolidatedbalancesheet,theConsolidatedCashFlowstatement,theConsolidatedstatementofComprehensiveincome,theConsolidatedstatementofChangesinequity,thestatementofGroupaccountingpoliciesandtherelatednotes1to30.thefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandinternationalFinancialreportingstandards(iFrss)asadoptedbytheeuropeanunion.wehavealsoauditedtheinformationintheboardreportonremunerationthatisdescribedashavingbeenaudited.

thisreportismadesolelytothecompany’smembers,asabody,inaccordancewithChapter3ofpart16oftheCompaniesact2006.ourauditworkhasbeenundertakensothatwemightstatetothecompany’smembersthosematterswearerequiredtostatetotheminanauditors’reportandfornootherpurpose.tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthanthecompanyandthecompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.

respeCtiveresponsiBilitiesofDireCtorsanDauDitorsasexplainedmorefullyinthedirectors’responsibilitiesstatement,thedirectorsareresponsibleforthepreparationofthegroupfinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview.ourresponsibilityistoauditandexpressanopiniononthegroupfinancialstatementsinaccordancewithapplicablelawandinternationalstandardsonauditing(uKandireland).thosestandardsrequireustocomplywiththeauditingpracticesboard’s(apb’s)ethicalstandardsforauditors.

sCopeoftheauDitofthefinanCialstatementsanauditinvolvesobtainingevidenceabouttheamountsanddisclosuresinthefinancialstatementssufficienttogivereasonableassurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorerror.thisincludesanassessmentof:whethertheaccountingpoliciesareappropriatetothegroup’scircumstancesandhavebeenconsistentlyappliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebythedirectors;andtheoverallpresentationofthefinancialstatements.

opiniononfinanCialstatementsinouropinionthegroupfinancialstatements:

giveatrueandfairviewofthestateofthegroup’saffairsasat31december2010andofitsprofitfortheyearthenended;

havebeenproperlypreparedinaccordancewithiFrssasadoptedbytheeuropeanunion;and

havebeenpreparedinaccordancewiththerequirementsoftheCompaniesact2006andarticle4oftheiasregulation.

opiniononothermatterpresCriBeDBytheCompaniesaCt2006inouropinion:

thepartoftheboardreportonremunerationtobeauditedhasbeenproperlypreparedinaccordancewiththeCompaniesact2006;and

theinformationgiveninthedirectors’reportforthefinancialyearforwhichthefinancialstatementsarepreparedisconsistentwiththegroupfinancialstatements.

mattersonwhiChwearerequireDtoreportByeXCeptionwehavenothingtoreportinrespectofthefollowing:

undertheCompaniesact2006wearerequiredtoreporttoyouif,inouropinion:

certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or

wehavenotreceivedalltheinformationandexplanationswerequireforouraudit.

underthelistingruleswearerequiredtoreview:

thedirectors’statementcontainedwithintheGroupreviewinrelationtogoingconcern;

thepartoftheCorporateGovernancestatementrelatingtothecompany’scompliancewiththenineprovisionsofthejune2008CombinedCodespecifiedforourreview;and

certainelementsofthereporttoshareholdersbytheboardondirectorsremuneration.

othermatterwehavereportedseparatelyontheparentcompanyfinancialstatementsofbodycoteplcfortheyearended31december2010.

nicolamitchell(seniorstatutoryauditor)forandonbehalfofdeloittellpCharteredaccountantsandstatutoryauditorsManchester,uK24February2011

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businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 47

ConsolidatedinCoMestateMentFortHeyearended31deCeMber2010

2010 2009 note £m £m

revenue-continuingoperations 499.8 435.4 1

operatingprofit/(loss)-continuingoperations 51.2 (50.2) 3

operatingprofitpriortoexceptionalitems 52.1 8.0amortisationofacquiredintangiblefixedassets (0.9) (1.3)impairmentcharge .– (31.5)Majorfacilityclosurecosts .– (25.4)

operatingprofit/(loss)-continuingoperations 51.2 (50.2)

investmentrevenue 0.3 1.5 5Financecosts (6.3) (5.8) 6

profit/(loss)beforetaxation-continuingoperations 45.2 (54.5)

taxation (11.7) 3.4 7

profit/(loss)fortheyear-continuingoperations 33.5 (51.1)

Discontinuedoperationslossfortheyear-discontinuedoperations (5.8) .– 8

profit/(loss)fortheyear 27.7 (51.1)

attributableto:equityholdersoftheparent 27.6 (50.1)non-controllinginterests 0.1 (1.0)

27.7 (51.1)

earnings/(loss)pershare 10 pence pence

Fromcontinuingoperations:basic 18.0 (27.0)diluted 18.0 (27.0)

Fromcontinuinganddiscontinuedoperations:basic 14.9 (27.0)diluted 14.9 (27.0)

ConsolidatedstateMentoFCoMpreHensiveinCoMeFortHeyearended31deCeMber2010

2010 2009 £m £m

profit/(loss)fortheyear 27.7 (51.1)

reductionofrevaluationsurplus (0.1) .–exchangegains/(losses)ontranslationofforeignoperations 9.7 (4.8)actuarialgains/(losses)ondefinedbenefitpensionschemes 3.7 (3.3)taxonitemstakendirectlytoequity (0.9) 0.9

othercomprehensiveincome/(expense)fortheyear 12.4 (7.2)

totalcomprehensiveincome/(expense)fortheyear 40.1 (58.3)

attributableto:equityholdersoftheparent 40.0 (57.3)non-controllinginterests 0.1 (1.0)

40.1 (58.3)

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48 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

ConsolidatedbalanCesHeetat31deCeMber2010

2010 2009 note £m £m

non-currentassetsGoodwill 107.7 107.9 11otherintangibleassets 10.4 10.9 12property,plantandequipment 458.0 461.8 13otherinvestments 0.5 0.5 14Financeleasereceivables .– 0.5 16deferredtaxassets 48.3 56.9 21derivativefinancialinstruments .– 0.1 20tradeandotherreceivables 2.6 3.0 17

627.5 641.6

Currentassetsinventories 14.4 11.6 15Financeleasereceivables 0.4 0.4 16derivativefinancialinstruments .– 0.6 20tradeandotherreceivables 99.2 91.1 17Cashandbankbalances 23.5 19.6 17assetsheldforsale 6.2 6.2 18

143.7 129.5

totalassets 771.2 771.1

Currentliabilitiestradeandotherpayables 120.4 93.2 23dividendspayable .– 5.5 9Currenttaxliabilities 9.6 11.4obligationsunderfinanceleases 0.4 0.7 22borrowings 8.9 6.0 19derivativefinancialinstruments .– 4.0 20provisions 14.0 21.3 24

153.3 142.1

netcurrentliabilities (9.6) (12.6)

non-currentliabilitiesborrowings 64.8 96.8 19retirementbenefitobligations 11.6 15.0 30deferredtaxliabilities 73.1 73.4 21obligationsunderfinanceleases 0.7 1.6 22derivativefinancialinstruments .– 0.4 20provisions 12.8 11.7 24otherpayables 4.1 7.5 23

167.1 206.4

totalliabilities 320.4 348.5

netassets 450.8 422.6

equitysharecapital 32.8 32.5 25sharepremiumaccount 176.3 176.0ownshares (8.0) (7.3)otherreserves 138.1 134.1Hedgingandtranslationreserves 36.0 26.3retainedearnings 73.9 58.7

equityattributabletoequityholdersoftheparent 449.1 420.3non-controllinginterests 1.7 2.3

totalequity 450.8 422.6

thefinancialstatementsofbodycoteplc,registerednumber519057,wereapprovedbytheboardofdirectorsandauthorisedforissueon24February2011.theyweresignedonitsbehalfby:s.C.Harris}

directorsd.F.landless

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ConsolidatedCasHFlowstateMentFortHeyearended31deCeMber2010

2010 2009 note £m £m

netcashfromoperatingactivities 95.6 11.0 26

investingactivitiespurchasesofproperty,plantandequipment (35.2) (35.3)proceedsondisposalofproperty,plantandequipmentandintangibleassets 1.4 4.3purchasesofintangiblefixedassets (2.0) (1.2)purchaseofnon-controllinginterest (0.8) (0.5)disposalofsubsidiaries/associates .– 6.9lumpsumcontributiontopensionscheme .– (1.5)

netcashusedininvestingactivities (36.6) (27.3)

financingactivitiesinterestreceived 0.3 2.1interestpaid (5.8) (6.5)dividendspaid (20.9) (20.0)dividendspaidtoanon-controllingshareholder (0.1) (0.1)repaymentsofbankloans (34.0) (231.9)paymentsofobligationsunderfinanceleases (1.3) (1.5)newbankloansraised 3.2 41.1newobligationsunderfinanceleases 0.2 0.2proceedsonissueofordinarysharecapital 0.6 0.4ownsharespurchased/settlementofshareoptions (0.7) 0.9

netcashusedinfinancingactivities (58.5) (215.3)

netincrease/(decrease)incashandcashequivalents 0.5 (231.6)

Cashandcashequivalentsatbeginningofyear 16.3 249.5effectofforeignexchangeratechanges 0.8 (1.6)

Cashandcashequivalentsatendofyear 17.6 16.3

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50 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

ConsolidatedstateMentoFCHanGesinequityFortHeyearended31deCeMber2010

share capital

share premium account

own shares

other reserves

hedging andtranslation reserves

retained earnings

equityattributable toequity holdersof theparent

non-controlling interests

total equity

£m £m £m £m £m £m £m £m £m

1january2009 32.4 175.7 (10.9) 137.3 31.1 126.4 492.0 4.9 496.9

netlossfortheyear .– .– .– .– .– (50.1) (50.1) (1.0) (51.1)exchangedifferencesontranslationofoverseasoperations .– .– .– .– (63.1) .– (63.1) (0.2) (63.3)Movementonhedgesofnetinvestments .– .– .– .– 58.3 .– 58.3 .– 58.3actuariallossesondefinedbenefitpensionschemesnetofdeferredtax .– .– .– .– .– (2.4) (2.4) .– (2.4)totalcomprehensiveexpensefortheyear .– .– .– .– (4.8) (52.5) (57.3) (1.2) (58.5)

issueofsharecapital 0.1 0.3 .– .– .– .– 0.4 .– 0.4returnofcapitaltoshareholdersandredemptionofbshares .– .– .– 0.7 .– (0.7) .– .– .–acquiredintheyear/settlementofshareoptions .– .– 0.9 .– .– .– 0.9 .– 0.9share-basedpayments .– .– 2.7 (3.9) .– 0.9 (0.3) .– (0.3)dividendspaid .– .– .– .– .– (15.4) (15.4) (0.1) (15.5)purchaseofnon-controllinginterest .– .– .– .– .– .– .– (1.3) (1.3)

31December2009 32.5 176.0 (7.3) 134.1 26.3 58.7 420.3 2.3 422.6

netprofitfortheyear .– .– .– .– .– 27.6 27.6 0.1 27.7exchangedifferencesontranslationofoverseasoperations .– .– .– .– 10.7 .– 10.7 .– 10.7Movementonhedgesofnetinvestments .– .– .– .– (1.0) .– (1.0) .– (1.0)reductionofrevaluationsurplus .– .– .– (0.1) .– .– (0.1) .– (0.1)actuarialgainsondefinedbenefitpensionschemesnetofdeferredtax .– .– .– .– .– 2.8 2.8 .– 2.8totalcomprehensiveincomefortheyear .– .– .– (0.1) 9.7 30.4 40.0 0.1 40.1

issueofsharecapital 0.3 0.3 .– .– .– .– 0.6 .– 0.6acquiredintheyear/settlementofshareoptions .– .– (0.7) .– .– .– (0.7) .– (0.7)share-basedpayments .– .– .– 4.1 .– 0.2 4.3 .– 4.3dividendspaid .– .– .– .– .– (15.4) (15.4) (0.1) (15.5)purchaseofnon-controllinginterest .– .– .– .– .– .– .– (0.6) (0.6)

31December2010 32.8 176.3 (8.0) 138.1 36.0 73.9 449.1 1.7 450.8

theremaining1.7millionbshareswereredeemedin2009.

includedinotherreservesisthecapitalredemptionreservearisingonredemptionoftheGroup’sbsharesof£129.4m(2009:£129.4m).

theownsharesreserverepresentsthecostofsharesinbodycoteplcpurchasedinthemarket.at31december20103,837,581(2009:2,100,427)ordinarysharesof173/11peachwereheldbythebodycoteinternationalemployeebenefittrusttosatisfyshare-basedpaymentsundertheGroup’sincentiveschemes(seenote28).

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GroupaCCountinGpoliCies

BasisofaCCountingthefinancialstatementsoftheGrouphavebeenpreparedinaccordancewithinternationalFinancialreportingstandards(iFrs).thefinancialstatementshavealsobeenpreparedinaccordancewithiFrsadoptedbytheeuropeanunionandthereforethegroupfinancialstatementscomplywitharticle4ofeuiasregulationasadoptedforuseintheeu.

theGrouphasadoptedstandardsandinterpretationsissuedbytheinternationalaccountingstandardsboard(iasb)andtheinternationalFinancialreportinginterpretationsCommitteeoftheiasb(iFriC).individualstandardsandinterpretationshavetobeadoptedbytheeuropeanCommission(eC)andtheprocessleadstoadelaybetweentheissueandadoptionofnewstandardsandinsomecasesamendmentbytheeC.

internationalFinancialreportingstandardsaresubjecttoongoingamendmentbytheiasbandsubsequentendorsementbytheeCandarethereforesubjecttochange.

thefinancialstatementshavebeenpreparedonthehistoricalcostbasis,withtheexceptionofaccountingforshare-basedpaymentsandcertainfinancialinstruments.theprincipalaccountingpoliciesadoptedaresetoutbelow.

aDoptionofnewanDreviseDstanDarDsthefollowingnewandrevisedstandardsandinterpretationshavebeenadoptedinthecurrentyear.theiradoptionhasnothadanysignificantimpactontheamountsreportedinthesefinancialstatementsbutmayimpacttheaccountingforfuturetransactionsandarrangements.

ifrs3(revisedJan2008)‘BusinessCombinations’,ias27(amended2008)‘Consolidatedandseparatefinancialstatements’andias28(amended2008)‘investmentsinassociates’thesestandardshaveintroducedanumberofchangesintheaccountingforbusinesscombinationswhenacquiringasubsidiaryoranassociate.iFrs3(2008)hasalsointroducedadditionaldisclosurerequirementsforacquisitions.

ifriC17‘Distributionsofnon-cashassetstoowners’theinterpretationprovidesguidanceonwhenanentityshouldrecogniseanon-cashdividendpayable,howtomeasurethedividendpayableandhowtoaccountforanydifferencebetweenthecarryingamountoftheassetsdistributedandthecarryingamountofthedividendpayablewhenthepayableissettled.

thefollowingamendmentsweremadeaspartofimprovementstoiFrss(2009):

amendmentstoifrs2‘share-basedpayment’iFrs2hasbeenamendedfollowingtheissueofiFrs3(2008),toconfirmthatthecontributionofabusinessontheformationofajointventureandcommoncontroltransactionsarenotwithinthescopeofiFrs2.inaddition,theamendmentstoiFrs2clarifytheaccountingforshare-basedpaymenttransactionsbetweengroupentities.

amendmentstoias17‘leases’ias17hasbeenamendedsuchthatitmaybepossibletoclassifyaleaseoflandasafinanceleaseifitmeetsthecriteriaforthatclassificationunderias17.

amendmentstoias39‘financialinstruments:recognitionandmeasurement’ias39hasbeenamendedtostatethatoptionscontractsbetweenanacquirerandasellingshareholdertobuyorsellanacquireethatwillresultinabusinesscombinationatafutureacquisitiondatearenotexcludedfromthescopeofthestandard.

goingConCernthedirectorshaveatthetimeofapprovingthefinancialstatementsareasonableexpectationthattheCompanyandtheGrouphaveadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.thustheycontinuetoadoptthegoingconcernbasisofaccountinginpreparingthefinancialstatements.FurtherdetailiscontainedintheFinancedirector’sreportonpage25.

BasisofConsoliDationtheconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheCompanyandentitiescontrolledbytheCompany(itssubsidiaries)madeupto31decembereachyear.ControlisachievedwheretheCompanyhasthepowertogovernthefinancialandoperatingpoliciesofaninvesteeentitysoastoobtainbenefitsfromitsactivitiesexcepttotheextentthattheminorityhasabindingobligationandisabletomakeanadditionalinvestmenttocoverthelosses.

onacquisition,theassetsandliabilitiesandcontingentliabilitiesofasubsidiaryaremeasuredattheirfairvaluesatthedateofacquisition.anyexcessofthecostofacquisitionoverthefairvaluesoftheidentifiablenetassetsacquiredisrecognisedasgoodwill.anydeficiencyofthecostofacquisitionbelowthefairvaluesoftheidentifiablenetassetsacquired(i.e.discountonacquisition)iscreditedtotheincomestatementintheperiodofacquisition.theinterestofminorityshareholdersisstatedattheminority’sproportionofthefairvaluesoftheassetsandliabilitiesrecognised.subsequently,anylossesapplicabletotheminorityinterestinexcessoftheminorityinterestareallocatedagainsttheinterestsoftheparent.

theresultsofsubsidiariesacquiredordisposedofduringtheyearareincludedintheconsolidatedincomestatementfromtheeffectivedateofacquisitionoruptotheeffectivedateofdisposal,asappropriate.wherenecessary,adjustmentsaremadetothefinancialstatementsofsubsidiariestobringtheaccountingpoliciesusedintolinewiththoseusedbytheGroup.

allintra-grouptransactions,balances,incomeandexpensesareeliminatedonconsolidation.

investmentsinassoCiatesanassociateisanentityoverwhichtheGroupisinapositiontoexercisesignificantinfluence,butnotcontrolorjointcontrol,throughparticipationinthefinancialandoperatingpolicydecisionsoftheinvestee.

theresultsandassetsandliabilitiesofassociatesareincorporatedinthesefinancialstatementsusingtheequitymethodofaccounting.investmentsinassociatesarecarriedinthebalancesheetatcostasadjustedbypost-acquisitionchangesintheGroup’sshareofthenetassetsoftheassociate,lessanyimpairmentinthevalueofindividualinvestments.lossesoftheassociatesinexcessoftheGroup’sinterestinthoseassociatesarenotrecognised.

anyexcessofthecostofacquisitionovertheGroup’sshareofthefairvaluesoftheidentifiableassets,liabilitiesandcontingentliabilitiesoftheassociateatthedateofacquisitionisrecognisedasgoodwill.thegoodwillisincludedwithinthecarryingamountoftheinvestment.anydeficiencyofthecostofacquisitionbelowtheGroup’sshareofthefairvaluesoftheidentifiableassets,liabilitiesandcontingentliabilitiesoftheassociateatthedateofacquisition(i.e.discountonacquisition)iscreditedinprofitandlossintheperiodofacquisition.

whereagroupcompanytransactswithanassociateoftheGroup,profitsandlossesareeliminatedtotheextentoftheGroup’sinterestintherelevantassociate.lossesmayprovideevidenceofanimpairmentoftheassettransferred,inwhichcaseappropriateprovisionismadeforimpairment.

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GroupaCCountinGpoliCiesContinued

non-CurrentassetshelDforsalenon-currentassets(anddisposalgroups)classifiedasheldforsalearemeasuredatthelowerofcarryingamountandfairvaluelesscoststosell.

non-currentassetsanddisposalgroupsareclassifiedasheldforsaleiftheircarryingamountwillberecoveredthroughasaletransactionratherthanthroughcontinuinguse.thisconditionisregardedasmetonlywhenthesaleishighlyprobableandtheasset(ordisposalgroup)isavailableforimmediatesaleinitspresentcondition.Managementmustbecommittedtothesalewhichshouldbeexpectedtoqualifyforrecognitionasacompletedsalewithinoneyearfromthedateofclassification.

gooDwillGoodwillarisinginabusinesscombinationisrecognisedasanassetatthedatethatcontrolisacquired(theacquisitiondate).GoodwillismeasuredastheexcessofthecostofacquisitionovertheGroup’sinterestinthenetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesofasubsidiaryorassociateatthedateofacquisition.ifafterrestatement,theGroup’sinterestinthenetfairvalueoftheacquiree’sidentifiableassets,liabilitiesandcontingentliabilitiesexceedsthecostofthebusinesscombination,theexcessisrecognisedimmediatelyinprofitorloss.

Goodwillisnotamortisedbutisreviewedforimpairmentatleastannually.Forthepurposeofimpairmenttesting,goodwillisallocatedtoeachoftheGroup’scash-generatingunitsexpectedtobenefitfromthesynergiesofthecombination.Cash-generatingunitstowhichgoodwillhasbeenallocatedaretestedforimpairmentbi-annually,ormorefrequentlywhenthereisanindicationthattheunitmaybeimpaired.iftherecoverableamountofthecash-generatingunitislessthanthecarryingamountoftheunit,theimpairmentlossisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthentoacquiredintangibles,followedbytheothertangibleassetsoftheunit.animpairmentlossrecognisedforgoodwillisnotreversedinasubsequentperiod.

ondisposalofasubsidiaryorassociate,theattributableamountofgoodwillisincludedinthedeterminationoftheprofitorlossondisposal.

GoodwillarisingonacquisitionsbeforethedateoftransitiontoiFrshasbeenretainedatthepreviousuKGaapamounts,subjecttobeingtestedforimpairmentatthatdate.GoodwillwrittenofftoreservesunderuKGaappriorto1998hasnotbeenreinstatedandisnotincludedindetermininganysubsequentprofitorlossondisposal.

revenuereCognitionrevenueismeasuredatthefairvalueoftheconsiderationreceivedorreceivableandrepresentsamountsreceivableforgoodsandservicesprovidedinthenormalcourseofbusiness,netofdiscounts,vatandothersales-relatedtaxes.revenueisrecognisedonthecompletionofservicesrendered.

interestincomeisaccruedonatimebasis,byreferencetotheprincipaloutstandingandattheeffectiveinterestrateapplicable,whichistheratethatexactlydiscountsestimatedfuturecashreceiptsthroughtheexpectedlifeofthefinancialassettothatasset’snetcarryingamount.

dividendincomefrominvestmentsisrecognisedwhentheshareholder’srightstoreceivepaymenthavebeenestablished.

thegroupaslesseeleasesareclassifiedasfinanceleaseswheneverthetermsoftheleasetransfersubstantiallyalltherisksandrewardsofownershiptothelessee.allotherleasesareclassifiedasoperatingleases.

assetsheldunderfinanceleasesarerecognisedasassetsoftheGroupattheirfairvalueor,iflower,atthepresentvalueoftheminimumleasepayments,eachdeterminedattheinceptionofthelease.thecorrespondingliabilitytothelessorisincludedinthebalancesheetasafinanceleaseobligation.leasepaymentsareapportionedbetweenfinancechargesandreductionoftheleaseobligationsoastoachieveaconstantrateofinterestontheremainingbalanceoftheliability.Financechargesarechargeddirectlyagainstincome.

rentalspayableunderoperatingleasesarechargedtoincomeonastraight-linebasisoverthetermoftherelevantlease.

benefitsreceivedandreceivableasanincentivetoenterintoanoperatingleasearealsospreadonastraight-linebasisovertheleaseterm.

thegroupaslessoramountsduefromlesseesunderfinanceleasesarerecordedasreceivablesattheamountoftheGroup’snetinvestmentintheleases.FinanceleaseincomeisallocatedtoaccountingperiodssoastoreflectaconstantperiodicrateofreturnontheGroup’snetinvestmentoutstandinginrespectoftheleases.

foreignCurrenCiestransactionsincurrenciesotherthanpoundssterlingarerecordedattheratesofexchangeprevailingonthedatesofthetransactions.ateachbalancesheetdate,monetaryassetsandliabilitiesthataredenominatedinforeigncurrenciesareretranslatedattheratesprevailingonthebalancesheetdate.non-monetaryitemsthataremeasuredintermsofhistoricalcostinaforeigncurrencyarenotretranslated.Gainsandlossesarisingonretranslationareincludedinnetprofitorlossfortheperiod.

exchangedifferencesarerecognisedinprofitorlossintheperiodinwhichtheyariseexceptfor:

exchangedifferencesontransactionsenteredintotohedgecertainforeigncurrencyrisks(seebelowunderfinancialinstruments/hedgeaccounting);and

exchangedifferencesonmonetaryitemsreceivablefromorpayabletoaforeignoperationforwhichsettlementisneitherplannednorlikelytooccur(thereforeformingpartofthenetinvestmentintheforeignoperation)whicharerecognisedinitiallyintheconsolidatedstatementofcomprehensiveincomeandreclassifiedfromequitytoprofitorlossondisposalorpartialdisposalofthenetinvestment.

onconsolidation,theassetsandliabilitiesoftheGroup’soverseasoperationsaretranslatedatexchangeratesprevailingonthebalancesheetdate.incomeandexpenseitemsaretranslatedattheaverageexchangeratesfortheperiodunlessexchangeratesfluctuatesignificantly.exchangedifferencesarising,ifany,areclassifiedasequityandtransferredtotheGroup’stranslationreserve.suchtranslationdifferencesarerecognisedasincomeorasexpensesintheperiodinwhichtheoperationisdisposedof.

Goodwillandfairvalueadjustmentsarisingontheacquisitionofaforeignentityaretreatedasassetsandliabilitiesoftheforeignentityandtranslatedattheclosingrate.theGrouphaselectedtotreatgoodwillandfairvalueadjustmentsarisingonacquisitionsbeforethedateoftransitiontoiFrsassterling-denominatedassetsandliabilities.

BorrowingCostsborrowingcostsarerecognisedinprofitorlossintheperiodinwhichtheyareincurred.borrowingcostsdirectlyattributabletotheacquisition,constructionorproductionofqualifyingassets,whichareassetsthattakeasubstantialperiodoftimetogetreadyfortheirintendeduse,areaddedtothecostofthoseassets,untilsuchtimeastheassetsaresubstantiallyreadyfortheirintendeduse.

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governmentgrantsGovernmentgrantsrelatingtoproperty,plantandequipmentaretreatedasdeferredincomeandreleasedtoprofitandlossovertheexpectedusefullivesoftheassetsconcerned.

operatingprofitoperatingprofitisstatedafterchargingrestructuringcosts,goodwillimpairment,amortisationofacquiredintangibleassetsandafterthepost-taxshareofresultsofassociatesbutbeforeinvestmentincomeandfinancecosts.

DisContinueDoperationsinaccordancewithiFrs5‘non-currentassetsHeldforsaleanddiscontinuedoperations’,theGrouphasseparatelydisclosedtheresultsofthetestingdivisionasdiscontinuedfollowingthedisposalofthebusinessinoctober2008,andsubsequentprovisionadjustmentduring2010.

retirementBenefitCostspaymentstodefinedcontributionretirementbenefitschemesarechargedasanexpenseastheyfalldue.paymentsmadetostate-managedretirementbenefitschemesaredealtwithaspaymentstodefinedcontributionschemeswheretheGroup’sobligationsundertheschemesareequivalenttothosearisinginadefinedcontributionretirementbenefitscheme.

Fordefinedbenefitschemes,thecostofprovidingbenefitsisdeterminedusingtheprojectedunitCreditMethod,withactuarialvaluationsbeingcarriedoutateachbalancesheetdate.actuarialgainsandlossesarerecognisedinfullintheperiodinwhichtheyoccur.theyarerecognisedoutsideprofitorlossandpresentedintheconsolidatedstatementofcomprehensiveincome.

pastservicecostisrecognisedimmediatelytotheextentthatthebenefitsarealreadyvested,andotherwiseisamortisedonastraight-linebasisovertheaverageperioduntilthebenefitsbecomevested.

theretirementbenefitobligationrecognisedinthebalancesheetrepresentsthepresentvalueofthedefinedbenefitobligationasadjustedforunrecognisedpastservicecost,andasreducedbythefairvalueoftheschemeassets.anyassetresultingfromthiscalculationislimitedtopastservicecost,plusthepresentvalueofavailablerefundsandreductionsinfuturecontributionstothescheme.

taXationthetaxexpenserepresentsthesumofthetaxcurrentlypayableanddeferredtax.

thetaxcurrentlypayableisbasedontaxableprofitfortheyear.taxableprofitdiffersfromnetprofitasreportedintheincomestatementbecauseitexcludesitemsofincomeorexpensethataretaxableordeductibleinotheryearsanditfurtherexcludesitemsthatarenevertaxableordeductible.theGroup’sliabilityforcurrenttaxiscalculatedusingtaxratesthathavebeenenactedorsubstantivelyenactedbythebalancesheetdate.

deferredtaxisthetaxexpectedtobepayableorrecoverableondifferencesbetweenthecarryingamountsofassetsandliabilitiesinthefinancialstatementsandthecorrespondingtaxbasesusedinthecomputationoftaxableprofit,andisaccountedforusingthebalancesheetliabilitymethod.deferredtaxliabilitiesaregenerallyrecognisedforalltaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.suchassetsandliabilitiesarenotrecognisedifthetemporarydifferencearisesfromgoodwillorfromtheinitialrecognition(otherthaninabusinesscombination)ofotherassetsandliabilitiesinatransactionthataffectsneitherthetaxprofitnortheaccountingprofit.

deferredtaxliabilitiesarerecognisedfortaxabletemporarydifferencesarisingoninvestmentsinsubsidiariesandassociates,andinterestsinjointventures,exceptwheretheGroupisabletocontrolthereversalofthetemporarydifferenceanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.

deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplyintheperiodwhentheliabilityissettledortheassetisrealised.deferredtaxischargedorcreditedintheincomestatement,exceptwhenitrelatestoitemschargedorcrediteddirectlytoequity,inwhichcasethedeferredtaxisalsodealtwithinequity.

thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassettoberecovered.

deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttoset-offcurrenttaxassetsagainstcurrenttaxliabilitiesandwhentheyrelatetoincometaxesleviedbythesametaxationauthorityandtheGroupintendstosettleitscurrenttaxassetsandliabilitiesonanetbasis.

property,plantanDequipmentproperty,plantandequipmentarestatedatcostlessaccumulateddepreciationandanyrecognisedimpairmentloss.

depreciationischargedsoastowriteoffthecostofassets,otherthanlandandpropertiesunderconstruction,lesstheirresidualvalues,overtheirestimatedusefullives,usingthestraight-linemethod,onthefollowingbases:

Freeholdbuildings 2%leaseholdproperty overtheperiodoftheleaseFixturesandfittings 10%-20%plantandmachinery 5%-20%Motorvehicles 20%-33%

assetsheldunderfinanceleasesaredepreciatedovertheirexpectedusefullivesonthesamebasisasownedassetsor,whereshorter,overthetermoftherelevantlease.thegainorlossarisingonthedisposalorretirementofanassetisdeterminedasthedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognisedinincome.

assetsinthecourseofconstructionarecarriedatcost,plusappropriateborrowingcosts,lessanyrecognisedimpairmentloss.depreciationcommenceswhentheassetsarereadyfortheirintendeduse.

impairmentoftangiBleanDintangiBleassetseXCluDinggooDwillateachbalancesheetdate,theGroupreviewsthecarryingamountsofitstangibleandintangibleassetstodeterminewhetherthereisanyindicationthatthoseassetshavesufferedanimpairmentloss.ifanysuchindicationexists,therecoverableamountoftheassetisestimatedinordertodeterminetheextentoftheimpairmentloss(ifany).wheretheassetdoesnotgeneratecashflowsthatareindependentfromotherassets,theGroupestimatestherecoverableamountofthecash-generatingunittowhichtheassetbelongs.

recoverableamountisthehigheroffairvaluelesscoststosellandvalueinuse.inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingadiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheassetforwhichtheestimatesoffuturecashflowshavenotbeenadjusted.

iftherecoverableamountofanasset(orcash-generatingunit)isestimatedtobelessthanitscarryingamount,thecarryingamountoftheasset(cash-generatingunit)isreducedtoitsrecoverableamount.animpairmentlossisrecognisedasanexpenseimmediately.

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GroupaCCountinGpoliCiesContinued

whereanimpairmentlosssubsequentlyreverses,thecarryingamountoftheasset(cash-generatingunit)isincreasedtotherevisedestimateofitsrecoverableamount,butsothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheasset(cash-generatingunit)inprioryears.areversalofanimpairmentlossisrecognisedasincomeimmediately.

inventoriesinventoriesarestatedatthelowerofcostandnetrealisablevalue.Costcomprisesdirectmaterialsand,whereapplicable,directlabourcostsandthoseoverheadsthathavebeenincurredinbringingtheinventoriestotheirpresentlocationandcondition.netrealisablevaluerepresentstheestimatedsellingpricelessallestimatedcostsofcompletionandcoststobeincurredinmarketing,sellinganddistribution.

finanCialinstrumentsFinancialassetsandfinancialliabilitiesarerecognisedontheGroup’sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.

loansandreceivablestradereceivables,loans,andotherreceivablesthathavefixedordeterminablepaymentsthatarenotquotedinanactivemarketareclassifiedas‘loansandreceivables’.loansandreceivablesaremeasuredatamortisedcostusingtheeffectiveinterestmethod,lessanyimpairment.interestincomeisrecognisedbyapplyingtheeffectiveinterestrate,exceptfortradereceivables,whichdonotcarryanyinterestandarestatedattheirnominalvalueasreducedbyappropriateallowancesforestimatedirrecoverableamounts.

CashandCashequivalentsCashandcashequivalentscomprisecashinhandanddemanddepositsandothershort-termhighlyliquidinvestmentsthatarereadilyconvertibletoaknownamountofcashandaresubjecttoaninsignificantriskofchangesinvalue.

financialliabilitiesandequityFinancialliabilitiesandequityinstrumentsareclassifiedaccordingtothesubstanceofthecontractualarrangementsenteredinto.anequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsoftheGroupafterdeductingallofitsliabilities.

BankBorrowingsinterest-bearingbankloansandoverdraftsarerecordedattheproceedsreceived,netoftransactioncosts.Financecharges,includingpremiumspayableonsettlementorredemptionanddirectissuecosts,areaccountedforonanaccrualsbasistotheincomestatementusingtheeffectiveinterestmethodandareaddedtothecarryingamountoftheinstrumenttotheextentthattheyarenotsettledintheperiodinwhichtheyarise.

tradepayablestradepayablesarenotinterest-bearingandarestatedattheirnominalvalue.

equityinstrumentsequityinstrumentsissuedbytheCompanyarerecordedattheproceedsreceived,netofdirectissuecosts.

impairmentoffinancialassetsFinancialassetsareassessedforindicatorsofimpairmentateachbalancesheetdate.Financialassetsareimpairedwherethereisobjectiveevidencethat,asaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionofthefinancialasset,theestimatedfuturecashflowsoftheinvestmenthavebeenimpacted.

objectiveevidenceofimpairmentcouldinclude:

significantfinancialdifficultyofthecustomerorcounterparty;or

defaultordelinquencyinpayments.

Forcertaincategoriesoffinancialasset,suchastradereceivables,assetsthatareassessednottobeimpairedindividuallyaresubsequentlyassessedforimpairmentonacollectivebasis.objectiveevidenceofimpairmentforaportfolioofreceivablescouldincludetheGroup’spastexperienceofcollectingpayments,anincreaseinthenumberofdelayedpaymentsintheportfoliopasttheaveragecreditperiod,aswellasobservablechangesinnationalorlocaleconomicconditionsthatcorrelatewithdefaultonreceivables.

thecarryingamountofthefinancialassetisreducedbytheimpairmentlossdirectlyforallfinancialassetswiththeexceptionoftradereceivables,wherethecarryingamountisreducedthroughtheuseofanallowanceaccount.whenatradereceivableisconsidereduncollectable,itiswrittenoffagainsttheallowanceaccount.subsequentrecoveriesofamountspreviouslywrittenoffarecreditedagainsttheallowanceaccount.Changesinthecarryingamountoftheallowanceaccountarerecognisedinprofitorloss.

DerivativefinanCialinstrumentstheGroupusesderivativefinancialinstruments,inparticularinterestrateswaps,foreigncurrencyswapsandforwardexchangecontracts,tomanagethefinancialrisksarisingfromthebusinessactivitiesandthefinancingofthoseactivities.theGroupdoesnotusederivativefinancialinstrumentsforspeculativepurposes.

theuseoffinancialderivativesisgovernedbytheGroup’spoliciesapprovedbytheboardofdirectors,whichprovidewrittenprinciplesontheuseoffinancialderivatives.

derivativefinancialinstrumentsarerecognisedasassetsandliabilitiesmeasuredattheirfairvalueonthebalancesheetdate.Changesinthefairvalueofanyderivativeinstrumentsthatdonotfulfilthecriteriaforhedgeaccountingcontainedinias39arerecognisedimmediatelyintheincomestatement.aderivativeispresentedasanon-currentassetoranon-currentliabilityiftheremainingmaturityoftheinstrumentismorethan12monthsanditisnotexpectedtoberealisedorsettledwithin12months.

heDgeaCCountingtheGroupusesforeigncurrencydebtandcrosscurrencyswapstohedgeitsexposuretochangesintheunderlyingnetassetsofoverseasoperationsarisingfromforeignexchangeratemovements.

theGroupmaintainsdocumentationoftherelationshipbetweenthehedgeditemandthehedginginstrumentattheinceptionofahedgingtransactiontogetherwiththeriskmanagementobjectiveandthestrategyunderlyingthedesignatedhedge.theGroupalsodocumentsitsassessment,bothattheinceptionofthehedgingrelationshipandsubsequentlyonanongoingbasis,oftheeffectivenessofthehedgeinoffsettingmovementsinthefairvaluesorcashflowsofthehedgeditems.

whenhedgeaccountingisused,therelevanthedgingrelationshipsareclassifiedasfairvaluehedges,cashflowhedgesornetinvestmenthedges.

note20setsoutthedetailsofthefairvaluesofthederivativeinstrumentsusedforhedgingpurposes.

fairvaluehedgeChangesinthefairvalueofderivativesthataredesignatedandqualifyasfairvaluehedgesarerecordedintheincomestatement,togetherwithanychangesinthefairvalueofthehedgedassetorliabilitythatareattributabletothehedgedrisk.

CashflowhedgeCashflowhedgingmatchesthecashflowsofhedgeditemsagainstthecorrespondingcashflowofthederivative.theeffectivepartofanygainorlossonthederivativeisrecogniseddirectlyinequityandthehedgeditemisaccountedforinaccordancewiththepolicyforthatfinancialinstrument.anyineffectivepartofanygainorlossisrecognisedimmediatelyintheincomestatement.

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Hedgeaccountingisdiscontinuedwhenthehedginginstrumentexpiresorissold,terminated,orexercised,ornolongerqualifiesforhedgeaccounting.atthattime,anycumulativegainorlossonthehedginginstrumentrecognisedinequityisretainedinequityuntiltheforecasttransactionoccurs.ifahedgedtransactionisnolongerexpectedtooccur,thenetcumulativegainorlossrecognisedinequityistransferredtonetprofitorlossfortheperiod.

netinvestmenthedgeHedgesofnetinvestmentsinforeignoperationsareaccountedforsimilarlytocashflowhedges.totheextentthehedgeiseffective,changesinthefairvalueofthehedginginstrumentarisingfromthehedgedriskarerecognisedintheconsolidatedstatementofcomprehensiveincomeandaccumulatedinthehedgingandtranslationreserve.thegainorlossrelatingtotheineffectiveportionisrecognisedimmediatelyintheincomestatement.

Gainsandlossesaccumulatedinequityareincludedintheincomestatementintheeventthattheforeignoperationisdisposedof.

provisionsprovisionsarerecognisedwhentheGrouphasapresentobligation(legalorconstructive)asaresultofapastevent,whenitisprobablethattheGroupwillberequiredtosettlethatobligationandwhenareliableestimatecanbemadeoftheamountoftheobligation.

theamountrecognisedasaprovisionisthebestestimateoftheconsiderationrequiredtosettlethepresentobligationatthebalancesheetdate,takingintoaccounttherisksanduncertaintiessurroundingtheobligation.whereaprovisionismeasuredusingthecashflowsestimatedtosettlethepresentobligation,itscarryingamountisthepresentvalueofthosecashflows.

provisionsforrestructuringcostsarerecognisedwhentheGrouphasadetailedformalplanfortherestructuringandhasraisedavalidexpectationinthoseaffectedthatitwillcarryouttherestructuringbystartingtoimplementtheplanorannouncingitsmainfeaturestothoseaffectedbyit.

themeasurementofarestructuringprovisionincludesonlythedirectexpendituresarisingfromtherestructuringwhicharethoseamountsthatarebothnecessarilyentailedbytherestructuringandnotassociatedwiththeongoingactivitiesoftheentity.

share-BaseDpaymentstheGrouphasappliedtherequirementsofiFrs2‘share-basedpayment’.

theGroupissuesequity-settledshare-basedpaymentstocertainemployees.equity-settledshare-basedpaymentsaremeasuredatfairvalueatthedateofgrant.thefairvaluedeterminedatthegrantdateoftheequity-settledshare-basedpaymentsisexpensedonastraight-linebasisoverthevestingperiod.ateachbalancesheetdate,theGrouprevisesitsestimateofthenumberofequityinstrumentsexpectedtovestasaresultoftheeffectofnon-marketbasedvestingconditions.theimpactoftherevisionoftheoriginalestimates,ifany,isrecognisedinprofitorlosssuchthatthecumulativeexpensereflectstherevisedestimateswithacorrespondingadjustmenttotheequity-settledemployeebenefitsreserve.Fairvalueismeasuredbyuseofablack-scholesmodel.

CritiCalJuDgementsinapplyingthegroup’saCCountingpoliCiesintheprocessofapplyingtheGroup’saccountingpolicies,whicharedescribedabove,managementhasmadethefollowingjudgementsthathavethemostsignificanteffectontheamountsrecognisedinthefinancialstatements(apartfromthoseinvolvingestimations,whicharedealtwithbelow).

provisionsforenvironmentalliabilitiestheGroupprovidesforthecostsofenvironmentalremediationthathavebeenidentified,eitheraspartofacquisitionduediligence,

orinothercircumstanceswhereremediationbytheGroupisrequired.theprovisionisreviewedannually.

keysourCesofestimationunCertaintythekeyassumptionsconcerningthefuture,andotherkeysourcesofestimationuncertaintyatthebalancesheetdate,thathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyear,arediscussedbelow.

impairmentofgoodwillandfixedassetsdeterminingwhethergoodwillandfixedassetsareimpairedrequiresanestimationofthevalueinuseofthecash-generatingunitstowhichtheassetshavebeenallocated.thevalueinusecalculationrequirestheentitytoestimatethefuturecashflowsexpectedtoarisefromthecash-generatingunitandasuitablediscountrateinordertocalculatepresentvalue.

retirementBenefitschemesaccountingforretirementbenefitschemesunderias19requiresanassessmentofthefuturebenefitspayableinaccordancewithactuarialassumptions,whicharesetoutinnote30.

taxationtheGroupissubjecttotaxesinnumerousjurisdictions.significantjudgementisrequiredindeterminingtheworldwideprovisionfortax.therearemanytransactionsandcalculationsforwhichtheultimatetaxdeterminationisuncertainduringtheordinarycourseofbusiness.theGrouprecognisesliabilitiesforanticipatedtaxauditissuesbasedonestimatesofwhetheradditionaltaxeswillbedue.wherethefinaltaxoutcomeofthesemattersisdifferentfromtheamountsthatwereinitiallyrecorded,suchdifferenceswillimpactthecurrenttaxprovision,deferredtaxprovisionsandincomestatementintheperiodinwhichsuchdeterminationismade.

generalinformationbodycoteplcisacompanyincorporatedintheunitedKingdomundertheCompaniesacts1948to1980.theaddressoftheregisteredofficeisgivenonpage45.thenatureoftheGroup’soperationsanditsprincipalactivitiesaresetoutonpage32inthedirectors’report.

thesefinancialstatementsarepresentedinpoundssterlingbecausethatisthecurrencyoftheprimaryeconomicenvironmentinwhichtheGroupoperates.ForeignoperationsareincludedinaccordancewiththepoliciessetoutintheForeignCurrenciesaccountingpolicyabove.

atthedateofauthorisationofthesefinancialstatements,thefollowingstandardsandinterpretationswhichhavenotbeenappliedinthesefinancialstatementswereinissuebutnotyeteffective(andinsomecaseshadnotyetbeenadoptedbytheeu):

iFrs9:Financialinstruments

ias24(amended):relatedpartydisclosures

ias32(amended):Classificationofrightsissues

iFriC19:extinguishingFinancialliabilitieswithequityinstruments

iFriC14(amended):prepaymentsofaMinimumFundingrequirement

iFrs7(amended):disclosure–transfersofFinancialassets

ias12(amended):deferredtax:recoveryofunderlyingassets

improvementstoiFrss(May2010)

theadoptionofiFrs9,whichtheGroupplanstoadoptfortheyearbeginningon1january2013,willimpactboththemeasurementanddisclosuresofFinancialinstruments.thedirectorsdonotexpectthattheadoptionoftheotherstandardslistedabovewillhaveamaterialimpactonthefinancialstatementsoftheGroupinfutureperiods.

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1. revenue 2010 2009 £m £m

ContinuingoperationsHeattreatmentandmetaljoining,hotisostaticpressingandsurfacetechnologyservices 499.8 435.4

otheroperatingincome(seenote3) 2.3 3.7investmentrevenue(seenote5) 0.3 1.5

totalrevenue(asdefinedinias18,revenue) 502.4 440.6

2. Businessandgeographicalsegments

iFrs8requiresoperatingsegmentstobeidentifiedonthebasisofinternalreportsaboutcomponentsoftheGroupthatareregularlyreviewedbytheChiefexecutivetoallocateresourcestothesegmentsandtoassesstheirperformance.

theGroup’sreportablesegmentshavebeendeterminedinaccordancewiththeactivityoftheGroup,focusingonkeymarketsectors.principally,thissplitstheGroupintotwobusinessareasbeing:

aerospace,defence&energy(ade);and

automotive&Generalindustrial(aGi).

thisinitialsplitisdeterminedfollowingconsiderationoffactorsincludingthedifferentcustomersets,differingservicerequirementsanddifferentcharacteristicsofbusinessactivity.afurthersplitisthenmadeforthegeographicaldivisionsoftheGroupbeing:

westerneurope;

northamerica;and

emergingMarkets.

group aDe agi

head officeandeliminations Consolidated

2010 2010 2010 2010 £m £m £m £m

revenuetotalrevenue 202.1 297.7 .– 499.8

resultHeadlineoperatingprofitpriortoshare-basedpaymentsandunallocatedcorporateexpenses 35.1 27.2 .– 62.3share-basedpayments (1.2) (1.6) (1.4) (4.2)unallocatedcorporateexpenses .– .– (6.0) (6.0)

Headlineoperatingprofit/(loss) 33.9 25.6 (7.4) 52.1

amortisationofacquiredintangiblefixedassets (0.4) (0.5) .– (0.9)

segmentresult 33.5 25.1 (7.4) 51.2

investmentrevenue 0.3Financecosts (6.3)

profitbeforetaxation 45.2taxation (11.7)

profitfortheyear 33.5

inter-segmentsalesarenotmaterialineitheryear.theGroupdoesnotrelyonanyindividualmajorcustomers.

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2. Businessandgeographicalsegmentscontinued

aerospace,Defence&energy western europe

north america

emerging markets

total aDe

2010 2010 2010 2010 £m £m £m £m

revenuetotalrevenue 92.2 108.9 1.0 202.1

resultHeadlineoperatingprofitpriortoshare-basedpayments 15.7 19.5 (0.1) 35.1share-basedpayments (0.5) (0.7) .– (1.2)

Headlineoperatingprofit/(loss) 15.2 18.8 (0.1) 33.9

amortisationofacquiredintangiblefixedassets (0.2) (0.2) .– (0.4)

segmentresult 15.0 18.6 (0.1) 33.5

automotive&generalindustrial western europe

north america

emerging markets

total agi

2010 2010 2010 2010 £m £m £m £m

revenuetotalrevenue 204.6 43.0 50.1 297.7

resultHeadlineoperatingprofitpriortoshare-basedpayments 21.3 5.4 0.5 27.2share-basedpayments (1.2) (0.3) (0.1) (1.6)

Headlineoperatingprofit 20.1 5.1 0.4 25.6

amortisationofacquiredintangiblefixedassets (0.1) .– (0.4) (0.5)

segmentresult 20.0 5.1 .– 25.1

group ade aGi

Head officeand eliminations Consolidated

2009 2009 2009 2009 £m £m £m £m

revenuetotalrevenue 189.5 245.9 .– 435.4

resultHeadlineoperatingprofitpriortoshare-basedpaymentsandunallocatedcorporateexpenses 24.7 (12.3) .– 12.4share-basedpayments .– .– 0.1 0.1unallocatedcorporateexpenses .– .– (4.5) (4.5)

Headlineoperatingprofit/(loss) 24.7 (12.3) (4.4) 8.0

amortisationofacquiredintangiblefixedassets (0.6) (0.7) .– (1.3)impairmentcharge (5.0) (25.7) (0.8) (31.5)Majorfacilityclosurecosts 0.9 (25.9) (0.4) (25.4)

segmentresult 20.0 (64.6) (5.6) (50.2)

investmentrevenue 1.5Financecosts (5.8)

lossbeforetaxation (54.5)taxation 3.4

lossfortheyear (51.1)

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2. Businessandgeographicalsegmentscontinued

aerospace,Defence&energy western europe

north america

emerging markets

total ade

2009 2009 2009 2009 £m £m £m £m

revenuetotalrevenue 91.3 97.4 0.8 189.5

resultHeadlineoperatingprofit/(loss) 11.7 13.3 (0.3) 24.7

amortisationofacquiredintangiblefixedassets (0.3) (0.3) .– (0.6)impairmentcharge .– (5.0) .– (5.0)Majorfacilityclosurecosts (1.0) 1.9 .– 0.9

segmentresult 10.4 9.9 (0.3) 20.0

automotive&generalindustrial western europe

north america

emerging markets

total aGi

2009 2009 2009 2009 £m £m £m £m

revenuetotalrevenue 176.2 30.7 39.0 245.9

resultHeadlineoperatingprofit/(loss) (10.1) 0.6 (2.8) (12.3)

amortisationofacquiredintangiblefixedassets (0.1) .– (0.6) (0.7)impairmentcharge (3.0) (20.0) (2.7) (25.7)Majorfacilityclosurecosts (16.9) 0.1 (9.1) (25.9)

segmentresult (30.1) (19.3) (15.2) (64.6)

otherinformation

group aDe agi

head officeandeliminations Consolidated

2010 2010 2010 2010 £m £m £m £m

Capitaladditions 10.1 25.3 1.8 37.2depreciationandamortisation 17.8 29.5 1.0 48.3

Balancesheetassets:segmentassets 307.0 435.7 28.0 770.7otherinvestments .– 0.5 .– 0.5

Consolidatedtotalassets 307.0 436.2 28.0 771.2

liabilities:segmentliabilities 64.7 123.9 131.8 320.4

segmentnetassets/(liabilities) 242.3 312.3 (103.8) 450.8

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2. Businessandgeographicalsegmentscontinued

aerospace,Defence&energy western europe

north america

emerging markets

total aDe

2010 2010 2010 2010 £m £m £m £m

Capitaladditions 6.0 4.1 .– 10.1depreciationandamortisation 9.5 8.1 0.2 17.8

Balancesheetassets:segmentassets 168.8 136.1 2.1 307.0otherinvestments .– .– .– .–

Consolidatedtotalassets 168.8 136.1 2.1 307.0

liabilities:segmentliabilities 29.1 35.3 0.3 64.7

segmentnetassets 139.7 100.8 1.8 242.3

automotive&generalindustrial western europe

north america

emerging markets

total agi

2010 2010 2010 2010 £m £m £m £m

Capitaladditions 13.1 2.3 9.9 25.3depreciationandamortisation 22.0 3.1 4.4 29.5

Balancesheetassets:segmentassets 304.1 54.4 77.2 435.7otherinvestments 0.5 .– .– 0.5

Consolidatedtotalassets 304.6 54.4 77.2 436.2

liabilities:segmentliabilities 94.6 15.3 14.0 123.9

segmentnetassets 210.0 39.1 63.2 312.3

group ade aGi

Head officeand eliminations Consolidated

2009 2009 2009 2009 £m £m £m £m

Capitaladditions 21.3 14.2 1.0 36.5depreciationandamortisation 17.9 32.3 0.7 50.9impairmentlossesrecognisedinincome 5.9 38.7 0.8 45.4

Balancesheetassets:segmentassets 331.2 464.0 (24.6) 770.6otherinvestments .– 0.5 .– 0.5

Consolidatedtotalassets 331.2 464.5 (24.6) 771.1

liabilities:segmentliabilities 75.2 134.1 139.2 348.5

segmentnetassets/(liabilities) 256.0 330.4 (163.8) 422.6

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2. Businessandgeographicalsegmentscontinued

aerospace,Defence&energy western europe

north america

emerging markets

total ade

2009 2009 2009 2009 £m £m £m £m

Capitaladditions 14.5 6.8 .– 21.3depreciationandamortisation 9.5 8.3 0.1 17.9impairmentlossesrecognisedinincome (0.2) 6.1 .– 5.9

Balancesheetassets:segmentassets 162.6 166.9 1.7 331.2otherinvestments .– .– .– .–

Consolidatedtotalassets 162.6 166.9 1.7 331.2

liabilities:segmentliabilities 35.9 39.1 0.2 75.2

segmentnetassets 126.7 127.8 1.5 256.0

automotive&generalindustrial western europe

north america

emerging markets

total aGi

2009 2009 2009 2009 £m £m £m £m

Capitaladditions 7.9 1.7 4.6 14.2depreciationandamortisation 24.6 2.9 4.8 32.3impairmentlossesrecognisedinincome 11.5 20.2 7.0 38.7

Balancesheetassets:segmentassets 334.0 58.6 71.4 464.0otherinvestments 0.5 .– .– 0.5

Consolidatedtotalassets 334.5 58.6 71.4 464.5

liabilities:segmentliabilities 102.4 14.7 17.0 134.1

segmentnetassets 232.1 43.9 54.4 330.4

revenuebycountry 2010 2009 £m £m

usa 142.8 123.0France 76.3 74.9Germany 61.1 50.2uK 54.7 52.7others 164.9 134.6

totalrevenue-continuingoperations 499.8 435.4

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3. operatingprofit/(loss)

Continuingoperations

Continuing operations

2010 2009 £m £m

revenue 499.8 435.4Costofsales (332.9) (321.5)

Grossprofit 166.9 113.9

otheroperatingincome 2.3 3.7distributioncosts (17.4) (18.4)administrationexpenses* (99.7) (90.9)otheroperatingexpenses .– (0.3)amortisationofacquiredintangiblefixedassets* (0.9) (1.3)impairmentcharge* .– (31.5)Majorfacilityclosurecosts* .– (25.4)

operatingprofit/(loss) 51.2 (50.2)

*administrationexpensestotal£100.6m(2009:£149.1m).

exceptionalitemscomprise: 2010 2009 £m £m

amortisationofacquiredintangiblefixedassets 0.9 1.3impairmentofgoodwill .– 29.0Majorfacilityclosurecosts .– 25.4impairmentofinvestmentin/loanduefromassociate .– 2.5

0.9 58.2

FurtherdetailsoftheseitemsareincludedintheFinancedirector'sreportonpages22to25.

profit/(loss)fortheyearhasbeenarrivedataftercharging/(crediting): 2010 2009 £m £m

Continuingoperations:netforeignexchangelosses .– 0.3depreciationofproperty,plantandequipment 46.1 48.5amortisationofintangiblefixedassets 2.2 2.4impairmentofgoodwill .– 29.0loss/(profit)ondisposalofproperty,plantandequipment 0.7 (0.1)staffcosts(seenote4) 207.6 199.2auditors’remunerationforauditservices(seepage62) 0.7 0.8

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3. operatingprofit/(loss)continued

amoredetailedanalysisofauditors'remunerationonaworldwidebasisisprovidedbelow: 2010 2009 £m £m

FeespayabletotheCompany'sauditorfortheauditoftheCompany'sannualaccounts 0.1 0.1

FeespayabletotheCompany'sauditoranditsassociatesforotherservices:theauditoftheCompany'ssubsidiariespursuanttolegislation 0.6 0.7

totalauditfees 0.7 0.8taxservices .– 0.1

0.7 0.9

inadditiontotheamountsshownabove,theauditorsreceivedfeesof£5,000(2009:£5,000)fortheauditoftheGroup'spensionschemes.

FeespaidtotheCompany’sauditor,deloittellp,anditsassociatesforservicesotherthanstatutoryauditoftheCompanyarenotdisclosedinthesubsidiaries’accountssincetheconsolidatedaccountsofthesubsidiaries’parent,bodycoteplc,arerequiredtodisclosenon-auditfeesonaconsolidatedbasis.

adescriptionoftheworkoftheauditCommitteeissetoutintheauditCommitteereportandincludesanexplanationofhowauditorobjectivityandindependenceissafeguardedwhennon-auditservicesareprovidedbytheauditors.

4. staffcosts

theaveragemonthlynumberofemployees(includingexecutivedirectors)was: 2010 2009 number number

ade:westerneurope 1,001 1,044northamerica 900 1,047emergingMarkets 10 10

aGi:westerneurope 2,053 2,214northamerica 460 370emergingMarkets 1,070 1,272

Headoffice 109 63

5,603 6,020

2010 2009 £m £m

theiraggregateremunerationcomprised:wagesandsalaries 172.8 162.4socialsecuritycosts 29.6 32.2otherpensioncosts 5.2 4.6

207.6 199.2

disclosureofindividualdirectors'remuneration,shareinterests,shareoptions,longtermincentiveschemes,pensioncontributionsandpensionentitlementsrequiredbytheCompaniesact2006andthosespecifiedforauditbythelistingrulesoftheFinancialservicesauthorityareshowninthetablesintheboardreportonremunerationonpages39to43andformpartofthesefinancialstatements.

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5. investmentrevenue 2010 2009 £m £m

interestonbankdeposits 0.2 1.3otherinterestreceivable 0.1 0.2

0.3 1.5allinvestmentrevenuerelatestoloansandreceivables.

6. financecosts 2010 2009 £m £m

interestonbankoverdraftsandloans* 1.8 3.0interestonobligationsunderfinanceleases 0.2 0.3interestonderivativefinancialinstruments .– 0.1interestonpensionschemeliabilities 5.2 5.1returnonpensionassets (4.3) (3.8)otherfinancecharges* 3.4 1.1

totalfinancecosts 6.3 5.8

*amountsarisingonfinancialliabilitiesmeasuredatamortisedcost.

7. taxation

Continuingoperations Discontinuedoperations total 2010 2009 2010 2009 2010 2009 £m £m £m £m £m £m

Currenttaxation-chargefortheyear 8.8 2.0 .– .– 8.8 2.0Currenttaxation-adjustmentsinrespectofpreviousyears (3.8) 1.8 5.8 .– 2.0 1.8deferredtax(seenote21) 6.7 (7.2) .– .– 6.7 (7.2)

11.7 (3.4) 5.8 .– 17.5 (3.4)

uKcorporationtaxiscalculatedat28.0%(2009:28.0%)oftheestimatedassessableprofitfortheyear.taxationforotherjurisdictionsiscalculatedattheratesprevailingintherespectivejurisdictions.

ofthetotalchargetocurrenttax£5.8m(2009:£nil)isadditionalprovisionsrelatingtotaxationexpectedtoarisefromthe2008disposalofthetestingbusiness.

thechargefortheyearcanbereconciledtotheprofitpertheincomestatementasfollows:

2010 2009 £m £m

profit/(loss)beforetax:Continuingoperations 45.2 (54.5)

taxattheuKcorporationtaxrateof28.0%(2009:28.0%) 12.7 (15.3)taxeffectofexpensesthatarenotdeductibleindeterminingtaxableprofit (3.8) 11.8deferredtaxassetsnotrecognised 3.7 6.3taxprovisioninrespectofthedisposalofthetestingdivision 5.8 .–taxeffectofotheradjustmentsinrespectofpreviousyears (1.8) 1.6effectofdifferenttaxratesofsubsidiariesoperatinginotherjurisdictions 0.9 (7.8)

taxexpense/(credit)fortheyear 17.5 (3.4)

thetaxcharge/(credit)onitemstakendirectlytoequityis£0.9m(2009:£(0.9)m).

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8. Discontinuedoperations

thetestingbusinesswassoldon17october2008.during2010variousprovisions,primarilyrelatingtotaxationarisingfromthesalewerereassessed.

theresultsofthediscontinuedoperationsincludedintheconsolidatedincomestatementwereasfollows:

2010 2009 £m £m

attributabletaxexpense (5.8) .–

netlossattributabletodiscontinuedoperations (5.8) .–

9. Dividends 2010 2009 £m £m

amountsrecognisedasdistributionstoequityholdersintheyear:Finaldividendfortheyearended31december2009of5.35p(2008:5.35p)pershare 9.9 9.9bsharespecialdividendorredemptionfortheyearended31december2008of40.00ppershare .– 0.7interimdividendfortheyearended31december2010of2.95p(2009:2.95p)pershare 5.5 5.5

15.4 16.1

proposedfinaldividendfortheyearended31december2010of5.75p(2009:5.35p)pershare 10.9 10.1

theproposedfinaldividendissubjecttoapprovalbyshareholdersattheannualGeneralMeetingandhasnotbeenincludedasaliabilityinthesefinancialstatements.

10. earnings/(loss)pershare

thecalculationofthebasicanddilutedearnings/(loss)pershareisbasedonthefollowingdata:

2010 2009 £m £m

earnings/(loss)earnings/(loss)forthepurposeofbasicearnings/(loss)persharebeingnetprofit/(loss)attributabletoequityholdersoftheparent 27.6 (50.1)

2010 2009 number number

numberofsharesweightedaveragenumberofordinarysharesforthepurposeofbasicearningspershare 185,543,260 185,557,762

effectofdilutivepotentialordinaryshares:shareoptions 180,586 16,466

weightedaveragenumberofordinarysharesforthepurposeofdilutedearningspershare 185,723,846 185,574,228

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10. earnings/(loss)persharecontinued

fromcontinuingoperations 2010 2009 £m £m

earnings/(loss)netprofit/(loss)attributabletoequityholdersoftheparent 27.6 (50.1)adjustmentstoexcludelossfortheyearfromdiscontinuedoperations 5.8 .–

profit/(loss)fromcontinuingoperationsforthepurposeofbasicearnings/(loss)pershareexcludingdiscontinuedoperations 33.4 (50.1)

thedenominatorsusedarethesameasthosedetailedaboveforbothbasicanddilutedearnings/(loss)persharefromcontinuinganddiscontinuedoperations.

2010 2009 pence pence

earnings/(loss)persharefromcontinuinganddiscontinuedoperations:basic 14.9 (27.0)

diluted 14.9 (27.0)

2010 2009 pence pence

losspersharefromdiscontinuedoperations:basic (3.1) .–

diluted (3.1) .–

2010 2009 pence pence

earnings/(loss)persharefromcontinuingoperations:basic 18.0 (27.0)

diluted 18.0 (27.0)

2010 2009 £m £m

headlineearningsnetprofit/(loss)attributabletoequityholdersoftheparent 27.6 (50.1)

addback:impairmentcharge .– 31.5amortisationofacquiredintangiblefixedassets(netoftax) 0.8 1.2Majorfacilityclosurecosts(netoftax) (0.2) 18.1lossfortheyear-discontinuedoperations 5.8 .–

headlineearnings 34.0 0.7

2010 2009 pence pence

earningspersharefromheadlineearnings:basic 18.3 0.4

diluted 18.3 0.4

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11. goodwill

2010 2009 £m £m

Costat1january 177.3 180.3exchangedifferences 1.3 (2.1)adjustmentonacquisitionofnon-controllinginterest .– (0.9)adjustmentfordeferredconsideration (0.5) .–

at31december 178.1 177.3

accumulatedimpairmentat1january 69.4 38.7exchangedifferences 1.0 1.7impairmentlossesfortheyear .– 29.0

at31december 70.4 69.4

Carryingamount 107.7 107.9

Goodwillacquiredinabusinesscombinationisallocated,atacquisition,tothebusinessunitsthatareexpectedtobenefitfromthatbusinesscombination.afterrecognitionofimpairmentlosses,thecarryingamountofgoodwillhasbeenallocatedasfollows:

2010 2009 £m £m

ade:westerneurope 26.8 27.4northamerica 37.1 36.9

aGi:westerneurope 17.9 18.0northamerica 15.2 15.2emergingMarkets 10.7 10.4

107.7 107.9

theGrouptestsgoodwillatleastannuallyforimpairment,ormorefrequentlyifthereareindicationsthatgoodwillmightbeimpaired.

therecoverableamountsofthecashgeneratingunitsaredeterminedfromvalueinusecalculations.thekeyassumptionsforthosecalculationsarethediscountrates,growthratesandexpectedchangestosellingpricesanddirectcostsduringtheperiod.Managementestimatesdiscountratesusingpre-taxratesthatreflectcurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictothecashgeneratingunits.therateusedtodiscounttheforecastcashflowsforallcashgeneratingunitsis9.5%(2009:9.5%).a10%changeinthediscountrateidentifiednotriggersofimpairment.therecoverableamountisthesumofthediscountedcashflowsoverafifteenyearperiod,beingmanagement’sexpectationoftheusefullifeoftheexistingassetbase.

theGrouppreparescashflowforecastsbasedonmanagementestimatesforthenextfiveyears.theexpectedsalesreflectmanagement’sexpectationofhowsaleswilldevelopatthispointintheeconomiccycle.theexpectedprofitmarginreflectsmanagement’sexperienceofeachcashgeneratingunit’sprofitabilityattheforecastlevelofsalesandincorporatestheimpactoftherestructuringprogramme,whereappropriate.Cashflowsafterfiveyearsarebasedonanestimatedgrowthrateof3.2%(2009:3.1%),beingthehistoricalweightedaveragegrowthinGdpinthemarketsthattheGroupoperatesin.thisratedoesnotexceedtheaveragelong-termgrowthratefortherelevantmarkets.

theGrouphasconductedasensitivityanalysisontheimpairmenttestofeachcashgeneratingunit’scarryingvalue.acutinthesalesgrowthratebysevenpercentagepointswouldresultinthecarryingvalueofgoodwillfortheGroupbeingreducedtoitsrecoverableamount.

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12. otherintangibleassets

software

otherintangibleassets acquiredthrough businesscombinations total

£m £m £mCost

at1january2009 11.4 11.0 22.4exchangedifferences (0.7) (0.5) (1.2)additions 1.2 .– 1.2disposals (0.2) .– (0.2)

at1january2010 11.7 10.5 22.2exchangedifferences .– 0.2 0.2additions 2.0 .– 2.0disposals (0.5) .– (0.5)

at31December2010 13.2 10.7 23.9

amortisationat1january2009 7.1 2.5 9.6exchangedifferences (0.5) .– (0.5)Chargefortheyear 1.1 1.3 2.4disposals (0.2) .– (0.2)

at1january2010 7.5 3.8 11.3exchangedifferences .– 0.1 0.1Chargefortheyear 1.3 0.9 2.2disposals (0.1) .– (0.1)

at31December2010 8.7 4.8 13.5

Carryingamountat31December2010 4.5 5.9 10.4

at31december2009 4.2 6.7 10.9

theamortisationperiodsforintangibleassetsare: years

software 3to5Customerrelationships 10to15Membershiplists 15non-competearrangements 2to5tradenames 3

intangibleassetsareamortisedonastraight-linebasisandtheamortisationisrecognisedwithinadministrationexpenses.

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13. property,plantandequipment

landandbuildings

freehold long leasehold

short leasehold

plantandmachinery

fixtures and fittings

assets underconstruction total

£m £m £m £m £m £m £mCostorvaluation

at1january2009 200.8 11.1 5.0 771.4 38.4 40.6 1,067.3additions 0.7 .– 0.2 13.2 0.9 20.3 35.3exchangedifferences (15.0) (0.4) 0.2 (50.0) (2.3) (3.6) (71.1)reclassifiedasheldforsale (9.8) .– .– (4.0) (0.6) (1.2) (15.6)recategorisation 25.7 (9.1) 16.8 (8.4) 2.4 (27.4) .–disposals (3.7) .– (0.5) (25.2) (2.4) (0.4) (32.2)

at1january2010 198.7 1.6 21.7 697.0 36.4 28.3 983.7additions 5.0 .– 0.3 25.5 1.1 3.3 35.2exchangedifferences 1.4 0.1 0.3 10.0 0.1 1.7 13.6reductionofrevaluationsurplus (0.1) .– .– .– .– .– (0.1)transferfrom/(to)assetsheldforsale 0.6 .– .– (0.2) (0.1) .– 0.3recategorisation 3.5 0.1 (2.0) 7.1 0.1 (8.8) .–disposals (2.1) .– (0.4) (16.4) (2.6) (0.5) (22.0)

at31December2010 207.0 1.8 19.9 723.0 35.0 24.0 1,010.7

accumulateddepreciationandimpairmentat1january2009 58.4 3.8 2.2 438.9 30.0 0.7 534.0Chargefortheyear 5.5 0.1 0.9 39.8 2.2 .– 48.5impairmentloss 8.1 .– 0.2 5.2 0.2 0.2 13.9exchangedifferences (4.5) (0.2) 0.3 (27.3) (1.7) .– (33.4)onassetsreclassifiedasheldforsale (6.8) .– .– (3.9) (0.6) (0.6) (11.9)recategorisation 8.7 (3.4) 6.8 (13.2) 1.1 .– .–eliminatedondisposals (3.4) .– (0.2) (23.1) (2.2) (0.3) (29.2)

at1january2010 66.0 0.3 10.2 416.4 29.0 .– 521.9Chargefortheyear 5.2 0.3 0.8 38.0 1.8 .– 46.1impairmentlossesincurred/(reversed) (0.2) .– .– (0.8) .– .– (1.0)exchangedifferences .– .– 0.3 5.0 0.3 .– 5.6transferfrom/(to)assetsheldforsale 0.6 .– .– .– (0.1) .– 0.5recategorisation 0.4 .– (0.4) (0.1) 0.1 .– .–eliminatedondisposals (2.1) .– (0.4) (15.5) (2.4) .– (20.4)

at31December2010 69.9 0.6 10.5 443.0 28.7 .– 552.7

Carryingamountat31December2010 137.1 1.2 9.4 280.0 6.3 24.0 458.0

at31december2009 132.7 1.3 11.5 280.6 7.4 28.3 461.8

thecarryingamountofleasedassetsis£2.1m(2009:£7.4m).

theGrouphaspledgedlandandbuildingshavingacarryingamountofapproximately£0.4m(2009:£3.2m)tosecurebankingfacilitiesgrantedtotheGroup.

at31december2010theGrouphadenteredintocontractualcommitmentsfortheacquisitionofproperty,plantandequipmentamountingto£2.5m(2009:£6.7m).

inadditiontotheabove,property,plantandequipmentamountingto£6.2m(2009:£5.8m)hasbeenclassifiedasheldforsale.

impairmentlossesof£nil(2009:£12.1m)relatingtotherestructuringprogrammearerecognisedwithinexceptionalitems.

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14. subsidiaries,associatesandotherinvestments

alistofthesignificantinvestmentsinsubsidiaries,includingthename,countryofincorporationandproportionofownershipinterestisgivenonpage99and100.

2010 2009 £m £m

aggregatedamountsrelatingtoassociatestotalassets .– 94.5

totalliabilities .– 170.6

revenues .– 60.0

loss .– (24.2)

amountsrecognisedintheincomestatementandinthebalancesheetareasfollows:

2010 2009 £m £m

operatingprofit .– .–less:interest .– .–less:tax .– .–

shareofresultsofassociatespriortoimpairment .– .–

interestinassociates .– .–

sundryinvestments 0.5 0.5

theGroup’sshareoftheresultsofassociatesof£nil(2009:£5.9m)hasnotbeenrecognisedastheboardconsidersthattheinvestmentsarefullyimpaired.

theGroup’sassociatedcompanyssCpCoatingss.à.r.l.wasrecapitalisedthroughashareissueinanewcompanyduringtheyear.theGroupchosenottoparticipateinthisshareissue,andasaresult,theGroup’spercentageholdinginthebusinesshassignificantlyreducedtoalevelwheretheGroupnolongerclassifiesthebusinessasanassociatecompany.

duringtheprioryearthesmallassociatebusinessinthailandwassoldbacktotheassociatepartnersresultingina£2.5mlossthatwasincludedintheimpairmentchargein2009.

15. inventories 2010 2009 £m £m

rawmaterials 10.1 9.0work-in-progress 4.1 2.4Finishedgoodsandgoodsforresale 0.2 0.2

14.4 11.6

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16. financeleasereceivables

minimumleasepayments

presentvalueofminimum

leasepayments 2010 2009 2010 2009 £m £m £m £m

amountsreceivableunderfinanceleases:withinoneyear 0.4 0.4 0.4 0.4inthesecondtofifthyearsinclusive .– 0.5 .– 0.5

0.4 0.9 0.4 0.9

less:unearnedfinanceincome .– .–

presentvalueofminimumleasepaymentsreceivable 0.4 0.9

analysedas:non-currentfinanceleasereceivables(recoverableafter12months) .– 0.5Currentfinanceleasereceivables(recoverablewithin12months) 0.4 0.4

0.4 0.9

thepresentvalueofminimumleasepaymentsisdenominatedinthefollowingcurrencies:

euro 0.2 0.6usdollar 0.2 0.3

0.4 0.9

theGrouphasenteredintofinanceleasingarrangementswithionbondaG,for3pvdmachines.theaveragetermoffinanceleasesenteredintois7years.unguaranteedresidualvaluesofassetsleasedunderfinanceleasesatthebalancesheetdateare£0.4m(2009:£0.9m).theinterestrateinherentintheleasesisfixedatthecontractdatefortheentireleaseterm.theaverageeffectiveinterestratecontractedapproximatesto4.7%(2009:4.5%).thefairvalueoftheGroup’sfinanceleasereceivablesat31december2010isestimatedat£0.4m(2009:£0.9m).theleasereceivablesaresecuredontherelatedassets.

themaximumexposuretocreditriskoffinanceleasereceivablesforthecurrentandpriorperiodisthecarryingamountastheGrouphasnoallowancefordoubtfuldebts.thefinanceleasereceivablesarenotpastdueandarenotimpairedinthecurrentnorintheprioryear.

17. otherfinancialassets

tradeandotherreceivables 2010 2009 £m £m

amountsfallingduewithinoneyear:amountreceivableforthesupplyofservices 85.3 71.9otherdebtorsandprepayments* 13.9 19.2

99.2 91.1

amountsfallingdueaftermorethanoneyear:otherdebtorsandprepayments* 2.6 3.0

theaveragecreditperiodgiventocustomersforthesupplyofservicesasat31december2010is59days(2009:63days).anallowancehasbeenmadeforestimatedirrecoverableamountsfromthesupplyofservicesof£6.9m(2009:£8.1m).thisallowancehasbeendeterminedbyreferencetopastdefaultexperience.

thedirectorsconsiderthatthecarryingamountoftradeandotherreceivablesapproximatestheirfairvalue.

*otherfinancialassetsincludeprepaymentsandotherdebtors,whicharenotincludedasfinancialassetsunderiFrs7.

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17. otherfinancialassetscontinued

Creditrisk

theGroup’sprincipalfinancialassetsarebankbalances,cashandtradeandotherreceivables.

theGroup’screditriskisprimarilyattributabletoitstradereceivables.theamountspresentedinthebalancesheetarenetofallowancesfordoubtfulreceivables.anallowanceforimpairmentismadewherethereisanidentifiedlosseventwhich,basedonpreviousexperience,isevidenceofareductionintherecoverabilityofcashflows.

thecreditriskonliquidfundsandderivativefinancialinstrumentsislimitedbecausethecounterpartiesarebankswithhighcredit-ratingsassignedbyinternationalcredit-ratingagencies.

theGrouphasnosignificantconcentrationofcreditrisk,withexposurespreadoveralargenumberofcounterpartiesandcustomers.FurtherdisclosureoftheGroup’sfinancialinstrumentriskmanagementactivitiesissetoutinnote20.

includedintheGroup’stradereceivablebalancearedebtorswithacarryingamountof£16.7m(2009:£16.6m)whicharepastdueatthereportingdateforwhichtheGrouphasnotprovidedastherehasnotbeenasignificantchangeincreditqualityandtheamountsarestillconsideredrecoverable.theGroupdoesnotholdanycollateraloverthesebalances.

ageingofpastduebutnotimpairedreceivables: 2010 2009 £m £m

amountsoverduebyupto1month 13.2 12.2amountsoverdueby1-2months 2.2 2.1amountsoverdueby2-3months 0.4 0.6amountsoverduebymorethan3months 0.9 1.7

16.7 16.6

Movementintheallowancefordoubtfuldebts: 2010 2009 £m £m

balanceat1january 8.1 8.4impairmentlossesrecognised 2.6 3.0amountswrittenoffasuncollectable (2.2) (1.2)impairmentlossesreversed (1.5) (1.5)exchangedifferences (0.1) (0.6)

6.9 8.1

indeterminingtherecoverabilityofatradereceivabletheGroupconsidersanychangeinthequalityofthetradereceivablefromthedatecreditwasinitiallygranteduptothereportingdate.theconcentrationofcreditriskislimitedduetothecustomerbasebeinglargeandunrelated.accordinglythedirectorsbelievethatthereisnofurthercreditprovisionrequiredinexcessoftheallowancefordoubtfuldebts.

includedintheallowancefordoubtfuldebtsareindividuallyimpairedtradereceivableswithagrossbalanceof£8.6m(2009:£10.1m).theimpairmentrecognisedrepresentsthedifferencebetweenthecarryingamountofthesetradereceivablesandthepresentvalueoftheexpectedproceeds.theGroupdoesnotholdanycollateraloverthesebalances.

ageingofimpairedtradereceivables: 2010 2009 £m £m

3-12months 1.8 3.4over12months 6.8 6.7

8.6 10.1

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17. otherfinancialassetscontinued

Cashandbankbalances

CashandbankbalancescomprisecashheldbytheGroupandshort-termbankdepositswithanoriginalmaturityofthreemonthsorless.thecarryingamountoftheseassetsapproximatestotheirfairvalue.abreakdownofsignificantcashandbankbalancesbycurrencyisasfollows:

2010 2009 £m £m

sterling 0.2 0.1euro 12.2 8.1swedishKrona 2.3 2.4polishZloty 1.5 2.8brazilianreal 1.1 0.2swissFranc 0.9 0.7usdollar 0.8 2.2CzechrepublicKoruna 0.7 0.7Chineseyuan 0.7 0.4indianrupee 0.5 0.1thaibaht 0.5 0.1japaneseyen 0.4 0.5Mexicanpeso 0.4 0.1romanianleu 0.4 0.2other 0.9 1.0

totalcashandbankbalances 23.5 19.6

18. assetsheldforsale

asaresultoftherestructuringprogrammeanumberofGroupassetsarecurrentlyheldforsale.theycomprisethefollowing:

2010 2009 £m £m

property,plantandequipment 6.2 5.8inventories .– 0.1receivables .– 0.3

6.2 6.2

itisexpectedthatthedisposaloftheseassetswillbecompletedduring2011.theassetsheldforsaleareanalysedbetweenoperatingsegmentsasfollows:

2010 2009 £m £m

ade:westerneurope 1.3 0.9northamerica 0.6 0.6

aGi:westerneurope 1.8 2.4northamerica 0.3 0.7emergingMarkets 2.2 1.6

6.2 6.2

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19. Borrowings 2010 2009 £m £m

borrowingsatamortisedcostbankoverdrafts 5.9 3.3loans 67.8 99.5

73.7 102.8theborrowingsarerepayableasfollows:

ondemandorwithinoneyear 8.9 6.0inthesecondyear 0.1 0.2inthethirdtofifthyears 64.5 96.3afterfiveyears 0.2 0.3

73.7 102.8

less:amountdueforsettlementwithin12months(shownundercurrentliabilities) (8.9) (6.0)

amountdueforsettlementafter12months 64.8 96.8

analysisofborrowingsbycurrency:

sterling euro usDollar swedish krona

othercurrencies total

£m £m £m £m £m £mat31december2010

bankoverdrafts .– 5.0 0.8 .– 0.1 5.9loans 48.0 8.8 9.9 0.7 0.4 67.8

48.0 13.8 10.7 0.7 0.5 73.7

at31december2009bankoverdrafts 1.2 1.0 0.3 0.7 0.1 3.3loans 75.0 14.5 2.6 7.0 0.4 99.5

76.2 15.5 2.9 7.7 0.5 102.8

2010 2009theweightedaverageinterestratespaidwereasfollows: % %

bankoverdraftsandloans 1.7 1.6

loansandfinanceleasesof£1.5m(2009:£3.0m)werearrangedatfixedinterestratesandexposetheGrouptofairvalueinterestraterisk.theremainingborrowingsarearrangedatfloatingrates,thusexposingtheGrouptocashflowinterestraterisk.

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19. Borrowingscontinued

thedirectorsestimatethefairvalueoftheGroup’sborrowingsasfollows: 2010 2009 £m £m

bankoverdrafts 5.9 3.3

loans 67.8 99.5

theotherprincipalfeaturesoftheGroup’sborrowingsareasfollows:

(i)bankoverdraftsarerepayableondemand.nooverdraftsaresecured.

(ii)theGrouphasthreeprincipalloanswhicharesecuredbyupstreamguaranteesprovidedbysubsidiaries:

(a)drawingsof£nil(2009:£nil)underarevolvingCreditFacilityof£110m.thisunsecuredfacilitycommencedon8january2010andmatureson31March2013.themulticurrencydrawingsunderthisfacilitycarryaninterestrateofbetween2.25%and3.25%abovelibor(themarginat31december2010was2.25%).

(b)drawingsof£64.4m(2009:£96.2m)underarevolvingCreditFacilityof€125m.thisunsecuredfacilitycommencedon31july2006foraperiodofsevenyears.theeurodrawingsunderthisfacilitycarryaninterestrateofbetween0.80%and1.10%abovelibor(themarginat31december2010was0.8%).

(c)lettersofcreditandloandrawingsof£5.6m(2009:£6.5m)underarevolvingCreditandletterofCreditFacilityof$20m.thisunsecuredfacilitycommencedon18February2010andmatureson31March2013.theusdollardrawingsandletterofCreditfeesunderthisfacilitycarryamargin/feeofbetween1.00%and3.25%abovelibor(themarginat31december2010was2.25%andtheletterofcreditfeewas1.00%).

at31december2010theGrouphadavailable£160.9m(2009:£245.8m)ofundrawncommittedborrowingfacilities.

allborrowingsareclassifiedasfinancialliabilitiesmeasuredatamortisedcost.

20. Derivativefinancialinstruments

Currencyderivativesthataredesignatedandeffectiveashedginginstrumentscarriedatfairvalue

notional amount fairvalue

notional amount Fairvalue

asset/(liability) 2010 2010 2009 2009 £m £m £m £m

CurrentForwardforeignexchangecontracts 0.9 .– 1.3 0.1Crosscurrencyswaps-fixed/fixed .– .– 31.2 0.2Crosscurrencyswaps-floating/floating .– .– 39.3 (3.3)energycontracts .– .– 1.7 (0.4)

0.9 .– 73.5 (3.4)

non-currentForwardforeignexchangecontracts .– .– 0.7 .–Crosscurrencyswaps-fixed/fixed .– .– 10.7 (0.3)Crosscurrencyswaps-floating/floating .– .– .– .–energycontracts .– .– 0.1 .–

.– .– 11.5 (0.3)

totalForwardforeignexchangecontracts 0.9 .– 2.0 0.1Crosscurrencyswaps-fixed/fixed .– .– 41.9 (0.1)Crosscurrencyswaps-floating/floating .– .– 39.3 (3.3)energycontracts .– .– 1.8 (0.4)

0.9 .– 85.0 (3.7)

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20. Derivativefinancialinstrumentscontinued

theGrouputilisescurrencyderivativestohedgematerialfuturetransactionsandcashflows.theGroupusesforeigncurrencyforwardcontractsinthemanagementofitsexchangerateexposures.thecontractsareprimarilydenominatedinthecurrenciesoftheGroup’sprincipalmarkets.theunrecognisedgainsandlosseswerenotsignificantineither2010or2009.

inaccordancewithiFrs7’improvingdisclosuresaboutFinancialinstruments’,theGroup’sfinancialinstrumentsareconsideredtobeclassifiedaslevel2instruments.Fairvaluemeasurementsarethosederivedfrominputsotherthanquotedpricesincludedwithinlevel1thatareobservablefortheassetorliabilities,eitherdirectly(i.e.asprices)orindirectly(i.e.derivedfromprices).

Fairvalueisdeterminedusingquotedforwardexchangeratesandyieldcurvesderivedfromquotedinterestratesmatchingmaturitiesofthecontracts.

theGroup’sinterestrateriskisprimarilyinrelationtoitsfixedrateborrowings(fairvaluerisk)andfloatingrateborrowings(cashflowrisk).FromtimetotimetheGroupwilluseinterestratederivativecontractstomanageitsexposuretointerestratemovementswithinGrouppolicy.HoweveratthebalancesheetdatetheGrouphadnointerestratederivativecontracts.

duringtheyeartheGroup’sforeigncurrencydenominatedcrosscurrencyswapseithermaturedandwerenotrolledoverorunwound.

sterling euro usDollar swedish krona

total fairvalue

asset/(liability) 2010 2010 2010 2010 2010 £m £m £m £m £m

Forwardforeignexchangecontracts (0.2) 0.3 0.4 (0.5) .–Fixed/fixed .– .– .– .– .–Floating/floating .– .– .– .– .–energycontracts .– .– .– .– .–

total (0.2) 0.3 0.4 (0.5) .–

ondemandorwithinoneyear (0.2) 0.3 0.4 (0.5) .–inthesecondyear .– .– .– .– .–

(0.2) 0.3 0.4 (0.5) .–

sterling euro usdollar swedish Krona

danish Krone

swiss Franc

Czech Koruna

total fairvalue

asset/(liability) 2009 2009 2009 2009 2009 2009 2009 2009 £m £m £m £m £m £m £m £m

Forwardforeignexchangecontracts (0.1) 1.9 (1.5) .– .– .– (0.2) 0.1Fixed/fixed 41.9 (35.5) .– .– .– (6.5) .– (0.1)Floating/floating 39.3 (33.8) .– (3.5) (3.0) (2.3) .– (3.3)energycontracts .– .– .– (0.4) .– .– .– (0.4)

total 81.1 (67.4) (1.5) (3.9) (3.0) (8.8) (0.2) (3.7)

ondemandorwithinoneyear 70.4 (59.2) (0.8) (3.9) (3.0) (6.7) (0.2) (3.4)inthesecondyear 10.7 (8.2) (0.7) .– .– (2.1) .– (0.3)

81.1 (67.4) (1.5) (3.9) (3.0) (8.8) (0.2) (3.7)

financialriskmanagementtheGroup’streasuryfunctionprovidesacentralisedservicetotheGroupforfunding,foreignexchange,interestratemanagementandcounterpartyrisk.treasuryactivitieshavetheobjectiveofminimisingriskandtreasuryoperationsareconductedwithinaframeworkofpoliciesandguidelinesauthorisedandreviewedbytheboard.

theGroupusesanumberofderivativeinstrumentsthataretransacted,forriskmanagementpurposesonly,byspecialisttreasurypersonnel.theuseoffinancialinstruments,includingderivatives,ispermittedwhenapprovedbytheboard,wheretheeffectistominimiseriskfortheGroup.speculativetradingofderivativesorotherfinancialinstrumentsisnotpermitted.therehasbeennosignificantchangeduringthefinancialyear,orsincetheendoftheyear,tothetypesorscopeoffinancialrisksfacedbytheGroup.

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20. Derivativefinancialinstrumentscontinued

liquidityriskliquidityriskisdefinedastheriskthattheGroupmightnotbeabletosettleormeetitsobligationsontimeoratareasonableprice.liquidityriskarisesasaresultofmismatchesbetweencashinflowsandoutflowsfromthebusiness.thisriskismonitoredonacentralisedbasisthroughregularcashflowforecasting,athree-yearrollingstrategicplan,anannualbudgetagreedbytheboardeachdecemberandaquarterlyre-forecastundertakenduringthefinancialyear.tomitigatetherisk,theresultingforecastnetdebtismeasuredagainsttheliquidityheadroompolicywhich,atthecurrentnetdebtlevels,requirescommittedfacilities(plustermloansinexcessofoneyear)toexceednetdebtby50%.

asat31december2010,theGrouphadcommittedfacilitiesof£230.9m(2009:£348.5m)whichexceedednetdebtof£51.3m(2009:£85.5m)by350%(2009:308%).theGroupalsousesuncommittedshort-termbankfacilitiestomanageshort-termliquiditybutthesefacilitiesareexcludedfromtheliquidityheadroompolicy.theGroupmanageslonger-termliquiditythroughcommittedbankfacilitiesandwill,ifappropriate,raisefundsoncapitalmarkets.Followingthecompletionofthe£110mrevolvingCreditFacilityandthe$20mrevolvingandletterofCreditfacilityon8january2010and18February2010respectively,theGroup’sprincipalcommittedbankfacilitieshavethefollowingmaturitydates:

£110mrevolvingCreditFacility31March2013(2.2years)

€125mrevolvingCreditFacility31july2013(2.6years)

$20mrevolvingandletterofCreditFacility31March2013(2.2years)

inaddition,cashmanagementpooling,nettingandconcentrationtechniquesareusedtominimiseborrowings.

asat31december2010,theGrouphadgrosscashof£23.5m(2009:£19.6m).

interestrateriskinterestrateriskarisesonborrowingsandcashbalances(andderivativeliabilitiesandassets)whichareatfloatinginterestrates.ChangesininterestratescouldhavetheeffectofeitherincreasingordecreasingtheGroup’snetprofit.undertheGroup’sinterestratemanagementpolicy,theinterestratesoneachoftheGroup’smajorcurrencymonetaryassetsandliabilitiesaremanagedtoachievethedesiredmixoffixedandvariableratesforeachmajornetcurrencyexposure.themajorinterestrateriskistouKratesbutexposuresalsoexisttoratesintheusa,europeandsweden.MeasurementofthisinterestrateriskanditspotentialvolatilitytotheGroup’sreportedfinancialperformanceisundertakenonamonthlybasisandtheboardusesthisinformationtodetermine,fromtimetotime,anappropriatemixoffixedandfloatingrates.

asat31december2010,3%ofnetdebtwasatfixedrates(2009:3%).theaveragetenureofthefixedratedebtwas5.2years(2009:3.9years).

Currencyriskbodycotehasoperationsin26countriesandisthereforeexposedtoforeignexchangetranslationriskwhentheprofitsandnetassetsoftheseentitiesareconsolidatedintotheGroupaccounts.

over89%oftheGroup’ssalesareincurrenciesotherthansterling(eur38%,usd29%,seK7%andbrl5%).Cumulativelyovertheyear,sterlingratesmovedsuchthatthesalesfortheyearwere£0.3mworsethanifsaleshadbeentranslatedattheratesprevailingin2009.

itisGrouppolicynottohedgeexposureforthetranslationofreportedprofits.

theGroup’sbalancesheettranslationpolicyisnottoactivelyhedgecurrencynetassets.However,whereappropriate,theGroupwillstillmatchcentrallyheldcurrencyborrowingstothenetassets.theGroupprincipallyborrowsinsterlingbutalsomaintainsdebtinusdollar,euroandswedishKrona,consistentwiththelocationoftheGroup’sassets.theGrouprecognisesforeignexchangemovementsinequityforthetranslationofnetinvestmenthedginginstrumentsandbalances.asaresultoftheGroup’schangeofbalancesheettranslationpolicy,£84.6mofcrosscurrencyswapliabilitiesexistingat31december2009wereeithercancelledornotrolledoveratmaturity,duringtheyear.

transactionforeignexchangeexposuresarisewhenentitieswithintheGroupenterintocontractstopayorreceivefundsinacurrencydifferentfromthefunctionalcurrencyoftheentityconcerned.itisGrouppolicytohedgeexposuretocashtransactionsinforeigncurrencieswhenacommitmentarises,usuallythroughtheuseofforeignexchangeforwardcontracts.eventhoughapproximately89%oftheGroup’ssalesaregeneratedoutsidetheuK,thenatureofthebusinessissuchthatcrossbordersalesandpurchasesarelimitedand,otherthaninterest,suchexposuresareimmaterialfortheGroup.

marketrisksensitivityanalysistheGrouphasmeasuredtheestimatedchargetotheincomestatementandequityofeitheraninstantaneousincreaseordecreaseof1%(100basispoints)inmarketinterestratesora10%strengtheningorweakeninginsterlingagainstallothercurrenciesfromtheapplicableratesasat31december2010,forallfinancialinstrumentswithallothervariablesremainingconstant.thisanalysisisforillustrativepurposesonly.thesensitivityanalysisexcludestheimpactofmarketrisksonnetpostemploymentbenefitobligations.

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20. Derivativefinancialinstrumentscontinued

interestratesensitivitytheinterestratesensitivityanalysisisbasedonthefollowingassumptions:

changesinmarketinterestratesaffecttheinterestincomeorexpenseofvariableinterestfinancialinstruments;

changesinmarketinterestratesonlyaffecttheincomestatementinrelationtofinancialinstrumentswithfixedinterestifthesearerecognisedattheirfairvalue;and

changesinmarketinterestratesaffectthefairvalueofderivativefinancialinstrumentsdesignatedashedginginstruments.

undertheseassumptions,aonepercentagepointfallorriseinmarketinterestratesforallcurrenciesinwhichtheGrouphasvariablenetcashornetborrowingsat31december2010wouldreduceorincreaseprofitbeforetaxbyapproximately£0.5m(2009:£0.9m).thereisnosignificantimpactonequity.

Currencysensitivitytakingthe2010salesbycurrency,a10%weakening/strengtheninginthe2010cumulativeaverageratesforallcurrenciesversussterlingwouldhavegivenrisetoa+£50m/-£41mmovementinsalesrespectively.theimpactonheadlineoperatingprofitisaffectedbythemixoflossesandprofitsinthevariouscurrencies.However,takingthe2010operatingprofitmix,a10%weakening/strengtheningin2010cumulativeaverageratesforallcurrencieswouldhavegivenrisetoa+£6m/-£5mmovementinheadlineoperatingprofit.

CounterpartyriskCounterpartyriskencompassessettlementriskonderivativefinancialinstrumentsandmoneymarketcontractsandcreditriskoncash,timedepositsandmoneymarketfunds.theGroupmonitorsitscreditexposuretoitscounterpartiesviatheircreditratings(whereapplicable)andthroughitspolicy,therebylimitingitsexposuretoanyonepartytoensurethereisnosignificantconcentrationofcreditrisk.Grouppolicyistoenterintosuchtransactionsonlywithcounterpartieswithalong-termcreditratingofa-/a3orbetter.However,acquiredbusinessesoccasionallyhavedealingswithbankswithlowercreditratings.businesswithsuchbanksismovedassoonaspracticable.

21. Deferredtax

thefollowingarethemajordeferredtaxliabilitiesand(assets)recognisedbytheGroupandmovementsthereonduringthecurrentandpriorreportingperiods:

accelerated taxdepreciation

tax losses

retirement benefit obligations other total

£m £m £m £m £m

at1january2009 71.1 (9.3) (8.9) (27.1) 25.8(Credit)/chargetoincome (6.0) (12.7) 5.8 5.7 (7.2)Credittoequity .– .– (0.8) (0.1) (0.9)transfers (5.4) 9.3 (0.4) (1.8) 1.7exchangedifferences (5.5) 0.4 0.2 2.0 (2.9)

at1january2010 54.2 (12.3) (4.1) (21.3) 16.5(Credit)/chargetoincome (2.5) 5.3 .– 3.9 6.7Chargetoequity .– .– 0.9 .– 0.9disposalofsubsidiaries .– (0.1) .– .– (0.1)transfers (10.7) (1.7) 0.1 13.0 0.7exchangedifferences .– (0.1) .– 0.2 0.1effectofchangeintaxrate:

incomestatement 0.1 .– .– (0.1) .–

at31december2010 41.1 (8.9) (3.1) (4.3) 24.8

Certaindeferredtaxassetsandliabilitieshavebeenoffset.thefollowingistheanalysisofthedeferredtaxbalances(afteroffset)forfinancialreportingpurposes:

2010 2009 £m £m

deferredtaxliabilities 73.1 73.4deferredtaxassets (48.3) (56.9)

24.8 16.5

otherdeferredtaxassetsrelatetoprovisionsrecognisedinthefinancialstatementsthatarenotyetdeductiblefortaxpurposes,inparticularinrelationtorestructuringchargesandlocalprofitdifferencesthatareexpectedtoreverseovertime.

atthebalancesheetdate,theGrouphasunusedtaxlossesof£208.0m(2009:£177.1m)availableforoffsetagainstfutureprofits.adeferredtaxassethasbeenrecognisedinrespectof£101.0m(2009:£83.4m)ofsuchlosses,basedonmanagementforecastsoffuturetaxableprofitsagainstwhichtheassetscanberecoveredintherelevantjurisdictions.nodeferredtaxassethasbeenrecognisedinrespectoftheremaining£107.0m(2009:£93.7m)ofsuchlosses.allrecognisedlossesmaybecarriedforwardindefinitely.

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22. obligationsunderfinanceleases

minimumleasepayments

presentvalueofminimum

leasepayments 2010 2009 2010 2009 £m £m £m £m

amountspayableunderfinanceleases:withinoneyear 0.5 1.0 0.4 0.7inthesecondtofifthyearsinclusive 0.5 1.5 0.4 1.2afterfiveyears 0.3 0.4 0.3 0.4

1.3 2.9 1.1 2.3

less:futurefinancecharges (0.2) (0.6)

presentvalueofleaseobligations 1.1 2.3

analysedas:amountdueforsettlementafter12months 0.7 1.6amountdueforsettlementwithin12months(shownundercurrentliabilities) 0.4 0.7

1.1 2.3

thepresentvalueofminimumleasepaymentsisdenominatedinthefollowingcurrencies:

sterling 0.6 0.7usdollar 0.3 0.5euro 0.2 0.5danishKrone .– 0.6

1.1 2.3

itistheGroup’spolicytoleasecertainofitsfixturesandequipmentunderfinanceleases.theaverageleasetermis5.2years.Fortheyearended31december2010,theaverageeffectiveborrowingratewas7.8%(2009:7.8%).interestratesarefixedatthecontractdate.allleasesareonafixedrepaymentbasisandnoarrangementshavebeenenteredintoforcontingentrentalpayments.thefairvalueoftheGroup’sleaseobligationsapproximatestotheircarryingamount.

theGroup’sobligationsunderfinanceleasesaresecuredbythelessors’rightsovertheleasedassets.

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23. otherfinancialliabilities

tradeandotherpayables 2010 2009 £m £m

amountsfallingduewithinoneyear:tradecreditors 38.6 29.9othertaxesandsocialsecurity* 16.5 14.7othercreditors 21.8 11.4accrualsanddeferredincome 43.5 37.2

120.4 93.2

amountsfallingdueaftermorethanoneyear:othercreditors 4.1 7.5

tradecreditorsandaccrualsprincipallycompriseamountsoutstandingfortradepurchasesandongoingcosts.theaveragecreditperiodtakenfortradepurchasesasat31december2010is46days(2009:46days).

thedirectorsconsiderthatthecarryingamountoftradepayablesapproximatestotheirfairvalue.

*otherfinancialliabilitiesincludeothertaxesandsocialsecurity,whicharenotincludedasfinancialliabilitiesiniFrs7.

thefollowingtabledetailstheGroup’sremainingcontractualmaturityforitsfinancialliabilities.thetablehasbeendrawnupbasedontheundiscountedcashflowsoffinancialliabilitiesbasedontheearliestdateonwhichtheGroupcanberequiredtopay.thetableincludesbothinterestandprincipalcashflows.

lessthan 1year 1-2years 2-5years 5+years total 2010 2010 2010 2010 2010 £m £m £m £m £m

non-interestbearing* 134.4 3.5 4.7 8.7 151.3Financeleaseliability 0.5 0.3 0.2 0.3 1.3bankloansandoverdrafts 95.5 0.2 0.2 0.3 96.2derivativefinancialinstruments 0.9 .– .– .– 0.9

231.3 4.0 5.1 9.3 249.7

lessthan 1year 1-2years 2-5years 5+years total 2009 2009 2009 2009 2009 £m £m £m £m £m

non-interestbearing* 114.5 9.2 4.8 5.2 133.7Financeleaseliability 0.9 0.9 0.5 0.5 2.8bankloansandoverdrafts 117.4 0.2 0.3 0.3 118.2derivativefinancialinstruments 77.5 11.5 .– .– 89.0

310.3 21.8 5.6 6.0 343.7

ofthe£96.2m(2009:£118.2m)bankloanandoverdraftoutflowsdisclosedabove,£nil(2009:£nil)and£64.4m(2009:£96.2m)ofbankloansaredrawnundercommittedfacilitiesmaturingon31March2013and31july2013respectively.theoverdraftsareon-demandandlargelypartofpoolingarrangements,whichincludeoffsettingcashbalances.ofthe£0.9m(2009:£89.0m)derivativefinancialinstrumentoutflowsdisclosedabove,£0.9m(2009:£85.1m)arematchedbyderivativecashinflows.

*non-interestbearingfinancialliabilitiesincludeothertaxesandsocialsecurity,whicharenotincludedasfinancialliabilitiesiniFrs7.thesearepayableinlessthanoneyear.

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24. provisions

restructuring

restructuring environ- mental

environ- mental total

£m £m £m £m

at1january2010 17.6 9.5 5.9 33.0increaseinprovision 5.1 1.6 0.6 7.3releaseofprovision (1.8) (0.1) .– (1.9)utilisationofprovision (11.1) (1.3) .– (12.4)exchangedifference 0.2 0.5 0.1 0.8

at31December2010 10.0 10.2 6.6 26.8

includedincurrentliabilities 14.0includedinnon-currentliabilities 12.8

26.8

therestructuringprovisionrelatestotheremainingcostsassociatedwiththeclosureofvariousHeattreatmentsites.FurtherdetailsarecontainedintheFinancedirector’sreport.

theGroupprovidesforthecostsofenvironmentalremediationthathavebeenidentified,eitheraspartofacquisitionduediligence,orinothercircumstanceswhereremediationbytheGroupisrequired.thisprovisionisreviewedannuallyandisseparatedintorestructuringenvironmentalandenvironmentaltoseparatelyidentifyenvironmentalprovisionsrelatingtotherestructuringprogrammefromthosearisingintheordinarycourseofbusiness.

theincreaseinrestructuringprovisionsisduetotheongoingimplementationoftheglobalrestructuringinitiatives.inadditionincomeof£4.0mwasrecognisedfollowingthedisposalofnoncoreassetsassociatedwiththerestructuringplans.thereversalofcertainassetimpairmentsof£0.8mwasalsorecognisedinrelationtotheongoingrestructuring.

Cashoutflowsinrespectoftheseliabilitiesareexpectedtooccurwithin5years.

25. sharecapital 2010 2009 £m £m

authorised:248,947,368(2009:248,947,368)ordinarysharesof173/11peach 43.0 43.0

325,000,000(2009:325,000,000)bsharesof40peach 130.0 130.0

issuedandfullypaid:189,881,917(2009:188,167,712)ordinarysharesof173/11peach 32.8 32.5

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26. notestothecashflowstatement

2010 2009 £m £m

profit/(loss)fortheyear 27.7 (51.1)

adjustmentsfor:investmentrevenue (0.3) (1.5)Financecosts 6.3 5.8taxation-continuinganddiscontinued 17.5 (3.4)depreciationofproperty,plantandequipment 46.1 48.5amortisationofintangibleassets 2.2 2.4loss/(profit)ondisposalofproperty,plantandequipment 0.7 (0.1)share-basedpayments 4.2 (0.1)impairmentcharge .– 31.5Majorfacilityclosurecosts (1.6) 12.6

ebitda* 102.8 44.6

(increase)/decreaseininventories (2.7) 1.4(increase)/decreaseinreceivables (4.7) 29.2increase/(decrease)inpayables 15.5 (21.6)decreaseinprovisions (7.0) (5.9)

Cashgeneratedbyoperations 103.9 47.7

Cashoutflowfromsettlementofderivativefinancialinstruments (2.9) (12.3)incometaxespaid (5.4) (24.4)

netcashfromoperatingactivities 95.6 11.0

*earningsbeforeinterest,tax,depreciation,amortisation,impairmentandshare-basedpayments.

Cashandcashequivalentscomprise:Cashandbankbalances 23.5 19.6bankoverdrafts(includedinborrowings) (5.9) (3.3)

17.6 16.3

27. operatingleasearrangements-thegroupaslessee 2010 2009 £m £m

Minimumleasepaymentsunderoperatingleasesrecognisedasanexpense 14.4 14.1

atthebalancesheetdate,theGrouphadoutstandingcommitmentsforfutureminimumleasepaymentsundernon-cancellableoperatingleases,whichfalldueasfollows:

2010 2009 £m £m

withinoneyear 11.7 8.1inthesecondtofifthyearsinclusive 19.2 20.0afterfiveyears 14.6 12.0

45.5 40.1

operatingleasepaymentsrepresentrentalspayablebytheGroupforcertainofitslandandbuildings,fixturesandfittingsandmotorvehicles.

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28. share-basedpayments-equity-settledshareoptionscheme

theCompanyoperates3shareoptionschemesinrelationtoGroupemployees.optionsareexercisableatthemiddlemarketclosingpricefortheworkingdaypriortothedateofgrantandareexcercisable3yearsfromthedateofgrantifstatedperformancecriteriahavebeenmet.optionslapseifnotexcercisedwithintenyears(7yearsforthe1996scheme)ofthedateofgrantoriftheparticipantleavesGroupemployment.

detailsoftheshareoptionsoutstandingduringtheyearareasfollows:

Dateofgrant optionpriceinpence exerciseperiod no.ofoptionsoutstanding 2010 2009

May-00 231.42 2003-2010 – 245,316apr-01 203.37 2004-2011 262,002 471,391sep-02 125.76 2005-2012 112,295 139,032sep-03 147.27 2006-2013 311,654 410,581

685,951 1,266,320

Movementsinshareoptionsaresummarisedasfollows:

numberofshares underoption

weightedaverage exerciseprice

numberofshares underoption

weightedaverage exerciseprice

2010 2010 2009 2009 pence pence

outstandingatthebeginningoftheyear 1,266,320 183.95 2,012,802 197.04exercisedduringtheyear (214,204) 167.77 (261,937) 132.13expiredduringtheyear (366,165) 222.16 (484,545) 267.24outstandingandexercisableattheendoftheyear 685,951 165.18 1,266,320 183.95

theweightedaveragesharepriceatthedateofexerciseforshareoptionsexercisedduringtheyearwas167.77pence.theoptionsoutstandingat31december2010hadaweightedaverageexercisepriceof165.18pence,andaweightedaverageremainingcontractuallifeof1.6years.theaveragesharepriceduringtheyearwas224.2pence.

theinputsintotheblack-scholesmodelareasfollows: 2010 2009

weightedaverageshareprice pence 157.5 157.5weightedaverageexerciseprice pence 157.5 157.5expectedvolatility % 42.7 42.7expectedlife years 3.0 3.0risk-freerate % 4.0 4.0expecteddividends % 4.3 4.3

expectedvolatilitywasdeterminedbycalculatingthehistoricalvolatilityoftheGroup’ssharepriceovertheprevious3years.theexpectedlifeusedinthemodelhasbeenadjusted,basedonmanagement’sbestestimate,fortheeffectsofnon-transferability,exerciserestrictions,andbehaviouralconsiderations.

theGrouprecognisedtotalexpensesof£4.2m(2009:incomeof£0.1m)relatedtoequity-settledshare-basedpaymenttransactions.

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29. relatedpartytransactions

transactionsbetweentheCompanyanditssubsidiaries,whicharerelatedparties,havebeeneliminatedonconsolidationandarenotdisclosedinthisnote.transactionsbetweentheGroupanditsassociatesaredisclosedbelow.transactionsbetweentheCompanyanditssubsidiariesandassociatesaredisclosedintheCompany’sseparatefinancialstatements.

tradingtransactionstheGroup’sassociatedcompanyssCpCoatingss.à.r.l.wasrecapitalisedthroughashareissueinanewcompanyduringtheyear.theGroupchosenottoparticipateinthisshareissue,andasaresult,theGroup’spercentageholdinginthebusinesshassignificantlyreducedtoalevelwheretheGroupnolongerclassifiesthebusinessasanassociatecompany.

duringtheprioryear,GroupcompaniesenteredintothefollowingtransactionswithrelatedpartieswhoarenotmembersoftheGroup,namelyssCpCoatingss.à.r.l.andthaiinductionservicesCompanyltd:

saleofgoodsandservices

purchaseofgoodsandservices

amountsowedbyrelatedparties

amountsowedtorelatedparties

2010 2009 2010 2009 2010 2009 2010 2009 £m £m £m £m £m £m £m £m

associates .– 3.3 .– 0.2 .– 18.0 .– .–

salesofgoodsandservicesincludespaymentsreceivedfromfinanceleases(seenote16),theprovisionofmanagementservicesandinterestreceivable.alltransactionsweremadeatarm’slength.

duringtheprioryearthesmallassociatebusinessinthailandwassoldbacktotheassociatepartnersresultinginacashinflowof£6.9m.asaresultoftheterminationoftheagreementtheGroupreportedalossof£2.5m.

theremunerationoftheboardofdirectors,whoareconsideredkeymanagementpersonneloftheGroup,wasasfollows:

2010 2009 £m £m

short-termemployeebenefits 1.6 1.2share-basedpayments .– 0.4

1.6 1.6

Furtherinformationabouttheremunerationoftheindividualdirectorsisprovidedintheboardreportonremunerationonpages39to43.

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30. retirementbenefitobligations

theGroupoperatedanumberofpensionschemesandprovidedleavingservicebenefitstocertainemployeesduringtheyear.thedefinedbenefitobligationlessfairvalueofassetsattheendoftheyearandtotalexpenserecognisedintheincomestatementaresummarisedbelowasfollows:

Definedbenefitschemes 2010 2009 £m £m

uKscheme (0.6) (3.7)non-uKschemes (11.0) (11.3)

(11.6) (15.0)

totalexpenserecognisedinincomestatement 2010 2009 £m £m

uKscheme 1.1 1.2non-uKschemes 1.2 0.4

2.3 1.6

FurtherdetailsoftheGroup’sdefinedbenefitarrangementsaregivenintheFinancedirector’sreportonpage25.

ukscheme

theCompanysponsorsthebodycoteuKpensionschemewhichisafundeddefinedbenefitarrangementforcertainuKemployees.thelastfullactuarialvaluationoftheschemewascarriedoutbyaqualifiedindependentactuaryasat6april2008usingtheprojectedunitcreditmethodandwasupdatedonanapproximatebasisto31december2010.theprojectedunitcreditmethodisanaccruedbenefitsvaluationmethodinwhichtheschemeliabilitiesmakeallowanceforprojectedearnings.

thecontributionsmadebytheemployeroverthefinancialyearhavebeen£1.0m,comprising£0.6minrespectofbenefitaccrualand£0.4minrespectofongoingexpense.thislevelofcontributionhasbeenreviewedfollowingthetriennialvaluationoftheschemecompletedasat6april2008anditisexpectedthatthedeficitwillbeextinguishedbydecember2016.

itisthepolicyoftheGrouptorecogniseallactuarialgainsandlossesintheyearinwhichtheyoccuroutsideoftheprofitandlossaccountandinthestatementofComprehensiveincome.

theuKschemedeficitdecreasedby£3.1mduringtheyear,primarilyasaresultoftheannouncedchangeintherelevantindexfortheuKschemefromrpitoCpiinrespectoftherevaluationofdeferredmembers’benefits.

reconciliationofopeningandclosingbalancesofthepresentvalueofthedefinedbenefitobligation 2010 2009 £m £m

definedbenefitobligationatstartofyear 73.6 63.7Currentservicecost 0.8 0.8interestcost 4.2 3.8Contributionsbyplanparticipants 0.3 0.4actuarial(gain)/loss (0.8) 7.3benefitspaid,deathinserviceinsurancepremiumsandexpenses (2.3) (2.4)

definedbenefitobligationatendofyear 75.8 73.6

reconciliationofopeningandclosingbalancesofthefairvalueofplanassets 2010 2009 £m £m

Fairvalueofassetsatstartofyear 69.9 63.0expectedreturnonassets 3.9 3.4actuarialgain 2.4 4.5Contributionsbyemployer 1.0 1.0Contributionsbyplanparticipants 0.3 0.4benefitspaid,deathinserviceinsurancepremiumsandexpenses (2.3) (2.4)

Fairvalueofassetsatendofyear 75.2 69.9

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30. retirementbenefitobligationscontinued

totalexpenserecognisedintheincomestatement 2010 2009 £m £m

Currentservicecost 0.8 0.8interestonpensionschemeliabilities 4.2 3.8expectedreturnonpensionschemeassets (3.9) (3.4)

totalexpenses 1.1 1.2

thecumulativeamountofactuariallossesrecognisedinthestatementofComprehensiveincomesinceadoptionofias19is£9.9m.

oftheexpensefortheyear,£0.8m(2009:£0.8m)hasbeenincludedintheoperatingprofitand£0.3m(2009:£0.4m)hasbeenincludedinfinancecharges.actuarialgainsandlosseshavebeenreportedinothercomprehensiveincome.

assets 2010 2009 2008 £m £m £m

equities(includingproperty) 32.2 26.0 22.1bonds(includinggilts) 38.1 38.7 14.9treasurybonds .– .– 21.0Cash 0.2 0.1 0.6withprofitsinsuredpolicy .– 0.6 0.3Hedgefunds 4.7 4.5 4.1

75.2 69.9 63.0

noneofthefairvalueoftheassetsshownaboveincludeanyoftheGroup’sownfinancialinstrumentsoranypropertyoccupiedby,orotherassetsusedbytheGroup.

expectedlong-termratesofreturn

theexpectedlong-termreturnoncashisequaltobankbaserateatthebalancesheetdate.theexpectedreturnonbondsisdeterminedbyreferencetouKlongdatedgiltandbondyieldsatthebalancesheetdate.theexpectedratesofreturnonequitiesandpropertyhavebeendeterminedbysettinganappropriateriskpremiumabovegilt/bondyieldshavingregardtomarketconditionsatthebalancesheetdate.

theexpectedlong-termratesofreturnareasfollows:

2010 2009 2008 %per annum

%per annum

%per annum

equities 6.9 7.3 6.6bonds 4.9 5.3 4.8treasurybonds .– .– 5.5withprofitsinsuredpolicy .– 5.3 4.8Hedgefunds 6.9 7.3 6.6Cash 0.5 0.5 1.5overallforscheme 5.8 6.1 5.7

actualreturnonplanassetstheactualreturnontheplanassetsfortheyearended31december2010was8.8%(2009:12.5%).

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30. retirementbenefitobligationscontinued

assumptions 2010 2009 2008 %per annum

%per annum

%per annum

rpiinflation 3.65 3.70 3.15Cpiinflation 3.15 – –salaryincreases 3.00 3.00 3.00rateofdiscount 5.50 5.70 6.00allowanceforpensioninpaymentincreasesofrpior5%p.a.ifless 3.55 3.60 3.10allowanceforpensioninpaymentincreasesofrpior3%p.a.ifless 2.75 2.80 n/aallowanceforrevaluationofdeferredpensions 3.15 3.70 3.15

Mortality–currentpensioners

actuarialtablesused

pa92yoB mC,1% underpin

pa92yob MC,1% underpin

pa92yob MC,1% underpin

lifeexpectancyformemberscurrentlyaged65 22.5 22.5 22.5

Mortality–futurepensioners

actuarialtablesused

pa92yoB mC,1% underpin

pa92yob MC,1% underpin

pa92yob MC,1% underpin

lifeexpectancyatage65formemberscurrentlyaged40 24.0 24.0 24.0

impactofchangestoassumptionstheimpactofchangestocertainassumptionsonthecurrentdeficitandthe2011chargetotheincomestatementontheuKschemeisshowninthetablebelow:

impact oncurrent deficit

impact on2011 charge toincome statement

£m £m

Changeindiscountrateby0.25%(decreaseinrateincreasesliability) 3.6 .–

Changeininflationassumptionby0.25%(increaseinrateincreasesliability) 1.8 0.1Changeinmortalityassumptionfrompa92yob,MediumCohortwitha1%underpintopa92,longCohortwitha1%underpin(changeincreasesliability) 3.7 0.3

Changeinthevalueofequitiesby5%(decreaseincreasesliability) 1.4 0.1

Changeintheexpectedreturnonequitiesassumptionby0.25% .– 0.1

presentvalueofdefinedbenefitobligations,fairvalueofassetsanddeficit 2010 2009 2008 £m £m £m

presentvalueofdefinedbenefitobligation 75.8 73.6 63.7Fairvalueofplanassets (75.2) (69.9) (63.0)

deficitinthescheme 0.6 3.7 0.7

asallactuarialgainsandlossesarerecognised,thedeficitshownaboveat31december2010isthatrecognisedinthebalancesheet.

thebestestimateofcontributionstobepaidintotheplanfortheyearending31december2011is£0.9m.

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30. retirementbenefitobligationscontinued

amountsforthecurrentandpreviousfouryears 2010 2009 2008 2007 2006 £m £m £m £m £m

Fairvalueofassets (75.2) (69.9) (63.0) (47.6) (43.9)presentvalueofdefinedbenefitobligation 75.8 73.6 63.7 61.0 67.2

deficitinthescheme 0.6 3.7 0.7 13.4 23.3

Gain/(loss)fromexperienceadjustmentonplanliabilities .– .– (0.4) 0.1 .–Gain/(loss)fromexperienceadjustmentonplanassets 2.3 4.5 (10.7) (0.8) 0.7

Combinednon-ukdisclosures

theGroupoperatesschemesintheusa,brazilandcontinentaleurope.intheustherearethreedefinedbenefitpensionarrangements.theseareMetallurgicalincpensionplan,Combinedbodycotepensionplanandthesupplementalretirementplan.allareclosedtonewaccrual.thelastfullactuarialvaluationoftheseschemeswascarriedoutbyaqualifiedindependentactuaryasat1january2008(31december2008fortheMetallurgicalplan)andupdatedonanapproximatebasisto31december2010.ContributionsmadebytheCompanyovertheyearwere$0.6m.theGroupalsooperatesadefinedbenefitschemefor1employeeinbrazil.

ineuropetheGroupoperatesdefinedbenefitpension,postretirementandlong-servicearrangementsforcertainemployeesinFrance,Germany,italy,turkey(allofwhichareunfunded),switzerlandandliechtenstein.

reconciliationofopeningandclosingbalancesofthepresentvalueofthedefinedbenefitobligation 2010 2009 £m £m

definedbenefitobligationatstartofyear 19.8 22.6Currentservicecost 0.6 0.5interestcost 1.0 1.3actuarialloss .– 0.9benefitspaid,deathinserviceinsurancepremiumsandexpenses (0.9) (2.7)settlement .– (1.0)employeecontributions 0.1 0.1pastservicecost 0.6 .–exchangerateloss/(gain) 0.8 (1.9)

definedbenefitobligationatendofyear 22.0 19.8

reconciliationofopeningandclosingbalancesofthefairvalueofplanassets 2010 2009 £m £m

Fairvalueofassetsatstartofyear 8.5 8.4expectedreturnonassets 0.4 0.4actuarialgain 0.1 0.6Contributionsbyemployer 0.5 0.5Contributionsbyemployees 0.1 0.1benefitspaid,deathinserviceinsurancepremiumsandexpenses (0.3) (0.8)exchangerategain/(loss) 1.1 (0.7)

Fairvalueofassetsatendofyear 10.4 8.5

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30. retirementbenefitobligationscontinued

totalexpenserecognisedintheincomestatement 2010 2009 £m £m

Currentservicecost 0.6 0.5interestonpensionschemeliabilities 1.0 1.3expectedreturnonpensionschemeassets (0.4) (0.4)settlementgain .– (1.0)

totalexpenses 1.2 0.4

oftheexpensefortheyear,£0.6m(2009:incomeof£0.5m)hasbeenincludedintheoperatingprofitand£0.6m(2009:£0.9m)hasbeenincludedinfinancecharges.actuarialgainsandlosseshavebeenreportedinothercomprehensiveincome.

thecumulativeamountofactuariallossesrecognisedinthestatementofComprehensiveincomesinceadoptionofias19is£0.7m.

assets 2010 2009 2008 £m £m £m

equities 1.1 0.9 1.3bonds 0.6 0.7 0.8Cash 1.3 0.9 .–insurancecontracts-brazil 1.2 1.0 0.6insurancecontracts-switzerlandandliechtenstein 6.2 5.0 5.7

10.4 8.5 8.4

noneofthefairvaluesoftheassetsshownaboveincludeanyoftheGroup’sownfinancialinstrumentsoranypropertyoccupiedby,orotherassetsusedbytheGroup.

expectedlong-termratesofreturntheexpectedlong-termreturnonassetsvariesbycountryandeachreflecttherespectiveexpectedfuturemarketratesorreturnsonassetsunderlyinginsurancecontractswhererelevant.

actualreturnonplanassetstheactualreturnontheplanassetsfortheyearending31december2010was6%.

assumptionsfor2010 salary increases

rateof discount inflation

pension increases

%per annum

%per annum

%per annum

%per annum

usa n/a 5.50 n/a n/abrazil 6.59 10.30 4.50 n/aFrance 3.00 4.60 2.00 n/aGermany 2.50 4.65 n/a 1.75italy n/a 4.00 2.00 n/aturkey n/a 10.00 5.10 n/aliechtenstein 2.50 2.75 n/a n/aswitzerland 3.00 2.75 n/a n/a

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30. retirementbenefitobligationscontinued

presentvalueofdefinedbenefitobligations,fairvalueofassetsanddeficit 2010 2009 2008 £m £m £m

presentvalueofdefinedbenefitobligation 22.0 19.8 22.6Fairvalueofplanassets (10.4) (8.5) (8.4)

deficitinthescheme 11.6 11.3 14.2

unrecognisedpriorservicecost (0.6) .– .–

netliabilityrecognisedinthebalancesheet 11.0 11.3 14.2

asallactuarialgainsandlossesarerecognised,thedeficitshownaboveat31december2010isthatrecognisedinthebalancesheet.

amountsforthecurrentandpreviousfouryears 2010 2009 2008 2007 2006 £m £m £m £m £m

Fairvalueofassets (10.4) (8.5) (8.4) (4.1) (3.7)presentvalueofdefinedbenefitobligation 22.0 19.8 22.6 14.6 14.5

deficitinthescheme 11.6 11.3 14.2 10.5 10.8

Gain/(loss)fromexperienceadjustmentonplanliabilities 0.5 (0.3) (3.7) (0.9) 0.6Gainfromexperienceadjustmentonplanassets 0.1 0.6 2.9 0.1 0.3(loss)/gainfromeffectsofchangingassumptions (0.5) (0.7) (0.5) (1.2) 0.3

theonlyfundedplansarethoseoperatedinusa,brazil,switzerlandandliechtenstein(swedenhavingbeensettledin2009).thebestestimateofcontributionstobepaidintotheplansfortheyearending31december2011is£0.4m.

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FiveyearsuMMary

2010 2009 2008 2007 2006 £m £m £m £m £m

revenueexistingoperations 499.8 435.4 551.8 465.2 413.9discontinuedoperations .– ,– 164.9 175.3 144.7

revenue–continuinganddiscontinuedoperations 499.8 435.4 716.7 640.5 558.6

profitforcontinuinganddiscontinuedoperations:headlineoperatingprofit 52.1 8.0 91.7 91.3 79.7shareofresultsofassociates’interestandtax .– .– .– .– (0.6)amortisationandimpairmentofgoodwillandintangiblefixedassets (0.9) (32.8) (33.8) (9.1) (7.0)impairmentofinvestmentinassociate .– .– (12.1) .– (8.3)Majorfacilityclosurecosts .– (25.4) (77.6) (5.4) (5.0)Changetopensionschemerules .– .– .– 4.1 .–bidresponsecosts .– .– .– (2.1) .–profitondisposalofoperations .– .– 199.3 .– .–

profit/(loss)beforeinterestandtax 51.2 (50.2) 167.5 78.8 58.8netinterestpayable (6.0) (4.3) (10.0) (10.3) (12.2)

profit/(loss)beforetaxation 45.2 (54.5) 157.5 68.5 46.6taxation (17.5) 3.4 (6.8) (14.7) (2.7)

profit/(loss)aftertaxation 27.7 (51.1) 150.7 53.8 43.9non-controllinginterests (0.1) 1.0 (0.9) (1.0) (0.8)

profit/(loss)attributabletotheequityholdersoftheparent 27.6 (50.1) 149.8 52.8 43.1

Headlineearningspershare(pence) 18.3 0.4 17.5 16.6 17.3dividendspershare(pence) 8.7 8.3 8.3 8.0 7.0

assetsemployedintangiblefixedassets 118.1 118.8 154.4 227.3 212.3tangiblefixedassets 458.0 461.8 533.3 508.9 448.4otherassetsandliabilities (74.0) (72.5) (126.1) (41.4) (45.9)

502.1 508.1 561.6 694.8 614.8

financedbysharecapital 32.8 32.5 32.4 32.4 32.2reserves 416.3 387.8 459.6 457.6 417.3

shareholders’funds 449.1 420.3 492.0 490.0 449.5non-controllinginterests 1.7 2.3 4.9 6.6 4.4netborrowings 51.3 85.5 64.7 198.2 160.9

Capitalemployed 502.1 508.1 561.6 694.8 614.8

netassetspershare(pence) 236.5 223.4 262.4 151.4 139.5

returnoncapitalemployed:Headlineoperatingprofit(continuinganddiscontinuedoperations)dividedbyaveragecapitalemployed 10.1 1.5 12.6 13.9 13.8

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CoMpanybalanCesHeetat31deCeMber2010

2010 2009 note £m £m

fixedassetstangiblefixedassets 3.1 2.9 2investments 393.2 395.1 3

396.3 398.0

Currentassetsdebtors-duewithinoneyear 11.2 22.6 4-dueafteroneyear 56.8 70.3 4Cashatbankandinhand 0.7 2.8

68.7 95.7

CurrentliabilitiesCreditors:amountsfallingduewithinoneyear (8.1) (13.4) 5

netcurrentassets 60.6 82.3

totalassetslesscurrentliabilities 456.9 480.3

Creditors:amountsfallingdueaftermorethanoneyear (0.6) (0.5) 5

netassets 456.3 479.8

CapitalandreservesCalled-upsharecapital 32.8 32.5 7sharepremiumaccount 176.3 176.0 7otherreserves 124.6 125.0 7profitandlossaccount 122.6 146.3 7

shareholders’funds 456.3 479.8

thefinancialstatementsofbodycoteplc,registerednumber519057,wereapprovedbytheboardofdirectorsandauthorisedforissueon24February2011.theyweresignedonitsbehalfby:s.C.Harris}

directorsd.F.landless

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independentauditors’reporttotHeMeMbersoFbodyCoteplC

wehaveauditedtheparentcompanyfinancialstatementsofbodycoteplcfortheyearended31december2010whichcomprisetheCompanybalancesheet,theCompanyaccountingpoliciesandtherelatednotes1to11.thefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandunitedKingdomaccountingstandards(unitedKingdomGenerallyacceptedaccountingpractice).

thisreportismadesolelytothecompany’smembers,asabody,inaccordancewithChapter3ofpart16oftheCompaniesact2006.ourauditworkhasbeenundertakensothatwemightstatetothecompany’smembersthosematterswearerequiredtostatetotheminanauditors’reportandfornootherpurpose.tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthanthecompanyandthecompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.

respeCtiveresponsiBilitiesofDireCtorsanDauDitorsasexplainedmorefullyinthedirectors’responsibilitiesstatement,thedirectorsareresponsibleforthepreparationoftheparentcompanyfinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview.ourresponsibilityistoauditandexpressopinionontheparentcompanyfinancialstatementsinaccordancewithapplicablelawandinternationalstandardsonauditing(uKandireland).thosestandardsrequireustocomplywiththeauditingpracticesboard’s(apb’s)ethicalstandardsforauditors.

sCopeoftheauDitofthefinanCialstatementsanauditinvolvesobtainingevidenceabouttheamountsanddisclosuresinthefinancialstatementssufficienttogivereasonableassurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorerror.thisincludesanassessmentof:whethertheaccountingpoliciesareappropriatetotheparentcompany’scircumstancesandhavebeenconsistentlyappliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebythedirectors;andtheoverallpresentationofthefinancialstatements.

opiniononfinanCialstatementsinouropiniontheparentcompanyfinancialstatements:

giveatrueandfairviewofthestateofthecompany’saffairsasat31december2010;

havebeenproperlypreparedinaccordancewithunitedKingdomGenerallyacceptedaccountingpractice;and

havebeenpreparedinaccordancewiththerequirementsoftheCompaniesact2006.

opiniononothermatterpresCriBeDBytheCompaniesaCt2006inouropiniontheinformationgiveninthedirectors’reportforthefinancialyearforwhichthefinancialstatementsarepreparedisconsistentwiththeparentcompanyfinancialstatements.

mattersonwhiChwearerequireDtoreportByeXCeptionwehavenothingtoreportinrespectofthefollowingmatterswheretheCompaniesact2006requiresustoreporttoyouif,inouropinion:

adequateaccountingrecordshavenotbeenkeptbytheparentcompany,orreturnsadequateforouraudithavenotbeenreceivedfrombranchesnotvisitedbyus;or

theparentcompanyfinancialstatementsandthepartofthedirectors’remunerationreporttobeauditedarenotinagreementwiththeaccountingrecordsandreturns;or

certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or

wehavenotreceivedalltheinformationandexplanationswerequireforouraudit.

othermatterwehavereportedseparatelyonthegroupfinancialstatementsofbodycoteplcfortheyearended31december2010andtheinformationintheboardreportonremunerationthatisdescribedashavingbeenaudited.

nicolamitchell(seniorstatutoryauditor)forandonbehalfofdeloittellpCharteredaccountantsandstatutoryauditorsManchester,uK24February2011

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CoMpanyaCCountinGpoliCies

aCCountingConventionthefinancialstatementshavebeenpreparedunderthehistoricalcostconventionandinaccordancewithapplicablelawandunitedKingdomaccountingstandards.theprincipalaccountingpoliciesaresummarisedbelow.theyhaveallbeenappliedconsistentlythroughouttheyearandtheprecedingyearindealingwithitemsthatareconsideredmaterialinrelationtotheCompany’sfinancialstatements.inaccordancewithsection408oftheCompaniesact2006aseparateprofitandlossaccountdealingwiththeresultsoftheCompanyhasnotbeenpresented.

goingConCernthedirectorshaveatthetimeofapprovingthefinancialstatements,areasonableexpectationthattheCompanyhasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.thustheycontinuetoadoptthegoingconcernbasisofaccountinginpreparingthefinancialstatements.FurtherdetailiscontainedintheFinancedirector’sreportonpage25.

investmentsinvestmentsareheldatcostlessprovisionforimpairment.

foreignCurrenCiestransactionsincurrenciesotherthanpoundssterlingarerecordedattheratesofexchangeprevailingonthedatesofthetransactions.ateachbalancesheetdate,monetaryassetsandliabilitiesthataredenominatedinforeigncurrenciesareretranslatedattheratesprevailingonthebalancesheetdate.non-monetaryitemsthataremeasuredintermsofhistoricalcostinaforeigncurrencyarenotretranslated.Gainsandlossesarisingonretranslationareincludedinnetprofitorlossfortheperiod.

pensionCostsFordefinedbenefitanddefinedcontributionschemes,theamountchargedtotheprofitandlossaccountinrespectofpensioncostsisthecontributionspayableintheyear.Forfurtherdetailsseenote10.

leasesassetsheldunderfinanceleasesandothersimilarcontracts,whichconferrightsandobligationssimilartothoseattachedtoownedassets,arecapitalisedastangiblefixedassetsandaredepreciatedovertheshorteroftheleasetermsandtheirusefullives.thecapitalelementsoffutureleaseobligationsarerecordedasliabilities,whiletheinterestelementsarechargedtotheprofitandlossaccountovertheperiodoftheleasetoproduceaconstantrateofchargeonthebalanceofcapitalrepaymentsoutstanding.Hirepurchasetransactionsaredealtwithsimilarly,exceptthatassetsaredepreciatedovertheirusefullives.

rentalcostsunderoperatingleasesarechargedtotheprofitandlossaccountonastraight-linebasisovertheperiodofthelease.

theCompanyaslessoramountsduefromlesseesunderfinanceleasesarerecordedasreceivablesattheamountoftheCompany’snetinvestmentintheleases.FinanceleaseincomeisallocatedtoaccountingperiodssoastoreflectaconstantperiodicrateofreturnontheCompany’snetinvestmentoutstandinginrespectoftheleases.

tangiBlefiXeDassetstangiblefixedassetsarestatedatcostnetofdepreciationandanyprovisionforimpairment.depreciationisprovidedonastraight-linebasis,toreducethecarryingvaluetotheestimatedresidualvalueatthepointofsale,atthefollowingannualrates:

Fixturesandfittings:10%to20%

residualvalueiscalculatedonpricesprevailingatthedateofacquisition.

taXationCurrentuKcorporationtaxandforeigntaxisprovidedatamountsexpectedtobepaid(orrecovered)usingthetaxratesandlawsthathavebeenenactedorsubstantivelyenactedbythebalancesheetdate.

deferredtaxisrecognisedinrespectofalltimingdifferencesthathaveoriginatedbutnotreversedatthebalancesheetdatewheretransactionsoreventsthatresultinanobligationtopaymoretaxinthefutureorarighttopaylesstaxinthefuturehaveoccurredatthebalancesheetdate.timingdifferencesaredifferencesbetweentheCompany’staxableprofitsanditsresultsasstatedinthefinancialstatementsthatarisefromtheinclusionofgainsandlossesintaxassessmentsinperiodsdifferentfromthoseinwhichtheyarerecognisedinthefinancialstatements.

anetdeferredtaxassetisregardedasrecoverableandthereforerecognisedonlywhen,onthebasisofallavailableevidence,itcanberegardedasmorelikelythannotthattherewillbesuitabletaxableprofitsfromwhichthefuturereversaloftheunderlyingtimingdifferencescanbededucted.

deferredtaxismeasuredattheaveragetaxratesthatareexpectedtoapplyintheperiodsinwhichthetimingdifferencesareexpectedtoreversebasedontaxratesandlawsthathavebeenenactedorsubstantivelyenactedbythebalancesheetdate.deferredtaxismeasuredonadiscountedbasistoreflectthetimevalueofmoneyovertheperiodbetweenthebalancesheetdateandthedatesonwhichitisestimatedthattheunderlyingtimingdifferenceswillreverse.thediscountratesusedreflectthepost-taxyieldstomaturitythatcanbeobtainedongovernmentbondswithsimilarmaturitydatesandcurrenciestothoseofthedeferredtaxassetsorliabilities.

DeBtdebtisinitiallystatedattheamountofthenetproceedsafterdeductionofissuecosts.thecarryingamountisincreasedbythefinancecostinrespectoftheaccountingperiodandreducedbypaymentsmadeintheperiod.Financecostsofdebtarerecognisedintheprofitandlossaccountoverthetermofsuchinstrumentsataconstantrateonthecarryingamount.

relateDpartytransaCtionstheCompanyhastakenadvantageoftheexemptioncontainedinFrs8‘relatedpartytransactions’nottodisclosetransactionsorbalanceswithwholly-ownedentitiesoftheGroup.

share-BaseDpaymentstheCompanyhasappliedtherequirementsofFrs20‘share-basedpayment’.

theCompanyissuesequity-settledshare-basedpaymentstocertainemployees.equity-settledshare-basedpaymentsaremeasuredatfairvalueatthedateofgrant.thefairvaluedeterminedatthegrantdateoftheequity-settledshare-basedpaymentsisexpensedonastraight-linebasisoverthevestingperiod.ateachbalancesheetdate,theCompanyrevisesitsestimateofthenumberofequityinstrumentsexpectedtovestasaresultoftheeffectofnon-marketbasedvestingconditions.theimpactoftherevisionoftheoriginalestimates,ifany,isrecognisedinprofitorlosssuchthatthecumulativeexpensereflectstherevisedestimateswithacorrespondingadjustmenttotheequity-settledemployeebenefitsreserve.Fairvalueismeasuredbyuseofablack-scholesmodel.

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notestotHeCoMpanyFinanCialstateMentsyearended31deCeMber2010

1. lossfortheyear

bodycoteplcreportedalossforthefinancialyearended31december2010of£8.3m(2009:loss£1.8m).

theauditors’remunerationforauditandotherservicesisdisclosedinnote3totheconsolidatedfinancialstatements.

totalemployeecosts(includingexecutivedirectors)were: 2010 2009 £m £m

wagesandsalaries 6.7 3.0socialsecuritycosts 0.7 0.3otherpensioncosts 0.5 0.4

7.9 3.7

2. tangiblefixedassets fixtures andfittings £m

Cost

at1january2010 3.9additions 1.1disposals (0.4)

at31December2010 4.6

Depreciation

at1january2010 1.0Chargefortheyear 0.8disposals (0.3)

at31December2010 1.5

netbookvalue

at31December2010 3.1

at31december2009 2.9

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3. investments

shares sharesin associates loans total

£m £m £m £mCost

at1january2010 401.2 7.3 0.1 408.6acquisitionsandadvances 2.1 .– .– 2.1disposalsandrepayments (3.0) (7.3) (0.1) (10.4)

at31December2010 400.3 .– .– 400.3

provisionforimpairmentat1january2010 6.2 7.3 .– 13.5provisionintheyear 0.9 .– .– 0.9disposals .– (7.3) .– (7.3)

at31December2010 7.1 .– .– 7.1

netbookvalue

at31December2010 393.2 .– .– 393.2

at31december2009 395.0 .– 0.1 395.1

theCompany’sassociatedcompanyssCpCoatingss.à.r.l.wasrecapitalisedthroughashareissueinanewcompanyduringtheyear.theCompanychosenottoparticipateinthisshareissue,andasaresult,theCompany’spercentageholdinginthebusinesshassignificantlyreducedtoalevelwheretheCompanynolongerclassifiesthebusinessasanassociatecompany.

4. Debtors 2010 2009 £m £m

amountsfallingduewithinoneyear:amountsowedbysubsidiaryundertakings 0.5 11.7Corporationtaxrecoverable 6.3 7.2deferredtaxation(note6) 2.5 2.3Financeleasereceivables 0.4 0.4otherdebtorsandprepayments 1.5 1.0

11.2 22.6

amountsfallingdueaftermorethanoneyear:amountsowedbysubsidiaryundertakings 56.8 69.8Financeleasereceivables .– 0.5

56.8 70.3

68.0 92.9

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5. Creditors 2010 2009 £m £m

amountsfallingduewithinoneyear:bankloans .– 2.6tradecreditors 0.9 0.6amountsowedtosubsidiaryundertakings 2.9 1.1dividendspayable .– 5.5othertaxesandsocialsecurity 0.1 0.2othercreditors 0.8 0.5accrualsanddeferredincome 3.4 2.9

8.1 13.4

amountsfallingdueaftermorethanoneyear:amountsowedtosubsidiaryundertakings 0.6 0.5

0.6 0.5

Bankloansarerepayable:ondemandorwithin12months .– 2.6

.– 2.6

6. Deferredtaxasset

£mat1january2010 2.3profitandlosscredit 0.2

at31December2010 2.5

2010 2009 £m £m

Deferredtaxisrecognisedasfollows:taxlosses 0.4 1.7othertimingdifferences 2.1 0.6

deferredtaxasset 2.5 2.3

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7. Capitalandreserves

sharecapital:

ordinaryshares(allotted,called-upandfully-paid) numberofshares £m

at1january2010 188,167,712 32.5allottedintheyear 1,714,205 0.3

at31December2010 189,881,917 32.8

detailsofshareoptionsinissueontheCompany’ssharecapitalandshare-basedpaymentsaresetoutinnote28totheconsolidatedfinancialstatements.

reserves: share premium account

other reserves

profit andloss account total

£m £m £m £m

at1january2010 176.0 125.0 146.3 447.3dividendspaid .– .– (15.4) (15.4)lossfortheyear .– .– (8.3) (8.3)premiumarisingonissueofequityshares(netofexpenses) 0.3 .– .– 0.3share-basedpaymentsandacquisitionofownshares .– (0.4) .– (0.4)

at31December2010 176.3 124.6 122.6 423.5

theotherreservesisstatedafterdeducting£8.0m(2009:£7.3m)relatingtosharesheldinthebodycoteinternationalemployeebenefittrust.thebodycoteinternationalemployeebenefittrustholdsbodycoteplcsharesandsatisfiesawardsmadeundervariousemployeeincentiveschemeswhenissuanceofnewsharesisnotappropriate.

at31december20103,837,581(2009:2,100,427)ordinarysharesof173/11peachwereheldbythebodycoteinternationalemployeebenefittrustand,followingrecommendationsbytheemployer,areprovisionallyallocatedtosatisfyawardsunderemployeeincentiveschemes.thetrustwaivespaymentofdividend.themarketvalueoftheseshareswas£10.8m(2009:£3.3m).

includedinotherreservesisthecapitalredemptionreserveof£129.4m(2009:£129.4m).

8. Contingentliabilities

theCompanyhasguaranteedbankoverdrafts,loansandlettersofcreditofcertainsubsidiaryundertakingsamountingto£80.5m(2009:£108.1m).

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9. financialCommitments

annualcommitmentsundernon-cancellableoperatingleasesareasfollows: 2010 2009 £m £m

withinoneyear 0.3 0.3inthesecondtofifthyearsinclusive 0.8 0.9afterfiveyears 0.5 0.7

1.6 1.9

operatingleasepaymentsrepresentrentalspayablebytheCompanyforitslandandbuildings.

10. pensioncommitments

theCompanyparticipatesinagroupdefinedbenefitscheme,thedetailsofwhicharedisclosedinnote30totheconsolidatedfinancialstatements.However,theCompanyisunabletoidentifyitsshareoftheunderlyingassetsandliabilitiesandhasthereforeaccountedfortheschemeasifitwereadefinedcontributionscheme.Fulldisclosuresconcerningtheschemeasrequiredbyias19aresetoutinnote30totheconsolidatedfinancialstatements.thesealsosatisfytherequirementsofFrs17’retirementbenefits’.

thecontributionsmadebytheCompanyoverthefinancialyeartoboththedefinedcontributionandthedefinedbenefitschemesamountedto£0.4m(2009:£0.3m)and£0.1m(2009:£0.1m)respectively.

11. relatedpartytransactions

theCompany’sassociatedcompanyssCpCoatingss.à.r.l.wasrecapitalisedthroughashareissueinanewcompanyduringtheyear.theCompanychosenottoparticipateinthisshareissue,andasaresult,theCompany’spercentageholdinginthebusinesshassignificantlyreducedtoalevelwheretheCompanynolongerclassifiesthebusinessasanassociatecompany.

duringtheprioryear,theCompanyenteredintothefollowingtransactionswithrelatedpartieswhoarenotmembersoftheGroup,namelyssCpCoatingss.à.r.l.

saleofgoodsandservices

amountsowedbyrelatedparties

2010 2009 2010 2009 £m £m £m £m

associates .– 2.4 .– 17.9

salesofgoodsandservicesincludepaymentsreceivedfromfinanceleases,theprovisionofmanagementservicesandinterestreceivable.alltransactionsweremadeatarm’slength.

at31december2009,aprovisionof£17.0mwasrecognisedagainstthe£17.9mamountsowedbyrelatedpartiesabove.

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prinCipalsubsidiaryundertaKinGs

thermalproCessing-heattreatmentanDmetalJoining

Countryofincorporation

*bodycoteHeattreatmentslimited Cambridge,Chard,Cheltenham,Coventry,derby,Gillingham,Greatbarr,HazelGrove,Macclesfield,rotherham,skelmersdale,stillingtonandwoodford england

bodycoteHardiffGmbH landsberg Germany

bodycotewärmebehandlungGmbH

ebersbach,eching,essen,esslingen,Karben,Korntal,langenfeld,langenselbold,lüdenscheid,Menden,nürnberg,otterfing,remscheid,sömmerda,sprockhövelandwehingen Germany

nitrionGmbH otterfing Germany

bodycoteHardingscentrumbv diemen,Hengelo,tilburgandvenlo netherlands

bodycoteHardiffbv apeldoorn netherlands

bodycotevärmebehandlingab Göteborg,Hudiksvall,Karlskoga,Malmö,Mora,stockholm,värnamoandvästerås sweden

bodycotesas

ambazac,amiens,beaugency,billy-berclau,Cernay,Chantelouplesvignes,Chassieu,Condésurnoireau,Gemenos,Gennevilliers,lagnysurMarne,laMonnerieleMontel,latalaudière,lesubdray,neuillyenthelle,nogent,pusignan,serresCastet,staubinleselbeuf,stnicolasd’aliermont,strémyenMauges,villazandvoreppe France

techmetasa Metz-tessy France

nitruvidsas argenteuilandGandrange France

bodycotebelgiumsa brussels belgium

bodycotelämpökäsittelyoy pieksämäki,tampere,vaasaandvantaa Finland

bodycotevarmebehandlinga/s Herlevandejby denmark

bodycoteitaliasrl Gorgonzola italy

bodycotetrattamentitermicispa Flero,Madoneandrodengo italy

bodycotewärmebehandlungwienGmbH Kapfenberg,Marchtrenkandvienna austria

bodycoterheintalwärmebehandlungaG schaan liechtenstein

bodycoteschweizwärmebehandlungaG urdorf switzerland

bodycoteHts.r.o brno,liberec,Krnov,plzenandprague Czechrepublic

bodycotepolskaspz.o.o Czestochowa,Chelmno,Kozerki,swiebodzin,warsawandZabrze poland

bodycotetratamentetermicesrl(75%owned)‡ brasovandCugir romania

bodycoteHökezelöKFt budapest Hungary

bodycoteistasisilislemsanayiveticaretas(60%owned)‡ ankara,bursa,istanbulandizmir turkey

bodycotethermalprocessing,inc.

Fremont,santaFespringsandHuntingtonpark,ranchodominguez,vernon,westminsterCa,berlin,waterbury,southwindsorandsuffieldCt,ipswichandworcesterMa,CantonandlivoniaMi,Cincinnati,ClevelandandlondonoH,oklahomaCityandtulsaoK,arlington,dallas,HoustonandFortworthtx,laconianH,Melroseparkil,indianapolisin,edenprairieMn,rochesterny,sturtevantandnewberlinwi usa

bodycotethermalprocessingCanada,inc. newmarketandKitcheneron Canada

bodycotethermalprocessingMexicolimited silaoandGuaymas,Mexico england

bodycotebrasimetprocessamentotermicoltda Campinas,joinville,saoleopoldoandjundiai brazil

bodycotewuxitechnologyCo.limited wuxi China

bodycote(ningbo)HeattreatmentCo.limited ningbo China

bodycoteMetallurgicalservicesindiapvtlimited ranjangaon india

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100 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts

prinCipalsubsidiaryundertaKinGsContinued

thermalproCessing-hotisostatiCpressing

*bodycoteH.i.p.ltd ChesterfieldandHereford england

bodycoteiMtinc. andoverMa,londonoHandprincetonKtandCamaswa usa

bodycoteHeiss-isostatischespressenGmbH Haag Germany

bodycoteiMtnv sint-niklaas belgium

bodycotejapanK.K. nagoya japan

bodycotesas Magny-Cours France

thermalproCessing-surfaCeengineering

*bodycoteMetallurgicalCoatingslimited Knowsley,Macclesfield,stonehouse,newport,neath,skelmersdale,wolverhamptonanddubai england

bodycoteK-tech,inc. Hotsprings,ar usa

bodycoteytbehandlingab Katrineholm,Karlstad,andvästraFrölunda sweden

bodycotesingaporepteltd singapore singapore

bodycoteargentinasa buenosaires theargentine

groupserviCes

‡*thomasCook&soninsurancebrokerslimited(75%owned) burnley england

exceptwherestated,thesecompaniesarewhollyownedsubsidiariesandhaveonlyoneclassofissuedshares.subsidiariesmarked*arehelddirectlybybodycoteplc.entitiesmarked‡havebeentreatedassubsidiaryundertakingsinthefinancialstatementsbecausetheGroupexercisescontrolovertheseentities.

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sHareHolderenquiries

enquiriesonthefollowingadministrativematterscanbeaddressedtotheCompany’sregistrarsattheregistry,34beckenhamroad,beckenham,Kentbr34tu.telephone08716640300(callsto0871numberscost10pperminuteplusnetworkextras–linesareopen8.30amuntil5.30pm,MondaytoFriday)or+44(0)2086393399;Fax:+44(0)1484600911;andemail;[email protected].

Changeofaddress

lostsharecertificatesordividendcheques

dividendmandates

amalgamationofholdings

Formsforthesematterscanbedownloadedfromtheregistrars’websiteatwww.capitaregistrars.com,whereshareholderscanalsochecktheirholdingsanddetails.

sHaredealinGserviCe

informationonalowcostsharedealingserviceofferedbyourregistrarisavailablefromCapitaon08716640300(callsto0871numberscost10pperminuteplusnetworkextras)oratwww.capitadeal.com.

sHareHolderanalysis

analysisofshareregisterasat18February2011:

Holdingrange numberofshareholders % numberofshares %

1to1,000 1,095 41.9 483,143 0.31,001to10,000 1,124 43.0 3,471,321 1.810,001to100,000 244 9.3 7,368,852 3.9100,001to500,000 87 3.3 18,787,570 9.9500,001andover 64 2.5 159,816,482 84.1

2,614 100.0 189,927,368 100.0

typeofshareholders %ofshareholders %oftotal shares

directors’interests 0.1 2.2Majorinstitutionalandcorporateholdings 7.0 91.6othershareholdings 92.9 6.2

100.0 100.0

asat24February2011thefollowingvotingrightsintheCompanyhadbeennotifiedinaccordancewiththedisclosureandtransparencyrules.

numberofshares %

standardlifeinvestmentsltd 26,580,513 14.00schrodersplc 13,187,266 6.94aberforthpartnersllp 9,427,581 4.96baillieGifford&Co 9,402,000 4.95legal&GeneralGroupplc 7,546,421 3.97

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FinanCialCalendar

annualgeneralmeeting 27april2011

finaldividendfor2010 6May2011

interimresultsfor2011 july2011

interimdividendfor2011 november2011

resultsfor2011 February2012

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notes

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notes

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Bodycote plc Springwood Court Springwood Close Tytherington Business Park Macclesfield Cheshire SK10 2XF

Tel: +44 (0)1625 505300 Fax: +44 (0)1625 505313 Email: [email protected]

© Bodycote plc 2011Ref: ID5284

Designed and produced by ID www.interactivedimension.com

Printed by Shanleys

www.bodycote.com