|Risk description||Impact||Mitigation and control||Relevance to strategy|
|Market and customer risks|
Bodycote operates in 26 countries and a substantial amount of sales are closely linked to the economic cycle and the general macro-economic environment.
The high proportion of fixed costs in the business means that a drop in sales will have a significant impact on profitability. Sales in the markets served by the AGI businesses (64% of the total Group) tend to develop in line with or ahead of the economic cycle, whereas aerospace and defence sales (22%) tend to track behind the economic cycle. Sales to the energy sectors (14%) are closely linked to energy prices, which in turn can be affected by general economic activity.
- Bodycote's presence in 26 countries in a wide variety of end-markets acts as a natural hedge to neutralise localised economic volatility.
- There is some flexibility in the cost base e.g. by ensuring that a proportion of the workforce is employed on temporary contracts.
- Changes in customer demand on a local or a group-wide level are responded to quickly.
Loss of key customers
Bodycote benefits from many long-term relationships with key customers and the damage to, or loss of, any of these relationships would be detrimental to the Group.
The loss of a key customer could adversely affect the Group's financial results and the viability of one or more of Bodycote's facilities.
- There is no significant customer dependency, with the Group's top ten customers accounting for less than 14% of sales and the balance made up by many thousands of customers.
- There is a continued focus on customer service and quality processes to maintain excellent relationships with major customers. Key account management is in place and customer satisfaction is monitored.
The entry of competitors into one or more of the Group's Specialist Technologies.
The erosion of market share resulting in loss of revenue and profit.
- The close control of proprietary knowledge.
- Rapid increase in the scale of the Group's offerings to maintain the position as supplier of choice.
|Corporate and community risks|
Safety and health
The nature of Bodycote's activities presents safety and health risks.
Bodycote is committed to providing a safe work environment for its employees but Bodycote's operations, if not properly managed, could have a significant impact on individual employees. Furthermore, poor safety and health practices could lead to disruption of business, financial penalties and loss of reputation.
- Group-wide health and safety policies set by the Group Chief Executive.
- OHSAS 18001 and ISO 14001 compliant SHE management systems being used by Group Head of Safety, Health and Environment with support of divisional safety and health teams.
- Programme in place to focus on reduction of incidents which could have a high impact.
- Safety compliance audits at all plants at least every two years.
- Oversight of safety and health framework provided by the Group SHE Committee.
Bodycote's operations could lead to damage to the environment.
Historical use of solvents and other hazardous chemicals by plants operated by Bodycote or by plants acquired by Bodycote could have led to ground contamination. The environmental regulations in many of the jurisdictions that Bodycote operates in impose actual or potential obligations on Bodycote to remediate contaminated sites.
Operations, if not properly managed, could result in environmental contamination with disruption of business, financial costs and loss of reputation.
Bodycote incurs costs annually (2014: £1.5m) in meeting its obligations and maintains a provision of £14.0m. If the provision is insufficient to meet the cost of remediation, then this could have an impact on the Group's results. Some of the Group's heat treatment plants continue to use solvents and hazardous chemicals in small quantities.
- Remediation of contaminated sites as required by local legislation.
- Reduction in the use of hazardous substances, such as chlorinated solvents.
- Environmental procedures and measures in place conforming to ISO 14001 (2014: 87% of plants).
- Environmental due diligence of businesses for acquisitions.
The Bodycote brand is reliant on the repeatable delivery of parts to agreed specification to an agreed time.
Deterioration in quality or service levels can cause serious long-term damage to Bodycote's reputation with financial consequences such as the loss of a customer and the cost of damages or litigation. Work that is released into use which is not in compliance with specification could arise as a result of system or human failure.
- Bodycote has stringent quality systems in place managed by qualified staff.
- Quality systems and processes operated at plant level with oversight by divisional quality teams.
- Where necessary plants maintain industry relevant accreditations, such as ISO 9001, Nadcap and TS 16949.
- All plants subjected to internal and external quality audits and inspections at least once a year.
Major disruption at a facility
Bodycote's business processes are inherently risky and there is a possibility that a major fire or utility outage could lead to closure of a facility's operation. In addition a number of sites are exposed to natural hazards, such as earthquakes, flooding and storms.
Any significant incident at a site could result in the service to Bodycote's customers from the affected site being disrupted.
- Bodycote has a global network of 188 facilities that creates a framework to provide back-up capability for any affected facility.
- Business continuity plans developed for all plants.
- Independent insurer inspections to assess hazard and business interruption risks.
- Scheduled equipment maintenance and inspections.
Information technology projects
The efficient operation of the Group will rely increasingly on the proper development and operation of its IT systems. Bodycote is currently undergoing a group-wide implementation of a new ERP system.
Failure to manage the implementation of the ERP programme successfully could result in cost overruns and, potentially, disruption to the business.
- Project approval and progress subject to regular Board review.
- Project teams made up of skilled subject matter experts supplemented with third party advisers.
- Best practice project management processes in place with assurance provided by third parties.
- Defined disaster recovery planning and data backup procedures.
Regulatory and legislative compliance
The global nature of Bodycote's operations means that the Group has to comply with a wide range of local and international legislative requirements, including anti-bribery and anti-competition legislation, taxation legislation, employment law and import and export controls.
Failure to comply with legislation could lead to substantial financial penalties, disruption to business, diversion of management time, personal and corporate liability and loss of reputation.
- Business processes are supported by HR policies and the Group Code of Conduct alongside training and awareness programmes.
- The "Open Door Line" whistleblower facility which is managed by a third party.
- Engagement of local specialists to support Bodycote at local, divisional and Group level.
- Regular audit of the effectiveness of implemented procedures.