Melrose Industries Plc · LSE:MRO
Melrose Industries — H1 2024 Earnings Presentation
33 slides from Melrose Industries's earnings presentation, Aug 1, 2024
Slide 1: Melrose Industries PLC Half Year Results
Melrose Industries PLC Half Year Results Six months ended 30 June 2024 1 August 2024
Slide 2: Disclaimer
Disclaimer This presentation has been prepared by or on behalf of Melrose Industries PLC (“Melrose”). The information set out in this presentation is not intended to form the basis of any contract. By attending (whether in person, by telephone or webcast) the presentation to which this document rela
Slide 3: Interim Results Highlights
Interim Results Highlights ▪ H1 results better than our expectations with 62%1 operating profit increase and margins up 450 bps 1 Strong H1 performance ▪ Engines outperformance at 29% margin; good Structures progress including portfolio exits ▪ Clear trajectory for Melrose margin of >18% in 2025 wit
Slide 4: H1 2024 Results, Growth Strategy, Capital Allocation
H1 2024 Results Growth Strategy Capital Allocation Half Year Results 4
Slide 5: Results Overview: Trading Ahead of Our Expectations
Results Overview: Trading Ahead of Our Expectations Adjusted1 End markets continue to benefit from strong structural growth, results Growth vs although supply chain issues persist £m H1 2024 H1 2023 Revenue 1,742 12%2 EBITDA (pre-PLC costs) 331 39% Operating profit ahead of our expectations through
Slide 6: Divisional Results
Divisional Results Growth vs H1 2023 Adjusted1 results H1 2024 Operating Operating Operating Operating £m Revenue profit margin Revenue profit margin Engines 720 212 29.4% 21% 46% 4.9ppts Structures 1,022 48 4.7% 6%2 89% 2.2ppts Aerospace 1,742 260 14.9% 12%2 52% 4.2ppts Sales growth of 12%2 (9% inc
Slide 7: Engines: Results
Engines: Results Strong demand with global flight REVENUE (£m) ADJUSTED1 OPERATING PROFIT (£m) AFTERMARKET REVENUE GROWTH hours exceeding pre-pandemic 720 levels 21% 212 46% Revenue growth of 21% mainly 31% driven by strong aftermarket performance H1 2023 H1 2024 H1 2023 H1 2024 Aftermarket sales up
Slide 8: Structures: Results
Structures: Results Strong underlying demand with backlogs continuing to build; REVENUE (£m) ADJUSTED1 OPERATING PROFIT (£m) widebody orders returning 1% 1,022 48 REVENUE ANALYSIS (£m)2 Sales growth of 6%3 despite supply 89% chain constraints impacting narrowbody programmes particularly 6%3 Growth t
Slide 9: Group Results
Group Results Full details of adjusting operating items included in the appendix, Adjusted1 Adjusted1 principally amortisation of intangibles acquired in business results results combinations, restructuring costs, disposal losses and exchange £m H1 2024 H1 2023 movements not hedge accounted Operatin
Slide 10: H1 Key Highlights
H1 Key Highlights Example commercial successes Operational improvements 0 Engines Repair Solutions achieves Multi-year contract renewal with Doubling F-35 canopy production new expansion milestones Airbus for A220 wiring capacity as demand ramps up LTAs2 33% REDUCTION IN CUSTOMER • Design and build
Slide 11: Path to 2025 Margin Targets
Path to 2025 Margin Targets 2025 targets Progress to date Engines well ahead of plan; target to be exceeded Lever Status Details 2 3 • Ahead of plan due to high flight hours and strong profitable 1 1 RRSP Contribution aftermarket, especially with older engines flying longer 2 • Parts repair progress
Slide 12: Group Cash Generation: Leverage Better than Expectations
Group Cash Generation: Leverage1 Better than Expectations Cash flow £m H1 2024 H1 2023 Working capital impacted by revenue growth, supply chain effect on Adjusted1 operating profit 247 159 inventory as well as outflow on Pratt & Whitney GTF powder metallurgy issue Depreciation and amortisation 72 71
Slide 13: 2024 and 2025 Outlook
2024 and 2025 Outlook Aerospace 2024 guidance1 and 2025 target1 Aerospace operating margin2 % £m H1 2024 results 2024 guidance1 2025 target1 >18% Revenue 1,742 3,600-3,750 3,800 14.9% >15% Adjusted2 operating profit 260 550-570 700 12.5% Adjusted2 operating margin 14.9% >15% >18% 10.6% 10.7% Margin
Slide 14: H1 2024 Results, Growth Strategy, Capital Allocation
H1 2024 Results Growth Strategy Capital Allocation Half Year Results 14
Slide 15: Melrose Growth Strategy
Melrose Growth Strategy Market underpinned with strong structural long-term demand Design led ‘Super-Tier 1’ proprietary technology Profitably capture OEM Expand in new targeted Favourably position for and aftermarket growth opportunities next generation aircraft • Increasing returns from RRSPs • En
Slide 16: Strong Long-Term Structural Demand
Strong Long-Term Structural Demand Civil flight hours continue OEM backlogs are at record Aftermarket growth to Defence spending rising to grow high levels persist for years to come due to geopolitical issues 2023 flight hours Civil order backlog Increasing flight Near record defence returned to 201
Slide 17: Focus on Proprietary Design Technology
Focus on Proprietary Design Technology Proprietary differentiated technology Unique and favourable position in the value chain Unique position in the value chain as strategic partner to the OEMs OEM Customer Value ENGINES OEM customers Strategic Tier 2 and Tier 3 Forging/casting partners suppliers h
Slide 18: Unique RRSP Portfolio Driving Exceptional Returns
Unique RRSP Portfolio Driving Exceptional Returns Portfolio in cash generative phase Engines entering aftermarket ‘sweet spot’ Structural aftermarket increase Returns We are here Light Heavy Turns cash High profit and cash investment investment positive Next-gen x 2 Aftermarket 19 x RRSPs OE • 17 in
Slide 19: Well Diversified Portfolio of 19 RRSPs
Well Diversified Portfolio of 19 RRSPs ~7 years ~7 years ~15 years ~30 years Light Heavy Turns cash High profit and cash investment investment positive CFMI RISE PW1500G/1900G GEnx P&W GTF next-gen PW1100G-JM Trent XWB CFM56 V2500 Currently only global Fundamentally excellent Widebody in strong Only
Slide 20: RRSPs to Generate Decade-Long Cash Flows
RRSPs to Generate Decade-Long Cash Flows Net present value of future expected cash flow5,6 • Profit and cash from RRSPs are rising as engines are in lucrative GKN Engines RRSP net cash inflow1 aftermarket phase (cash increase expected in the years to come as £m £5.7bn shown on the graph) 750 • For c
Slide 21: Inputs to Cash Mountain
Inputs to Cash Mountain Key factors Outlook1 Continued strong growth due to high aircraft demand, record order Fleet size backlogs (up to eight years) with increasing OEM production and Number of engines: new aircraft vs retirements slower aircraft retirement rates Ongoing increases due to GDP growt
Slide 22: GKN Additive Fabrication Technology
GKN Additive Fabrication Technology Laser wire deposition What is it? Current applications: Why is it valuable? • Lower cost, improved quality and enhanced Engine design flexibility structures • Lower weight, less waste and improved buy-to- fly-ratio • Reduced reliance on supply chain that is capaci
Slide 23: GKN Additive Fabrication Leadership
GKN Additive Fabrication Leadership Unparalleled capabilities and position in the industry Product knowledge Process capability System insight Certification System and design Pioneering AF for Proprietary software and Only player with AF heritage of >80 years > 20 years unrivalled data bank componen
Slide 24: H1 2024 Results, Growth Strategy, Capital Allocation
H1 2024 Results Growth Strategy Capital Allocation Half Year Results 24
Slide 25: Future Cash Generation
Future Cash Generation Future strong annual cash flow growth RRSP cash mountain coming into view • Unique diversified portfolio of 19 RRSP contracts • Increasing operating cash flow with 80-85% cash gives entitlement to aftermarket cash flows conversion from growing Structures and non- • 17 out of 1
Slide 26: Disciplined Capital Allocation
Disciplined Capital Allocation Invest in ramp-up and • Investment in capacity increases and automation to profitably capture market growth business improvement • Ramp-up and maintenance CAPEX to depreciation ratio in the range of 1-1.2x • Targeted expansion opportunities to leverage proprietary tech
Slide 27: Consistent Compelling Equity Case
Consistent Compelling Equity Case Structural market • Long-term structural growth underpinned by strong • Technology embedded on the world's most growth end market demand and record backlogs successful, highest volume platforms1 Exceptional Engines • RRSP portfolio gives entitlement to lifetime shar
Slide 28: Appendices
Appendices Melrose
Slide 29: Reconciliation Between Statutory and Adjusted Results
Reconciliation Between Statutory and Adjusted1 Results Cash (spent)/ received £m Total in H1 2024 Restructuring costs Income statement Cash spent in 1 £m charge H1 2024 Statutory operating loss (62) Engines (11) (9) Amortisation of intangible assets acquired in business combinations 128 - Structures
Slide 30: Reconciliation of Net Debt
Reconciliation of Net Debt1 Net debt1 better than expectations Reconciliation of net debt1 £m H1 2024 Net debt1 as at 1 January 2024 (572) Free cash flow in the period (145) Net cash flow from disposals 55 Amounts paid to shareholders (292) Melrose equity-settled compensation scheme related payments
Slide 31: Some Helpful Data
Some Helpful Data Income Statement H1 2024 2024 Guidance Cash flow H1 2024 2024 Guidance Revenue: Depreciation: Engines £720 million £1,450-1,500 million Owned assets £60 million £135 million Leased assets (pre-PLC) £11 million £25 million Structures £1,022 million £2,150-2,250 million Total depreci
Slide 32: Engines: RRSP Aftermarket Mechanics
Engines: RRSP Aftermarket Mechanics Illustrative example of programme partners with 5% share GKN: OEM parts typically last life of Partner X: supplies OEM parts that need aftermarket engine; limited aftermarket work replacement 5% share of 5% share of Supply of programme programme Revenue replacemen
Slide 33: GTF Engine to Drive Profitability for Decades to Come
GTF Engine to Drive Profitability for Decades to Come PW1100G engine Latest GTF situation overview • Pratt & Whitney and partners are making significant progress to resolve well publicised powder metal manufacturing issue (PMI), in line with their global fleet management plan • Plans being concluded