Melrose Industries Plc · LSE:MRO
Melrose Industries — Investec conference 2019
21 slides from Melrose Industries's conference presentation, Nov 19, 2019
Slide 1: Melrose Industries PLC
Buy Improve Sell Strictly private and confidential Melrose Industries PLC Investec conference 19 November 2019 Buy Improve Sell
Slide 2: Contents
Contents 1 Melrose 2 GKN Aerospace 3 GKN Automotive 4 GKN Powder Metallurgy, Nortek Air & Security and Other Industrial 5 Working Capital 6 Closing Summary Buy Improve Sell 1
Slide 3: How Melrose creates value
How Melrose creates value Melrose approach Melrose performance Melrose business model is simple and successful through many cycles 1 Identify underperforming industrial assets £1 £17.85 Invested on the first today1 deal in 2005 2 Buy at an appropriate price, disciplined approach 3 1 Average Improve
Slide 4: The previous results
The previous results Melrose operating margin improvement How Elster and Nortek operating margin improved +9ppts 24% (>30% improvement) +1ppt 22% (>70% improvement) (>60% improvement) 18% +2ppts 1 16% (>40% improvement) +6ppts 15% 14% (>40% improvement) 13% +1ppt 11% +1ppt 10% 9% +6ppts +4ppts Entry
Slide 5: GKN Aerospace
GKN Aerospace 34% of Melrose1 Revenue by market Revenue by product type Revenue by destination 1 Commercial (71%) 1 Aerostructures (63%) 1 North America (57%) 2 Military (29%) 3 2 Engine Systems (32%) 34 2 Europe (38%) 2 3 Special Technologies (5%) 3 Asia (4%) 2 4 RoW (1%) 2 1 4 RoW (1%) 1 1 Buy Imp
Slide 6: A leading global tier one Aerospace supplier
A leading global tier one Aerospace supplier Aerostructures Engine Systems Special Technologies 63% 32% 5% £2.2 billion £1.1 billion £0.2 billion (£0.6 billion North America) Strong focused businesses Buy Improve Sell 5
Slide 7: A global business with £3.5bn sales to blue chip customers
A global business with £3.5bn sales to blue chip customers GKN Aerospace has great core strengths Sales by market Global #2 by revenue in Aerostructures and Aero Engines. Aero Engines has very positive longer 2 term cash flow dynamics 1 Commercial (71%) 1 2 Military (29%) Attractive specialist posit
Slide 8: Aerospace – trading
Aerospace – trading Investment and restructuring Creation of ‘One GKN Aerospace’; major new operational improvement programme announced: − Business refocused to better serve customers − Operational excellence – many initiatives underway, supported by the recently announced new operating model Co
Slide 9: Margin improvement
Margin improvement Aerospace margin improvement Net savings 12% Operational excellence (including fixing 12% 8.2% North America) Procurement Margin target under Melrose ownership £70m+ £40m+ opportunity opportunity Margin improvement only requires limited sales growth, SG&A focus therefore the requi
Slide 10: GKN Automotive
GKN Automotive 33% of Melrose1 Revenue by product type Revenue by destination 1 Driveline (73%) 1 Europe (36%) 34 2 All Wheel Drive (25%) 4 2 North America (36%) 2 3 eDrive (1%) 3 Asia (15%) 3 1 4 Cylinder Liners (1%) 4 China (13%) 1 2 Buy Improve 1. Based on adjusted first half 2019 operating profi
Slide 11: Balanced business across products, regions and customers
Balanced business across products, regions and customers Product mix1 Regional mix1,4 Customer mix1,4 1 Customer A (16%) 2 Customer B (13%) 3 Customer C (13%) 13 1 4 4 1112 4 Customer D (9%) 3 10 5 Customer E (9%) 1 Driveshafts² (62%) 1 Europe (36%) 9 2 6 Customer F (7%) 3 1 1 2 Propshafts (11%) 2 A
Slide 12: Global leader
Global leader 2018 sales GKN Automotive Competitor Key competitors market share market shares £4.9bn 20% Driveline1 47% (#1) 8% 6% 4% >82m driveshafts Competitor 1 Competitor 2 Competitor 3 Competitor 4 delivered in 2018 16% 15% All Wheel Drive (AWD)2 30% (#1) 8% 8% >2.9m AWD units Competitor 1 Comp
Slide 13: Automotive – trading
Automotive – trading Investment and restructuring Significant restructuring programmes underway: − Layers of management removed − Structural reductions in fixed costs − Early retirement programmes initiated at several plants − Footprint reduction taking place Focus on improving production flows
Slide 14: Major opportunity for margin improvement
Major opportunity for margin improvement Operating profit margin 126 133 128 110 113 100 91 84 75 77 76 45 (6) 2007 2009 2011 2013 2015 2017 2018 1 2,3 Operating profit margin Industry (Indexed) Operating profit margin GKN Automotive (Indexed) Revenue 4.9 4.9 3.4 3.5 2.8 2.3 1.8 2007 2009 2011 2013
Slide 15: New path forward for GKN Automotive
New path forward for GKN Automotive Key elements of the plan Target margins Gross savings Focus on selective, profitable growth 10% Procurement Operational optimisation excellence Expand leading position in ePowertrain £200m+ £75m+ opportunity opportunity 6.7% Drive operational performance in our Fi
Slide 16: Powder Metallurgy, Nortek Air & Security and Other Industrial
Buy Improve Sell Powder Metallurgy, Nortek Air & Security and Other Industrial Buy Improve Sell 15
Slide 17: Powder Metallurgy, Nortek Air & Security and Other Industrial
Powder Metallurgy, Nortek Air & Security and Other Industrial Investment and restructuring Powder Metallurgy Continued investment in additive manufacturing technologies Footprint consolidation underway Focus on increasing market share based on leading positions and service offerings Targeted
Slide 18: GKN Working Capital
Buy Improve Sell GKN Working Capital Buy Improve Sell 17
Slide 19: GKN working capital – cash release of £400 million
GKN working capital – cash release of £400 million Opportunity for Pre-Melrose situation New approach improvement Inventory • Not centrally reviewed previously • Build to order • Excess stock due to quality issues • Supply chain fulfilment driven by demand ‘pull’ • High work in progress due to ineff
Slide 20: Closing Summary
Buy Improve Sell Closing Summary Buy Improve Sell 19
Slide 21: Closing summary
Closing summary GKN is on track to be another successful Melrose acquisition 1 GKN Aerospace and Automotive are attractive, well positioned businesses Historical operational problems and programme underperformance are fixable. These 2 challenges are not new to us Melrose is confident of delivering s