Melrose Industries Plc · LSE:MRO
Melrose Industries — H1 2018 Earnings Presentation
47 slides from Melrose Industries's earnings presentation, Sep 6, 2018
Slide 1: Melrose Industries PLC Half Year Results
Buy Improve Sell Strictly private and confidential Melrose Industries PLC Half Year Results Six months ended 30 June 2018 6 September 2018
Slide 2: Contents
Contents 1 Highlights 2 Summary financial results 3 Acquisition update 4 Businesses – investment & improvement 5 Appendix 6 Data pack Buy Improve Sell 2
Slide 3: Highlights
Buy Improve Sell Highlights 3
Slide 4: Highlights
Highlights Melrose is trading in line with the Board’s expectations for 2018 The statutory loss occurred due to booking significant acquisition related charges but only including 73 days of trading from GKN The Board has declared an interim dividend of 1.55 pence per share (2017: 1.4 pence), a
Slide 5: Summary financial results
Buy Improve Sell Summary financial results Buy Improve Sell 5
Slide 6: Income Statement
Income Statement Six months ended 30 June 2018 £m Proforma1 results Adjusted2 results Statutory results Revenue 6,203 3,062 2,937 Operating profit/(loss) 501 280 (256) Profit/(loss) before tax 401 240 (303) Profit/(loss) after tax 307 184 (276) Diluted earnings per share 6.3 pence 5.8 pence (8.9) pe
Slide 7: Reconciliation of proforma, adjusted and statutory results
Reconciliation of proforma, adjusted and statutory results A reconciliation of the proforma, adjusted and statutory results: £m Proforma operating profit of Melrose for six months to June 2018 assuming GKN was owned for the full period 501 GKN profits prior to Melrose ownership (1 January 2018 to 18
Slide 8: New reportable segments
New reportable segments Proforma results – assumes ownership of GKN from 1 January 2018 Best estimate of growth1 % Group Operating Operating Operating £m revenue Revenue profit/(loss) margin Revenue profit Aerospace 28% 1,725 117 6.8% +1% +9% (Aerostructures, Engine Systems, Special Technologies) Au
Slide 9: Central costs – reduced considerably
Central costs – reduced considerably Full year New £m Previously run rate GKN central costs: Reported as central costs 31 5 Additional central costs allocated to divisions 31 - Pension levies: ― Charged to reserves 5 - ― Charged to profit - 5 67 10 Melrose central costs 16 25 83 35 Run rate GKN ce
Slide 10: Cash performance in the period
Cash performance in the period Reconciliation of net debt Group £m HY 2018 Net debt brought forward (572) Cash flow Group Net debt acquired with GKN (1,159) £m HY 2018 Acquisition of GKN2 (81p per share) (1,362) Adjusted operating cash flow (pre capex)1 265 Acquisition costs and related transaction
Slide 11: Pensions – defined benefit schemes
Pensions – defined benefit schemes Group Annual Accounting deficit – 30 June 2018 Annual cash interest £m Assets Liabilities Deficit contributions charge UK 2,913 (3,371) (458) 63 21 USA 438 (554) (116) 13 7 Europe 30 (669) (639) 22 16 Rest of World 37 (53) (16) 1 1 Total defined benefit schemes 3,4
Slide 12: Pensions – UK defined benefit schemes
Pensions – UK defined benefit schemes UK 30 June 2018 (Deficit)/ Annual cash UK funding deficit of approximately £950 £m Assets Liabilities Surplus contributions million: GKN 2016 509 (513) (4) - - GKN 2016 & 2012 schemes c.£890m1 GKN 2012 2,123 (2,577) (454) 60 - Other c.£60m GKN post retirement me
Slide 13: Interest, tax and Balance Sheet
Interest, tax and Balance Sheet Interest Income Approximately 50% of interest Facility At 30 Statement £m size June 2018 rate Cash rate exposure fixed on projected gross debt Bonds Significant committed facility 2019 6.75% unsecured bond 350 350 1.8% 6.8% headroom 2022 5.375% unsecured bond 450
Slide 14: Foreign exchange
Foreign exchange forward looking 2018 2017 USD EUR USD EUR 6 month average rates 1.38 1.14 1.26 1.16 73 day average rates for GKN (19 April – 30 June) 1.35 1.14 - - Closing rates (June) 1.32 1.13 1.30 1.14 Closing rates (December) - - 1.35 1.13 Income Statement volatility Balance Sheet volatility
Slide 15: US Tariffs
US Tariffs Businesses impacted by US tariffs (Nortek proportionately more) plus indirect impact from rising raw material prices Intend to recover as much of the incremental costs as possible Lower exposure in 2018 due to timing of tariffs and inventory holdings Exposure to: ― Section 232: Ta
Slide 16: Acquisition update
Buy Improve Sell Acquisition update Buy Improve Sell 16
Slide 17: Melrose Plan – acquisition promises
Melrose Plan – acquisition promises Head office to be restructured Simplify management structure Done Culture to be changed Focus on performance and reduced cost base Underway Focus on profitability not sales Improve unprofitable or low margin sales Underway Investment in operations to produce retur
Slide 18: Post acquisition progress to date
Post acquisition progress to date Head office functions removed and businesses freed from head office bureaucracy Management teams for all GKN standalone businesses in place Three year plans agreed and being implemented for all businesses including significant investment Target margins achie
Slide 19: Businesses – investment & improvement
Buy Improve Sell Businesses – investment & improvement Buy Improve Sell 19
Slide 20: Aerospace
Aerospace 28% of Melrose1 Revenue by market Revenue by product type Revenue by geographical destination 1 Aerostructures (63%) 1 Europe (40%) 1 Commercial narrow body (19%) 2 Engine Systems 34 2 N America (56%) 3 4 1 (32%) 3 Asia (3%) 2 Commercial wide body (34%) 3 Special 1 4 RoW (1%) 2 Technologie
Slide 21: Aerospace – proforma results
Aerospace – proforma results 2017 full year 2018 half year Announced 2017 Proforma4 Best estimate £m result normalised3 result of growth5 Adjusted1 revenue 3,638 3,387 1,725 +1% Adjusted1 EBITDA2 338 365 184 +3% Adjusted1 EBITDA2 margin % 9.3% 10.8% 10.7% +0.2ppts Adjusted1 operating profit 175 210
Slide 22: Aerospace – reconciliation of announced results to normalised results
Aerospace – reconciliation of announced results to normalised results Restructuring costs Income Reconciliation of announced results to normalised results Operating under Melrose ownership Statement Cash £m Revenue profit £m charge costs 2017 announced result 3,638 175 Aerospace 12 12 North America
Slide 23: Aerospace – trading
Aerospace – trading 2017 full year 2018 half year Normalised1 revenue and profit split Proforma2 revenue and profit split Operating Operating Operating Operating £m Revenue profit/(loss) margin £m Revenue profit/(loss) margin US Aerostructures 601 (43) - US Aerostructures 295 (10) - Aerospace 2,786
Slide 24: Aerospace – actions achieved and underway
Aerospace – actions achieved and underway Aerospace Growth / Markets Well positioned in strong markets. Continued growth expected in the aerospace market with both commercial air traffic, and the military fighter jet market growing (c.2%/3% weighted average) with GKN Aerospace having a heavier mix o
Slide 25: Aerospace – market trends
Aerospace – market trends Civil aerospace ― deliveries Wide Body (34% of GKN Aerospace) 0.6% CAGR Narrow Body (19% of GKN Aerospace) 6.5% CAGR 2017-2022 2017-2022 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022 Source: Industry market data Source: Industry market data Air traffic conti
Slide 26: Automotive
Automotive 41% of Melrose1 Revenue by geographical destination Revenue by product type 1 Europe (36%) 1 Driveline (73%) 4 2 N America (32%) 34 2 All Wheel Drive (25%) 3 3 Asia (28%) 2 3 eDrive (1%) 1 4 RoW (4%) 4 Cylinder Liners (1%) 1 2 Buy Improve Sell 26 1. Based on proforma 2018 first half reven
Slide 27: Automotive – proforma results
Automotive – proforma results 2017 full year 2018 half year Announced 2017 Proforma4 Best estimate £m result normalised3 result of growth5 Adjusted1 revenue 4,994 4,782 2,584 +8% Adjusted1 EBITDA2 549 522 278 - Adjusted1 EBITDA2 margin % 11.0% 10.9% 10.8% -0.9ppts Adjusted1 operating profit 363 343
Slide 28: Automotive – reconciliation of announced results to normalised results
Automotive – reconciliation of announced results to normalised results Reconciliation of announced results to normalised results Operating Restructuring costs under Income £m Revenue profit Melrose ownership Statement Cash £m charge costs 2017 announced result 4,994 363 Driveline 9 9 One-off warrant
Slide 29: Automotive – trading
Automotive – trading 2017 full year 2018 half year Normalised1 revenue and profit split Proforma2 revenue and profit split Operating Operating Operating Operating £m Revenue profit/(loss) margin £m Revenue profit/(loss) margin Driveline 2,943 243 8.3% Driveline 1,579 130 8.2% China 586 84 14.3% Chin
Slide 30: eDrive
eDrive GKN ePowertrain pioneered the development of high-performance electric driveline systems, with more than 725,000 electric axle drives produced to date GKN ePowertrain is a leading electric powertrain systems engineer and all-wheel drive systems integrator. With eight manufacturing sites i
Slide 31: Automotive – actions achieved and underway
Automotive – actions achieved and underway Automotive Growth / Markets Global light vehicle production forecast to grow at 2% per annum 2017-2022 eDrive is a high growth market – loss-making initially but with significant growth potential. Sales of £35 million in 2017, and current run rate losses of
Slide 32: Automotive – market trends
Automotive – market trends Global light vehicle sales 2.0% CAGR 2017-2022 Expected growth by market - light vehicle sales 2017-2022 2018 CAGR Europe 2.9% 1.3% North America -1.4% -0.9% China 1.4% 2.8% Source: Industry market data 2017 2018 2019 2020 2021 2022 Source: Industry market data Overall e
Slide 33: Powder Metallurgy
Powder Metallurgy 10% of Melrose1 Revenue by geographical destination Revenue by product type 1 Europe (34%) 1 Automotive (67%) 2 N America (38%) 2 Industrial (16%) 4 3 3 Asia (17%) 3 Hoeganaes Metal 3 1 4 RoW (11%) Powder (17%) 2 1 2 1. Based on proforma 2018 first half revenue for all businesses 3
Slide 34: Powder Metallurgy – proforma results
Powder Metallurgy – proforma results 2017 full year 2018 half year Announced 2017 Proforma4 Best estimate £m result normalised3 result of growth5 Adjusted1 revenue 1,174 1,131 614 +7% Adjusted1 EBITDA2 176 170 94 +5% Adjusted1 EBITDA2 margin % 15.0% 15.0% 15.3% -0.2ppts Adjusted1 operating profit 12
Slide 35: Powder Metallurgy – highlights
Powder Metallurgy – highlights Global #1 powder metal solutions provider Significant growth potential in attractive end markets Highly diversified blue-chip customer base Technology leadership and superior operations – with a pipeline of innovative products and solutions ― Additive manufactu
Slide 36: Powder Metallurgy – actions achieved and underway
Powder Metallurgy – actions achieved and underway Powder Metallurgy Growth / Markets Powder Metallurgy achieving above market growth with very strong growth in small sinter products Strong footprint in the largest powder metallurgy markets. China and India markets growing rapidly. New plant in Mexic
Slide 37: Nortek Air & Security
Nortek Air & Security 12% of Melrose1 Revenue by geographical destination Revenue by end market 1 Europe (4%) 1 Home (71%) 41 3 2 N America (94%) 3 4 2 Work (20%) 3 Asia (1%) 3 Health (6%) 2 4 RoW (1%) 4 Education (3%) 1 2 1. Based on proforma 2018 first half revenue for all businesses 37
Slide 38: Nortek Air & Security
Nortek Air & Security 2017 full year 2018 half year Actual Actual £m result Growth3 result Growth3 Adjusted1 revenue 1,600 +3% 720 -6% Adjusted1 EBITDA2 238 +49% 116 +2% Adjusted1 EBITDA2 margin % 14.9% +4.6ppts 16.1% +1.2ppts Adjusted1 operating profit 215 +53% 104 +2% Adjusted1 operating margin %
Slide 39: Nortek Air & Security – actions achieved and underway
Nortek Air & Security – actions achieved and underway Nortek Air & Security Growth / Markets A good market backdrop in Air Management with a major growth opportunity in StatePoint Liquid Cooling, a new and more efficient technology for cooling data centres. Security market is more volatile Investmen
Slide 40: Other Industrial
Buy Improve Sell Other Industrial 9% of Melrose1 Revenue by geographical destination Revenue by business 1 Europe (55%) 1 Ergotron (22%) 3 4 2 N America (34%) 4 2 Brush (15%) 1 3 Asia (8%) 3 Off-Highway 4 RoW (3%) Powertrain (39%) 1 2 2 4 Wheels & Structures (24%) 3 1. Based on proforma 2018 first h
Slide 41: Other Industrial
Other Industrial 2017 full year 2018 half year Announced Proforma3 Best estimate £m result result of growth4 Adjusted1 revenue 1,098 560 +6% Adjusted1 EBITDA2 141 68 -3% Adjusted1 EBITDA2 margin % 12.8% 12.1% -1.2ppts Adjusted1 operating profit 117 57 -1% Adjusted1 operating margin % 10.7% 10.2% -0.
Slide 42: Other Industrial – actions achieved and underway
Other Industrial – actions achieved and underway Other Industrial Growth / Markets Strong growth in the Off-Highway Powertrain and Wheels & Structures businesses Ergotron experiencing some growth in commercial channels to offset declining lower margin consumer channels Generator market remains chall
Slide 43: Appendix
Appendix >S= BEB u ih mprove el elrosa
Slide 44: First half 2018 adjusted results by division in Melrose ownership
First half 2018 adjusted1 results by division in Melrose ownership Powder Nortek Air Other Total £m Aerospace Automotive Metallurgy & Security Industrial Corporate Group Adjusted1 revenue 714 1,019 254 720 355 - 3,062 Adjusted1 operating profit 49 70 28 104 42 (13) 280 Adjusted1 operating margin 6.9
Slide 45: Data pack
Data pack >S= alan u ih mprove el CElrose
Slide 46: Comparative results – announced results in new reportable segments
Comparative results – announced results in new reportable segments Announced results 2017 full year 2017 first half Announced Announced Announced operating Operating Announced operating Operating £m revenue profit/(loss) margin £m revenue profit/(loss) margin Aerospace 3,638 175(a) 4.8%(a) Aerospace
Slide 47: Comparative results – normalised results in new reportable segments
Comparative results – normalised results in new reportable segments Normalised1 results 2017 first half 2017 second half Normalised1 Normalised1 Normalised1 operating Operating Normalised1 operating Operating £m revenue profit/(loss) margin £m revenue profit/(loss) margin Aerospace 1,708 108 6.3% Ae