Melrose Industries Plc · LSE:MRO
Melrose Industries — Investec conference (November 2018)
26 slides from Melrose Industries's conference presentation, Nov 13, 2018
Slide 1: Melrose Industries PLC
Buy Improve Sell Strictly private and confidential Melrose Industries PLC Investec conference 13 November 2018
Slide 2: Contents
Contents 1 Highlights 2 Businesses – investment & improvement 3 Conclusions 4 Appendix Buy Improve Sell 2
Slide 3: Highlights
Highlights Melrose is trading in line with the Board’s expectations for 2018 Melrose has seen strong revenue growth in Aerospace and Powder Metallurgy in the four month period since the half year with flat revenue in Automotive despite some well publicised industry factors GKN continues to off
Slide 4: Melrose Plan – acquisition promises
Melrose Plan – acquisition promises Acquisition promise: Post acquisition update: 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 Unde
Slide 5: Businesses – investment & improvement
Buy Improve Sell Businesses – investment & improvement Buy Improve Sell 5
Slide 6: 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 7: 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 8: 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 9: 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 9 1. Based on proforma 2018 first half revenu
Slide 10: Automotive – actions achieved and underway
Automotive – actions achieved and underway Automotive Growth / Markets Global light vehicle long-term production forecast to grow by expert bodies at 2% per annum eDrive is a high growth market – loss-making for the foreseeable future, but with significant growth potential. Sales of £35 million in 2
Slide 11: 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 12: 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 1
Slide 13: 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 14: 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 15: 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 15
Slide 16: 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 17: Other Industrial
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 half revenue for a
Slide 18: 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 19: Conclusions
Buy Improve Sell Conclusions 19
Slide 20: Conclusions
Conclusions Melrose is trading in line with the Board’s 2018 expectations The businesses are responding positively to the Melrose way of working The new standalone businesses and operational management teams are in place and improving the businesses Melrose has a well-established track recor
Slide 21: Appendix
Buy Improve Sell Appendix 21
Slide 22: 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 23: 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 24: 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 25: 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 26: Foreign exchange forward looking
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
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