Melrose Industries Plc · LSE:MRO
Melrose Industries — FY2023 Earnings Presentation
41 slides from Melrose Industries's earnings presentation, Mar 7, 2024
Slide 1: Melrose Industries PLC Full Year Results
Melrose Industries PLC Full Year Results Year ended 31 December 2023 7 March 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: Agenda
Agenda 1. Introduction Peter Dilnot CEO 2. 2023 results Matthew Gregory CFO 3. Outlook Peter Dilnot CEO 3
Slide 4: Introduction
Introduction 2023 results Outlook Full Year Results 4
Slide 5: Highlights
Highlights ▪ New business model implemented to deliver aerospace growth Transition to aerospace pureplay ▪ Clear, consistent and compelling equity case business complete ▪ Seasoned aerospace focused management team in place to deliver ▪ 2023 results ahead of previous guidance, profit more than doubl
Slide 6: Transition to aerospace pureplay business complete
Transition to aerospace pureplay business complete Buy, Improve, Sell Design, Deliver, Improve Capital Markets Immediate focus Seamless Evolved into a focused Event outlined executing organic management aerospace business post compelling growth plan and team transition demerger in April organic equi
Slide 7: Melrose overview
Melrose overview Design Parent aerospace group, • Integrated proprietary technology listed in the UK designed into OEM platforms • Think like peer; act as partner Industry-leading global aerospace business Deliver Improve • Meet customer and • Continuous improvement financial commitments in all area
Slide 8: Performance delivered ahead of plan
Performance delivered ahead of plan Aerospace1 2023 Previous 2023 plan2 guidance2 results Revenue £3.40bn £3.35bn £3.35bn Operating profit £350m £405m £420m Operating margin % 10% >12% 12.5% Engines margin % Structures margin % 2023 Previous 2023 2023 Previous 2023 plan guidance results plan guidanc
Slide 9: Positive momentum and trajectory
Positive momentum and trajectory Aerospace1 operating margin % 17-18% • Another year of strong margin progression >15% • Market backdrop very strong, working to overcome sector-wide supply chain constraints 12.5% • Positive drop through from sales growth 10.6% • Impact of restructuring, renegotiatio
Slide 10: 2023 results
Introduction 2023 results Outlook Full Year Results 10
Slide 11: Results overview: trading ahead of expectations
Results overview: trading ahead of expectations Adjusted1 results Growth vs End markets enjoying strong structural growth £m 2023 2022 Revenue 3,350 17%2 EBITDA (pre-PLC costs) 561 69% Operating profit ahead of expectations EBITDA margin % 16.7% 5.5ppts Operating profit (pre-PLC costs) 420 124% Oper
Slide 12: Divisional results
Divisional results Growth vs 2022 Adjusted1 results 2023 Operating Operating 2025 margin Operating Operating £m Revenue profit margin target profit margin Engines 1,193 310 26.0% 28% 92% 10.3ppts Structures 2,157 110 5.1% 9% 323% 3.8ppts Aerospace 3,350 420 12.5% 17-18% 124% 6.2ppts Sales growth of
Slide 13: Engines: results
Engines: results REVENUE (£m) ADJUSTED1 OPERATING PROFIT (£m) AFTERMARKET REVENUE GROWTH Sales growth of 16% including strong RRSP market growth and 1,193 310 16% growing aftermarket repair 92% 26.0% 46% Aftermarket sales up 34% led by 40% growth in civil engines 15.7% aftermarket 2022 2023 2022 202
Slide 14: Structures: results
Structures: results REVENUE (£m) ADJUSTED1 OPERATING PROFIT (£m) Sales growth of 18%2 as customer 110 2,157 deliveries ramp up despite supply 18%2 chain constraints 5.1% 323% REVENUE BY SEGMENT Strong civil volume growth, led by narrowbody (39% of Civil) revenue Other up 15% and widebody (24% of Civ
Slide 15: Results overview: statutory results
Results overview: statutory results Adjusted1 Statutory Details of adjusting operating items included in the appendix, results results principally amortisation of intangibles acquired in business £m 2023 2023 combinations, restructuring costs and exchange movements not hedge accounted Operating prof
Slide 16: Upgraded 2024 full year guidance
Upgraded 2024 full year guidance Aerospace 2024 2025 Profit upgrade of 6% (pre-PLC costs) due to stronger aftermarket 2023 upgraded reconfirmed performance and restructuring benefits ahead of schedule £m results guidance1 guidance1 Revenue 3,350 3,600-3,750 4,000 Adjusted2 operating profit 420 550-5
Slide 17: Narrower gap to 2025 targets
Narrower gap to 2025 targets Aerospace adjusted1 operating margin (%) ~2% 17-18% ~3% >15% 2025 targets reconfirmed, even greater confidence ~2.5% 12.5% 10% Further improvements expected beyond 2025 Exceptional margin trajectory Original 2023 Delivered Gap to 2024 2024 guidance Gap to 2025 Reinforced
Slide 18: Melrose Group cash generation: leverage better than expectations
Melrose Group cash generation: leverage1 better than expectations Free cash flow1 Cash flow £m 2023 Net debt of £572 million – better than expectations, partly due to Adjusted1 operating profit 390 timing of share buybacks Depreciation and amortisation 142 Lease obligation payments (32) Strong worki
Slide 19: Outlook
Introduction 2023 results Outlook Full Year Results 19
Slide 20: Unique Tier 1 technology player
Unique Tier 1 technology player Established positions on Partner to ALL major Technology present ALL of the world’s engine OEMs with on >100,000 high volume lucrative and diverse commercial flights commercial and RRSP portfolio every day military aircraft1 £22 billion2 future Leading introduction “S
Slide 21: Aerospace overview
Aerospace overview Engines Structures Industry-leading Engines division with lucrative Design-led Structures division with excellent Background and diverse RRSP portfolio, positioned to achieve platform positions for ongoing ramp-up exceptional growth, with increasing aftermarket Customers Engine OE
Slide 22: Structurally growing market
Structurally growing market 23-25 23-25 23-25 CAGR1 CAGR1 CAGR1 Civil flight hours returning strongly 12% Civil OEM deliveries ramping up fast 16% Defence spending increasing 5% • Strong growth versus 2022 with domestic and • Airbus posted record annual orders in 2023, Boeing • Demand increased due
Slide 23: Margin expansion levers – recap on path to 2025
Margin expansion levers – recap on path to 2025 Engines Structures Adjusted1 operating margin % Adjusted1 operating margin % ~1% ~4% ~1% ~1% 2023 ~2% 26% delivered ~3% 28% 2023 9% 22% delivered 5% 3% 2023 RRSP Growth Business 2025 2023 Civil ramp-up Defence portfolio Business 2025 target contributio
Slide 24: Engines: increasing RRSP contribution
Engines: increasing RRSP contribution Portfolio value 2023 update Portfolio of RRSPs hitting aftermarket Cash positive engines continue to drive ‘sweet spot’ strong financial results Diverse mix of contracts with all major OEMs • Total global commercial cycles improved 19% in 2023 • Narrowbody engin
Slide 25: Engines: growth initiatives
Engines: growth initiatives Additive fabrication opportunities • Game-changing additive fabrication to replace existing components and address industry supply chain shortages • Investing £50 million into industrialising fabrication capability with £12 million of support from the Swedish Government •
Slide 26: Structures: Civil ramp-up
Structures: Civil ramp-up Monthly Average Backlog build 2025-2026 2023 (years)2 rates1 A220 7 11 - 14 6 A320 52 67 - 73 9 OEM backlogs at unprecedented levels, Supply chain improving, challenges being overcome but some constraints remain A330 3 4 5 7+ years of production A350 6 8 - 10 6 B737 35 50 -
Slide 27: Structures: Defence repricing and rationalisation
Structures: Defence repricing and rationalisation 2023 Ahead of plan with 42% of core work target Signed MoU with The Netherlands MoD sustainably priced; ongoing renegotiations and Airbus for new helicopter developments and unattractive business exits 2023 Refocusing portfolio on core competencies a
Slide 28: Aerospace business improvements in 2023
Aerospace business improvements in 2023 Operational improvements 44% Reduction in escapes1 Safety and quality always top priority, with further improvements delivered in 2023 Focused actions to maintain customer delivery despite industry supply chain issues Increasing penetration of automation and d
Slide 29: Footprint and restructuring actions
Footprint and restructuring actions Example projects Engines Structures Engines – New England, US: driving operational performance 2018 2018 3 sites reduced to 2 product focused sites 12 40 with Manchester site closed Substantial cost savings achieved whilst improving yield and delivery metrics 2024
Slide 30: 2024 priorities: all about execution
2024 priorities: all about execution Keeping our Our top priority people, the public ALWAYS Safety & Quality and armed forces from harm Commercial actions Improve operational Finalise ongoing Additive technology and including repricing and exits performance and productivity restructuring other growt
Slide 31: Technology-led organic growth opportunities
Technology-led organic growth opportunities Aftermarket Additive Thermoplastics Next generation parts repair fabrication technology engines Malaysian repair centre with Proven capability on advanced Deep thermoplastic design and Supporting GE/Safran and P&W to CAAC1 certification for growing fabrica
Slide 32: Sustainability
Sustainability Reduce emissions as a Conserve our planet’s Enable aviation’s business natural resources route to Net Zero by 2050 Emissions Renewables Waste Water R&D Products Scope 1&2 Renewable Waste Reduced R&D on New climate emission energy diverted from water climate enabling intensity sources
Slide 33: New environmental targets
New environmental targets Priorities Reduce GKN Aerospace Conserve our planet’s Enable aviation’s emissions as a business natural resources route to Net Zero by 2050 2025 group target 20% 50% 95% 25% 50% 50% reduction Scope from renewable diverted from reduced water R&D on climate new products for 1
Slide 34: A compelling equity case
A compelling equity case Structural market Rapid aerospace market recovery, followed by long- Technology embedded on the world's most growth term structural growth successful, highest volume platforms1 Exceptional Engines RRSP work largely done on engine build, followed by £22 billion of lifetime ne
Slide 35: Appendices
Appendices Melrose
Slide 36: Engines: RRSP lifecycle
Engines: RRSP lifecycle OEM decision Programme Entry Production to invest launch into service ends Technology Product OE Aftermarket services development development production 30 years 7 years 7 years 15 years Turns cash Light investment Heavy investment High profit and cash positive CFMI RISE1 P&W
Slide 37: 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 replacement afterm
Slide 38: Engines: outstanding future cash flows
Engines: outstanding future cash flows 1 GKN Engines RRSP net cash inflow Net present values of future expected cash flow2 £m £5.7bn 850 Actual Forecast • 19 RRSP programmes across OEMs 750 • 17 programmes already cash positive annually 650 • ~55%3 of Engines sales from RRSPs, ~20%3 of 550 GKN Aeros
Slide 39: Reconciliation between statutory and adjusted results
Reconciliation between statutory and adjusted1 results Continuing operations Cash spent in £m Total 2023 Statutory operating profit 57 Amortisation of intangible assets acquired in business combinations 260 - Restructuring costs 149 125 Equity settled compensation scheme charges 38 - Acquisition and
Slide 40: Reconciliation of net debt and pensions
Reconciliation of net debt1 and pensions Net debt1 better than expectations Protecting members by further de-risking Reconciliation of net debt1 Pensions schemes £m 2023 Net debt1 as at 1 January 2023 (1,139) 31 December 2023 Accounting Net cash outflow from Dowlais businesses to date of demerger 2
Slide 41: Some helpful data
Some helpful data Income Statement 2023 2024 Cash flow 2023 2024 Revenue: Depreciation: Engines £1,193 million £1,450-1,500 million Owned assets £117 million £135 million Leased assets (pre-PLC) £24 million £25 million Structures £2,157 million £2,150-2,250 million Total depreciation (pre-PLC) £141