Melrose Industries PLC · LSE:MRO
Melrose Industries — Investor Day (October 2023)
36 slides from Melrose Industries's investor day presentation, Oct 18, 2023
Slide 1: Engines Investor Event, Trollhättan
Engines Investor Event Trollhättan 18 October 2023 Joakim Andersson President, GKN Engines
Slide 2: Disclaimer
1 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) this presentation or by reading the presen
Slide 3: Key messages
2 Key messages GKN Engines has OEM-level capability and responsibility for selected engines which 1 gives more technical and commercial advantages than normal for a Tier 1 supplier Leading independent Tier 1 partner to all major engine OEMs with lucrative and 2 diverse RRSP1 portfolio, providing bal
Slide 4: Who we are
3 Who we are POWERING £1.3bn 4,000+ 90% SALES EMPLOYEES OF ALL FLIGHTS1 90+ INDEPENDENT 2 YEARS OF PARTNER ENGINEERING & FULL ENGINE TO ALL MAJOR TECHNOLOGY CAPABILITY ENGINE OEMS CENTRES 1. GKN content on ~90% of civil aircraft engines
Slide 5: GKN Aerospace Engines Leadership Team
4 GKN Aerospace Engines Leadership Team 300+ years of combined experience in aerospace From all OEMs, markets and regions
Slide 6: Market and customers
GKN AERO: Market and customers
Slide 7: Our markets
6 Our markets Sales Sales Sales ~70% ~25% ~5% Civil Defence Adjacent $50 billion market $10 billion market $4 billion market Regional, narrowbody and Fighter engines Launcher engines and widebody aero-derivatives Strong core markets in civil and defence aerospace
Slide 8: Our customers
7 Our customers Sales Sales Sales ~70% ~25% ~5% Civil Defence Adjacent 500+ repair customers
Slide 9: Engines market structural growth
8 Engines market structural growth 1 100 90 80 Key drivers 70 Increasing flying hours, especially in 60 Asia $bn 50 Current fleet needs to fly for many years to come with increasing aftermarket 40 support required 30 Over next two decades global fleet set 20 to double 10 0 2022 2023 2024 2025 2026 2
Slide 10: Increasing flights, especially in Asia
9 Increasing flights, especially in Asia GDP per capita vs flights per capita 5 2.5 Brazil 0.5 trips per capita 1 United Arab > Economic growth leads to Emirates 3 trips per capita increased flights 0.7 Sweden United States 2.3 trips 2.1 trips per capita per capita > Rapid growth in emerging Trips p
Slide 11: Flight hours growing strongly
10 Flight hours growing strongly Projected flight hours 140 120 > >75% growth in narrowbody flying hours over next decade, 100 widebody >40% 80 Millions 2023 – 2032 60 CAGR 5% 40 20 2023 – 2032 narrowbody CAGR 7% 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Narrowbody jet Widebody jet Regional
Slide 12: Current fleet to fly for many years to come
11 Current fleet to fly for many years to come Fleet age 10,000 9,000 8,000 7,000 > Aircraft in service are relatively young Number of aircraft and have many years flying to come 6,000 5,000 > Aircraft flying for longer due to constrained OEM deliveries 4,000 3,000 > Resulting in more aftermarket 2,
Slide 13: Growing fleet aftermarket support
12 Growing fleet aftermarket support Shop visits & share LLPs1 12,000 30% 10,000 25% > Significant number of aircraft sold from 2009 to 2019 LLP replacement shop visits requiring maintenance now and in future 8,000 20% Shop visits > Growing aftermarket driven by: 6,000 15% – increased shop visits an
Slide 14: Strong demand for continually growing fleet
13 Strong demand for continually growing fleet Number of aircraft 46,560 > >40,000 new deliveries expected over next 20 years, mostly with current engine programmes New deliveries – GTF, LEAP, XWB, GEnx > Significant portion of current fleet need to fly for many years to come – V2500, CFM56, CF6, T7
Slide 15: Multiple business models provide a balanced portfolio
14 Multiple business models provide a balanced portfolio Sales Sales Sales Sales 55% 10% 10% 25% Civil RRSP partnerships Government partnerships Repairs Commercial contracts Provides entitlement to Unique, system-level capability Significant growth opportunity Balances profile of portfolio and after
Slide 16: Key customers per business model
15 Key customers per business model Sales Sales Sales Sales 55% 10% 10% 25% Civil RRSP partnerships Government partnerships Repairs Commercial contracts +500 airlines and MRO shops Independent partner with all major engine OEMs
Slide 17: Example of our partnership legacy – life cycle ownership
16 Example of our partnership legacy – life cycle ownership T900 GEnx-1B GEnx-2B TXWB BR715 PW1500G/PW1900G PW1100G/PW1400G GP7000 next-generation Make-to-print Design assist/Make Design/Make Technology/Design/Make 1940 1960 1980 2000 2020 2040 VINCI VULCAIN 2.1 RM8 VULCAIN 1 (Ariane 6) DR990 LMS100
Slide 18: Partnership entitlement
17 Partnership entitlement Sales of one engine > Engines typically sold to the customer by the OEM at lower or even Exclusive to breakeven margin OEM/Partners > OEM recoup investment in the aftermarket phase Spares premium/ service agreements > Aftermarket service agreements exclusive to OEMs and th
Slide 19: RRSPs entering 'sweet spot'
18 RRSPs entering ‘sweet spot’ Scheduled shop visit activity for key GKN RRSP engines1 Before first 1 shop visit 2+ shop visits shop visit complete complete Significant shop visits ahead CFM56 47% 27% 26% > Aftermarket profits are made through shop visits and flight hour V2500 30% 35% 35% compensati
Slide 20: Way of working - business areas
19 Way of working - business areas
Slide 21: Engines business overview
20 Engines business overview Business models Civil RRSP partnerships Government partnerships Repairs Commercial contracts Business areas Material solutions OE product solutions Repair solutions Governmental solutions
Slide 22: Desired alternatives to large castings and forgings
21 Desired alternatives to large castings and forgings Conventional Transformational capability Casting – Production starts with large castings and GKN forgings production Forging Additive fabrication Casting – Multiple smaller parts are combined into a more complex lighter component – Built on deca
Slide 23: 20+ years of additive fabrication technology coming to fruition
22 20+ years of additive fabrication technology coming to fruition 2000 - 2015 2005 - 2015 2015 - 2023 Research phase Start of production + Multiple complex Start of production on on simple applications demonstrators ‘load-bearing’ structures > First Laser Metal Deposition (LMD) cell > First launch
Slide 24: Engines business overview
23 Engines business overview Business models Civil RRSP partnerships Government partnerships Repairs Commercial contracts Business areas Material solutions OE product solutions Repair solutions Governmental solutions
Slide 25: Civil product offerings powering 90% of the fleet
24 Civil product offerings powering 90% of the fleet Narrowbody / Regional Widebody AE3007 Trent 700 LEAP-1B Trent 7000 GP7000 GKN CF34 GE90 RRSP Trent 1000 PW1900G GKN OE Content PW2000 CFM56-5/-7 PW4000- PW1500G 94/100 CF6-80 No GKN PW1100G-JM PW4000-112 content Trent V2500 500/900 GEnx Trent XWB-
Slide 26: Technology driven product specialisation
25 Technology driven product specialisation Parts typically last life of Turbine cases > Customer aligned product offerings engine Fan cases > Focus on design/make with unique manufacturing IP > Both civil & military product offerings > Mainly structural parts designed to last Rear engine the life o
Slide 27: OE product centres
26 OE product centres Shafts Newington Kongsberg Small/medium cases Metallic fan cases Vanes Trollhättan Fabricated structures N. Charlestown Unbladed rotors Blades Large cases Muncie Forgings El Cajon Military ducts Cromwell Composite fan cases Mexicali Internal supply
Slide 28: Engines business overview
27 Engines business overview Business models Civil RRSP partnerships Government partnerships Repairs Commercial contracts Business areas Material solutions OE product solutions Repair solutions Governmental solutions
Slide 29: Outstanding growth opportunity in parts repair
28 Outstanding growth opportunity in parts repair Projected engines shop visits1 Highlights 7,000 10% CAGR > Shop visits are growing rapidly, driven by flight hour recovery 6,000 > OEMs keen to develop cost effective repair capability 5,000 (versus replacement) as they are responsible for maintenanc
Slide 30: A certified global repair capability today
29 A certified global repair capability today GKN Aerospace repair portfolio GKN Aerospace repair sales1 GKN Aerospace unique capability 10% Asia > 80+ years in repair business GKN Engines sales > 3 sites globally (one new since 2022) > Certifications from EASA2, FAA2, CAAC2, North and key OEMs (2+
Slide 31: Expanding repair capacity, capability and portfolio
30 Expanding repair capacity, capability and portfolio Footprint expansion Portfolio expansion Revenue growth Expanded Parts Market share Sweden 2021 2x 10,000 m2 ~£100m Fan blades ~40% Fan disks <10% Moving to 2023 2025 Cases and Structures <10% new site US 2024 15,000 m2 Composite parts <10% Blisk
Slide 32: Engines business overview
31 Engines business overview Business models Civil RRSP partnerships Government partnerships Repairs Commercial contracts Business areas Material solutions OE product solutions Repair solutions Governmental solutions
Slide 33: 90-year strategic relationship with the Swedish Air Force
32 90-year strategic relationship with the Swedish Air Force ‘OEM-level’ scope of responsibility > Research and technology leadership > Demonstrators > Design / Product developments > Systems engineering > Production > Engine testing > Upgrades > Product support / Aftermarket / Life tracking system
Slide 34: Potential for additional combat air support
33 Potential for additional combat air support > Swedish authorities are working on a potential combat air support package including information and training on the Gripen C/D system > In October 2023, as part of a wider range of Swedish military support for Ukraine, the Swedish government presented
Slide 35: Full engine capability
34 Full engine capability RM12 / Gripen C/D RM16 / Gripen E Future Combat Air System 1980 2022
Slide 36: Truly diverse technology-driven, class-leading business
35 Truly diverse technology-driven, class-leading business Material OE product Repair Governmental solutions solutions solutions solutions Our full engine understanding and capabilities gives us a competitive 1 OEM-level capability edge from design for manufacturing to improving performance of our c