Melrose Industries Plc · LSE:MRO
Melrose Industries — FY2011 Earnings Presentation
42 slides from Melrose Industries's earnings presentation, March 2012
Slide 1: Melrose PLC Full Year Results Announcement
Buy Improve Sell Strictly private and confidential Melrose PLC Full Year Results Announcement Twelve months to 31 December 2011 March 2012
Slide 2: Contents
Contents Sections 1 Highlights 2 Summary financial results 3 Investment case 4 Summary of operating divisions 5 Energy 6 Lifting 7 Other Industrial 8 Questions 9 Appendices Buy Improve Sell 2
Slide 3: Highlights
Buy Improve Sell Highlights 3
Slide 4: Highlights in 2011
Highlights in 2011 Businesses performing strongly ‒ Sales, orders, profits and margins are all up ‒ Investment phase well underway ‒ Raw material cost increases recovered More to go for in all businesses Since flotation in 2003 c.£1.5 billion of shareholder value created Dynacast sold and pr
Slide 5: Summary financial results
Buy Improve Sell Summary financial results 5
Slide 6: Summary financial results: Income performance
Buy Improve Sell Summary financial results Income performance 6
Slide 7: Income Statement significant growth in all areas
Income Statement significant growth in all areas 2011 headline¹ growth 2011 statutory format Reported 2011 2010² growth Continuing operations Headline¹ Other Total Revenue (£m) 1,153.9 - 1,153.9 Revenue (£m) 1,153.9 1,035.4 +11% Operating profit/(loss) (£m) 180.8 (63.8) 117.0 Order intake (£m) 1,2
Slide 8: Revenue growth accelerating
Revenue growth accelerating 2011 summary performance Group revenue growth – year on year Reported 2011 growth +14% Revenue (£m) 1,153.9 +11% +11% +9% Order intake (£m) 1,212.6 +22% Headline¹ operating profit (£m) 180.8 +23% Headline¹ operating margin 15.7% +1.5ppts Headline¹ profit before tax (£m) 1
Slide 9: Strong order intake signalling confidence for the future
Strong order intake signalling confidence for the future 2011 summary performance Order intake growth – year on year Reported 2011 growth +37% Revenue (£m) 1,153.9 +11% Order Orderintake intake(£m) (£m) 1,212.6 +22% +22% +21% Headline¹ operating profit (£m) 180.8 +23% Headline¹ operating margin 15.7
Slide 10: Headline operating margin continues to grow
Headline¹ operating margin continues to grow 2011 summary performance Headline¹ operating margin Reported 2011 growth 15.9% 15.5% Revenue (£m) 1,153.9 +11% 14.2% Order intake (£m) 1,212.6 +22% Headline¹ operating profit (£m) 180.8 +23% Headline¹ Headline¹ operating operating margin margin 15.7% 15.7
Slide 11: Headline earnings per share (EPS) at record levels
Headline¹ earnings per share (EPS) at record levels 2011 summary performance 2011 headline¹ diluted EPS growth Reported 2011 growth +36% Revenue (£m) 1,153.9 +11% Order intake (£m) 1,212.6 +22% +20% Headline¹ operating profit (£m) 180.8 +23% Headline¹ operating margin 15.7% +1.5ppts Headline¹ profit
Slide 12: Summary financial results: Cash performance
Buy Improve Sell Summary financial results Cash performance 12
Slide 13: Profit conversion to cash strong, working capital efficient
Profit conversion to cash strong, working capital efficient Cash generated from trading (after all costs including tax) 2011 headline¹ EBITDA³ conversion to cash (pre capex) Last 12 months (£m) Headline¹ operating profit 180.8 102% Depreciation² 23.1 74% Working capital movement (23.3) Headline¹ ope
Slide 14: Investing in the future
Investing in the future Cash generated from trading (after all costs including tax) Increasing investment ratios (capex to depreciation²) Last 12 months (£m) 1.9x Headline¹ operating profit 180.8 1.5x Depreciation² 23.1 1.4x Working capital movement (23.3) Headline¹ operating cash flow (pre capex) 1
Slide 15: Summary financial results: Balance Sheet
Buy Improve Sell Summary financial results Balance Sheet 15
Slide 16: Provision and tax movements – five exceptional movements
Provision and tax movements – five exceptional movements 2011 Balance Sheet position Provisions – three exceptional movements 31 Dec 2011 31 Dec 2010 (£m) (£m) Net restructuring £11m Fixed assets, intangible assets and goodwill 1,121 1,435 Net working capital 145 116 Increase in legal provision £21m
Slide 17: Leverage stable despite repaying 100% of Dynacast proceeds
Leverage¹ stable despite repaying 100% of Dynacast proceeds 2011 Balance Sheet position Leverage¹ ratio remains low (despite selling 25% of the Group and returning all proceeds to shareholders) 31 Dec 2011 31 Dec 2010 (£m) (£m) Fixed assets, intangible assets and goodwill 1,121 1,435 2.7x Net workin
Slide 18: Refinancing and shareholder rewards
Buy Improve Sell Summary financial results Refinancing and shareholder rewards 18
Slide 19: Refinancing to 2016 complete – cheaper debt than previously
Refinancing to 2016 complete – cheaper debt than previously 10 banks – shows confidence Revolving credit facility - £600m Reduction in cost of debt (* New to Group) c.3% Old interest rate Barclays Euros HSBC 8% Sterling JP Morgan 25% Lloyds RBS US $ £600m Royal Bank of Canada* 35% Santander BAML ICB
Slide 20: Significant cash rewards for shareholders
Significant cash rewards for shareholders Dynacast and McKechnie case study Total net cash return to shareholders over the life of Melrose Raised Repaid (£m) (£m) (£m) Acquired for (£200m debt and £244m equity) (444) Initial cash raised (Oct 03) (13) Net cash realised during ownership (post tax) 157
Slide 21: Investment case
Buy Improve Sell Investment case 21
Slide 22: Strong end markets and ready for next acquisition
Strong end markets and ready for next acquisition Buy Improve Sell Good manufacturing businesses Change management focus Commercially choose the right underperforming their potential (incentivise well) time to sell, often between 3 - 5 years but flexible Use public market leverage Set stra
Slide 23: Summary of operating divisions
Buy Improve Sell Summary of operating divisions Energy Lifting Other Industrial 23
Slide 24: Energy
Energy 75% of Energy “World number one independent supplier of turbogenerators” 30% of www.brush.eu Melrose 25% of Energy “Global manufacturer of electrical rotating machines, always a step ahead” 10% of www.marellimotori.com Melrose 24
Slide 25: Energy division
Marelli 25% Energy division Brush turbogenerators 75% Energy – headline¹ results Full year Second half (£m) FY 2011 FY 2010 2011 v 2010 HY2 2011 HY2 2010 2011 v 2010 Revenue 461.6 427.5 +8% 245.8 223.3 +10% Order intake 502.0 367.6 +37% 268.3 193.3 +39% Headline¹ EBITDA² 99.0 81.7 +21% 53.3 43.8 +22
Slide 26: Lifting
Lifting 53% of Lifting “Global technology leaders in the manufacture of wire and wire rope” 22% of www.bridon.com Melrose 43% of Lifting “World leading manufacturer of lifting products” 18% of www.thecrosbygroup.com Melrose 4% of Lifting “Industry leader in material handling” 2% of www.accomhs.com M
Slide 27: Lifting division
Acco 4% Lifting division Crosby 43% Bridon 53% Lifting – headline¹ results Full year Second half (£m) FY 2011 FY 2010 2011 v 2010 HY2 2011 HY2 2010 2011 v 2010 Revenue 484.4 422.7 +15% 246.5 210.5 +17% Order intake 506.1 417.7 +21% 262.4 210.6 +25% Headline¹ EBITDA² 91.4 76.1 +20% 46.6 36.5 +28% Hea
Slide 28: Other Industrial
Other Industrial 36% of Other Industrial “Industry leader in the design and manufacture of quality operating hardware” 7% of Melrose www.truth.com 39% of Other Industrial “One of Europe’s leading manufacturers of engineered plastic assemblies” 7% of www.mckechnie-plastics.co.uk Melrose 25% of Other
Slide 29: Other Industrial division
Harris 25% Other Industrial division Truth 36% MPC 39% Other Industrial – headline¹ results Full year Second half (£m) FY 2011 FY 2010 2011 v 2010 HY2 2011 HY2 2010 2011 v 2010 Revenue 207.9 185.2 +12% 110.8 97.3 +14% Order intake 204.5 206.0 -1% 106.7 101.5 +5% Headline¹ EBITDA² 28.9 27.7 +4% 14.7
Slide 30: Key 2011 highlights
Key 2011 highlights Investment in capacity New product development Restructuring of HMA (Holland) Development of aftermarket and GMS New 5 year contract with GE Very strong order book Switchgear restructured New CEO appointed Increased European capacity Investment underway Stro
Slide 31: Questions
Buy Improve Sell Questions 31
Slide 32: Appendices
Buy Improve Sell Appendices 32
Slide 33: A – track record
Buy Improve Sell Appendices A – track record 33
Slide 34: Our track record for operational improvement
Our track record for operational improvement Revenue growth (compound) Operating margin¹ improvement Cash generation 16% McKechnie³ Dynacast4 24% +6ppts FKI 110% 18% 16% +5ppts 6% 15%7 +5ppts 11% Average6 headline5 operating 10%² profit conversion to cash (pre capex) Dynacast McKechnie Entry Exit/
Slide 35: Our track record for a shareholder
Our track record for a shareholder … even through a downturn Earnings and dividends per share Total shareholder return2 Acquisition equity increase EPS¹ (p) Source: Datastream DPS (p) 28.8 Melrose 31% FTSE 350 3.2x 24.1 2.5x 21% 21% 16.3 13.0 11.0 7.7 8% 6% 5% 2009 2010 2011 Start of Melrose McKec
Slide 36: B – financials
Buy Improve Sell Appendix B – financials Appendices B – financials 36
Slide 37: Exchange rates
Exchange rates 2011 2010 US Dollar Euro US Dollar Euro Average rates 1.60 1.15 1.55 1.17 Closing rates 1.55 1.20 1.56 1.16 Buy Improve Sell 37
Slide 38: Net exceptional items
Net exceptional items Net exceptional costs and intangible asset amortisation Non cash Total Full year 2011 (£m) Cash costs costs Total Tax net of tax Increase in legal provision (21.0) - (21.0) 5.3 (15.7) Restructuring costs (14.1) (1.8) (15.9) 2.3 (13.6) Acquisitions and disposals of businesses (3
Slide 39: Recovery of commodity costs from customers
Recovery of commodity costs from customers Material and energy costs and as a percentage of revenue Group Energy Lifting Other Industrial % of % of % of % of (£m) (£m) (£m) (£m) revenue revenue revenue revenue Revenue 1,153.9 461.6 484.4 207.9 Key commodity Copper 27.7 2.4% 27.2 5.9% - - 0.5 0.2% Zi
Slide 40: Pensions – strategy being implemented when commercially opportune
Pensions – strategy being implemented when commercially opportune 2011 Balance Sheet position Pensions – (UK and US DB schemes all closed) 31 Dec 2011 31 Dec 2010 Annual cash 31 Dec 2011 (£m) (£m) payments Assets Liabilities Deficit (£m) (£m) (£m) (£m) Fixed assets, intangible assets and goodwill 1,
Slide 41: Pensions being managed – FKI UK DB Plan
Pensions being managed – FKI UK DB Plan FKI UK defined benefit pension plan Annual cash Liabilities Deficit Asset split – FKI UK DB plan Status payments (£m) (£m) FKI UK defined benefit plan Now closed 18.5 (680) (79)* 4 1 Equities 31% 1 Percentage of market cap¹ gross of tax 51% 6% 3 2 Gilts 35% 3
Slide 42: Disposal of businesses
Disposal of businesses Disposed businesses 2011 Proceeds revenue EBITDA¹ Business (£m) (£m) multiple Comments Dynacast 366.5 164.0 7.4x² Transferred £19m of gross pension liabilities to buyer Brush Traction 18.8 5.4 3.7x Transferred over £100m of parent guarantees to buyer Logistex UK - 1.6 n/a Tran